Author: Brian February 28, 2017

Guest post by Andre Smith

Towards the end of last year a Chinese PhD student was in Australia to research ways construction companies could optimise the way they worked. In the process of doing so, he discovered the biggest risk the entire industry currently faces.

In the end, it was discovered the biggest risk was the construction companies themselves. The reason for this is because they’ve become dinosaurs unable to keep up with the pace we’re progressing at.

It’s not that they’re not capable of changing, but they are simply set in their old ways and don’t see any problems as things currently stand.

Only this week a Queensland building company went into administration with a number of half built houses.

Better understanding is needed in Residential Building Contracts

Builders quote a price for a building which the customer then pays a deposit on.

Some weeks later when the builder carried out his investigations the price may have increased by more than 30%.

This immediately creates a sense of conflict between the builder and the customer.

Let’s use steel sheds as an example.

The customer expects to see a low price.

There are no definitive rules in regards to site specific engineering, so a customer could ask for it to be placed anywhere.

On the top of a hill and there will be extra costs due to high wind forces.

In a valley and there may be soft ground meaning larger and more expensive foundations.

The Residential Market Is Huge

Thanks to nearly two hundred thousand residential dwellings being built it beats out the non-residential market at a rate of nearly two to one.

Customer are pouring around $66 billion per year into the industry so it needs to be efficient.

Building should be a Partnership

When it comes to construction projects, the companies with decades of experience are experts.

They shouldn’t just be quoting a cheap price…….they should be educating their customers to ensure that their customers have a realistic expectation of price.

If they don’t the customer may be over optimistic then run out of money before the house is completed leaving a half built ‘Ghost House’ . . . . with the builder still being owed a substantial amount of cash.

What Is Eventually Going to Happen

With land prices continuing to increase the pressure to build cheaply will remain but the number of people able to afford to build is likely to drop.
It’s been predicted more than half of current residential builders in Australia won’t be able to survive over the next decade, because they’ll not be able to handle less profits.
Builders that survive will need to be able to educate their customers and better manage expectations.