As you watch the ongoing commentary about the Australian residential construction industry, you might find yourself wondering: “How did it get to this point?”
It’s actually not that complicated. Let me break it down.
Builders don’t exactly raise their hands and say, “We’re in financial trouble.” Because if they did, well… that kind of honesty would be a self-fulfilling prophecy. Instead, they’ll keep the illusion alive, paint a rosy picture, and continue taking consumers’ money—until they can’t anymore.
Take the classic line from a CEO: “We are financially sound,” immediately followed by, “We’re focusing on bringing in deposits.” That’s not confidence—that’s desperation in a press release.
And let’s be clear: a 5% sales deposit isn’t going to keep a company with 400+ staff and thousands of homes under construction afloat. That deposit, which is all they’re allowed to take before a contract is signed, gets split. The first slice goes toward drafting plans, variations, soil tests, and surveys. After the contract is signed, they get the rest—once colours, redrafts, and selections are wrapped up.
But builders market that $5,000 deposit as practically risk-free to the customer. Why? Because they know most people won’t walk away. Commitment bias and sunk cost fallacy are powerful psychological tools—and builders use them strategically.
Ever noticed those “limited time offers”? They’re not random. There are only two kinds of specials: time-limited and quantity-limited. Builders have been dangling these carrots for decades because they work.
But here’s the thing—your deposit isn’t free money for the builder. It goes toward actual, necessary work: certifiers, engineers, draftees, estimators, admin staff, contract administrators, schedulers, site supervisors—you get the idea. And once that money is spent (which it is, well before the slab goes down), everything else up to the base stage progress claim is paid out of the builder’s own cash flow.
So until the slab is poured and the base stage claim is made, the builder is covering all costs from their own float. That 5% deposit doesn’t come close to covering the overhead during that time. And yet some still argue that raising the deposit would improve a builder’s financial standing. Spoiler alert: it won’t.
Meanwhile, overheads continue—staff still need to be paid, suppliers want their money, and builders walk a tightrope balancing these obligations while waiting on progress payments from clients. If supply terms tighten (say, from 30 days to 14) while client payments stall, the wheels fall off. Insolvency isn’t far behind.
👉 Read more about progress claims here (QBCC Guide)
👉 More on contractor payment disputes here (QBCC Website)
So how did we get here?
Two big reasons:
- Outsourcing and just-in-time supply chains
Suppliers don’t want to hold stock. It costs money—capital, warehousing, staff. So materials arrive just before they’re needed. Great… until the chain breaks. - A complete lack of innovation from builders
Builders haven’t meaningfully changed how they build—or manage their offices—for decades. Why innovate when timber’s been working fine for 100 years, right? What could possibly go wrong in a global supply crunch?
How builders are trying to cope (and why it’s not working)
Some try to insert rise and fall clauses into contracts—but these aren’t standard in residential building contracts (RBCs). Most are fixed-price, with all the admin-heavy variation claims that go along with that. It’s not impossible to manage, but it does require a contract administrator who actually understands contracts.
Which brings us to prime cost allowances and provisional sums. These give builders wiggle room, but again, they require competence. Provisional sums, for example, must be “reasonably foreseeable”—a concept that’s often poorly understood or flat-out ignored.
Here’s why builders shy away from using these tools:
- They increase admin load. You need actual contract administrators—not glorified data entry clerks.
- Admin is underpaid and underqualified. Many builders rely on what I call the Minimum Viable Employee—good at following a checklist, not so great when things go off-script (like, say, during a global pandemic and housing boom).
- Builders don’t understand cash flow. Many are former chippies or marketers-turned-entrepreneurs who rely on a partner to handle finances. They understand “money in, money out,” but not what it takes to keep things going when progress claims slow and bills keep coming.
It’s not just bad luck—it’s bad planning, bad admin, and bad management.
The result? A house of cards.
The whole setup begins to look like a construction Ponzi scheme—new money pays for old work. When new deposits dry up, the whole thing collapses.
And the worst part? Builders don’t even seem to realise it. Or if they do, they blame everything else—the market, interest rates, the weather—anyone but themselves.
The admin teams that should be steering the ship? They have no site experience. No contract admin training. No clue what their inaction (or action) means for company survival.
"No chain is stronger than its weakest link."
– Critical Chain Theory, probably ignored by your builder.
Builders have prioritised low costs and high marketing spend over actual operational competence. When the supply chain hiccups, their whole process unravels. But instead of learning or adapting, they just… keep going.
They do what they do because it's familiar. They wait for disaster to knock on the door before acting. And when it does? They double down on blame, never introspection.
Marketing > Materials
Too many builders have spent more time crafting flashy brochures than durable houses. If even a fraction of that marketing budget went into staff training, material innovation, or contract systems, maybe they wouldn’t be in this mess.
But instead of a reality check, what we get is:
“The customer won’t pay for it.”
That line is the industry’s favourite scapegoat—and the reason history keeps repeating itself.
Builders will only change when forced to. Just look at the 7-star energy rating requirements—only introduced because regulators made it mandatory.
Self-regulation? Not a chance. The industry's too arrogant, too short-sighted, or too entrenched to act without external pressure.
And the associations?
Don’t hold your breath. Industry associations are made up of the same builders who caused this mess in the first place. They won’t rock the boat—they need those membership dues.
Any government proposal that might improve standards is met with the same tired line:
“It’ll hurt the industry. Prices will go up.”
(Yes, because your margins are so very thin… until it's time to pay for another glossy TV ad campaign.)
The truth? This isn’t about hurting the industry. It’s about fixing it.
So what now?
There is another way. Governments can partner with capable builders and architects to create planned estates—cutting out developers who hoard land to control supply and pricing.
But they’ll need to pay fairly and on time. Otherwise, it’s just more failed builders, fewer homes, and the same mess.
If private builders are unreliable, elevate the constraint. Let governments manage it. At least then we’d have a shot at systemic change.
Final thought
The builders going through hell right now? Maybe it’ll finally be the wake-up call they need. Maybe they’ll invest in systems, staff, and innovation. Maybe they’ll break the loop.
Or maybe not. Maybe they’ll keep walking in circles, dragging the industry with them—trapped in a self-inflicted, long COVID of their own making.
