Australia’s largest builder in crisis talks with state government

Australia’s largest building company, Metricon, has denied reports it is facing insolvency or at risk of joining a long line of major builders to go into liquidation.

Executives from the company are meeting with the Victorian Government on Thursday (19 May) to discuss the $195m worth of contracts it has with the state government,

As well as the five-year deal with the state government to build and maintain public housing as part of Victoria’s “big build” infrastructure program, the company has 4,000 residential homes under construction.

The company, formed in Melbourne in 1976, employs 2,500 people and builds homes across Victoria, New South Wales, Queensland and South Australia. 

The company was rocked this week by news of the sudden and unexpected death of its 71-year-old founder and Chief Executive Officer, Mario Biasin.

Long-standing Director and major shareholder Ross Palazzesi has continued with the business as Acting Executive Chair. Current Director and General Manager of Victoria, Peter Langfelder, was appointed Acting CEO.

Mr Langfelder has told media the company’s financial health was not a cause for concern.

“There is simply no basis to these rumours or reason to doubt the company’s financial health,” he said.

“Metricon is a strong, viable business without any solvency problem,” Mr Langfelder said.

Mr Palazzesi expressed his personal grief, as well as that of directors and the Metricon enterprise, in regard to the death of Mr Biasin.

“As friends and colleagues of Mario, we are shocked and so saddened by the news and our hearts and thoughts are with the Biasin family.

“We will ensure Metricon Homes continues all operations and on-site construction as usual during a very emotional time,” Mr Palazzesi said.

The company confirmed Mr Biasin had been experiencing mental health issues.

The Herald Sun on Wednesday reported that Metricon sales staff were being instructed to increase cash flow by securing more deposits.

Industry turmoil

The building industry has been under unprecedented pressure in the past year or so, with a string of high-profile casualties.

Among them have been Probuild, Condev, Dyldam Developments, Hotondo Homes franchise Tasmanian Constructions, ABD Group, BA Murphy, Pindan and Inside Out Construction  and more recently Perth-based companies Home Innovation Builders and New Sensation Homes. High rise builder ABG Group also went into liquidation last year too, as well as Queensland outfit Privium Group.

The rising cost of materials, COVID-19 shutdowns, supply problems and labour shortages had created a perfect storm now battering the construction industry.

The cascade of collapses has prompted calls for a national crisis summit.

Despite the turbulence within the building industry and prospective property buyers confronting rising interest rates and uncertain market conditions, the number of new homes being built and sold has still continued to increase.

Metricon is one of numerous other large-scale homebuilders to have attracted a large amount of work due to the federal government’s homebuilder program, which was designed to prop up the industry during the pandemic.

But builders were exposed to dramatic inflation in the price of materials, as well as continuing delays in obtaining products due to blockages in global and local supply chains.

Tanya Steinbeck, Chief Executive Officer of the Urban Development Institute of Australia in WA, said land sales were being stifled by skills and materials shortages.

“I think we would be seeing higher sales figures if industry was able to deliver more land to the market in a greater variety of locations,” Ms Steinbeck said.

“The industry has been hampered by materials and skills shortages that have constrained the ability to deliver more land to the market,” Ms Steinbeck said.

“If we look at construction levels and the number of lots developers are expecting to deliver to the market in the next 12 months, it is not even close to the activity that was occurring in previous boom cycles,” Ms Steinbeck said.

If Metricon was to stumble, it could not come at a worse time for whichever party wins office in the imminent Federal election.

Both major parties, as well as the Greens and independents, have made housing a central campaign issue, with Labor presenting its shared equity scheme and the Liberals responding with the Super Home Buyer Scheme.

The demand-driven initiatives will be heavily dependent on having builders available to complete the new homes.

No relief in sight

There is little sign of respite for the industry.

Property and construction advisory firm Slattery is predicting a national average of four to eight per cent price escalation over the next twelve months, a distinct increase from its December update that forecasted a three to four per cent increase, thanks to various market pressures.

Smaller markets will continue to struggle to find credible supply chains and subcontractors, Slattery noted, with Tasmania (12-15 per cent) leading the way, Perth (10-15 per cent) close behind, and Brisbane (6 per cent) ranking third.

Slattery Victorian Director Barry Laycock said labour issues and rises in steel and copper prices, as well as lumber shortages, will push up expenses over the next six to twelve months.

“Builders tend to make good money in falling markets where they’ve locked in a price at one level, and then there’s been a cool off in the market,” Mr Laycock said. 

“But what is concerning is that we are at a period from pricing last year or the year before where people were keen to secure pipeline, and they might be now trying to get materials and that cost has increased and that’s putting pressure on contractors’ stability.

“Certainly, the clients we’re talking to are now probably more wary than ever about their financial due diligence on their contracting pool, and it’s tough for the contractors, because they’re required to give a client, let’s say 60 days validity on their price, but the subcontractors are only given 30 days, so, you’ve got this sort of window there where the tender process might drag on.

“And suddenly, the market moves – and it has been moving in very short-term windows.

“And what we’re seeing is that contractors are now starting to carve out specific qualifications around the price of steel, around exchange rates, around timeframes, and we’ve even heard mention of potential rise and fall contracts, which I don’t think anyone’s seen since the late 1980s.”

To try and get in front of cost escalation, Mr Laycock said some contractors are starting to stockpile materials, particularly reinforcing steel, and then they are only subject to labour variances.