Construction sector prepared for 'tragedy' after third La Nina declaration

Construction sector prepared for 'tragedy' after third La Nina declaration | Insurance Business Australia

Construction sector prepared for 'tragedy' after third La Nina declaration

Australian builders are preparing for a worst-case scenario after a third La Nina declaration is expected to result in “tragedy” for companies and communities.

The Australian construction industry is already walking on thin ice, with several companies collapsing this year due to supply chain disruptions, skilled labour shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Craig Delaney, CEO of Melbourne-based construction firm Long Island Homes, noted that builders across Australia saw their profits plummet in the last year – and the latest La Nina warnings could be the final nail in the coffin for the industry.

“The industry has had the proverbial kicked out of us for the last few years, and La Nina is like the icing on the cake,” he told news.com.au. “A lot of guys are going to be worried sick about La Nina, particularly those that don't have the business skills or business acumen, apart from ripping more money out of their mortgages until the good times come back. A lot of guys are shaking their heads and wondering why they are putting themselves through this.

“It's been a nightmare for the industry the past three years, and … La Nina is going to be another nail in the coffin for businesses trying to recover and get on top of things.”

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Another “tragedy” looming involves hundreds of building licenses handed back by young builders who “could not cope” – tearing apart the industry.

“We have seen so many businesses in receivership, and no one wants to see anymore, and we have seen families go through heartache,” Delaney said. “The industry is often maligned that they don't care about their clients, but I see too many builders at Master Builder Association events that are concerned, and they are struggling and want to do the right thing.”

Louis Hanna, a building expert who has been in the industry for more than a decade, added that La Nina could bring a catastrophic impact on the industry that is already in crisis.

“This is what truly sends builders bust as it has a huge effect on cash flow,” Hanna told news.com.au. “For example, a major builder might budget $10 million to come into the business each month based on milestone payments. A month of rain, which we've experienced three times in [NSW in] 2022, could easily result in only $2 million to $3 million coming into cash flow.

“Then builders can't pay trades and suppliers, it then disrupts the supply chain, jobs are put on hold, resulting in further cash flow issues. It's a terrible cycle.”