Construction crunch: More building firms fail, property downturn leaves homeowners in the lurch

New Zealand’s construction crunch may begin to snowball, with more building businesses expected to fail, leaving homeowners in the lurch.

The latest to cease trading is Bayside Designer Homes, leaving nine Auckland housing sites unfinished at Milford, Beach Haven, Hobsonville, Castor Bay, Mt Roskill, Massey, Rothesay Bay, Sunnyvale and Papakura.

Former television presenter Ingrid Hipkiss and partner Jack Tarrant were creditors with Bayside Designer Homes along with eight other parties who were all named in a report on the failed business for having homes under construction.

Hipkiss was disappointed about the situation and said that her new Three Kings home was liveable but unfinished.

Another client has a $2.5million house contract, yet after 12 months, only has a demolished home and “a hole in the ground” to show for Bayside’s work.

Damien Grant of insolvency practitioners Waterstone found builders were at the top of failed ventures in the first two months of the year, well ahead of food and hospitality liquidations.

Waterstones studied which businesses had the greatest failure in January and February this year.

“Building and construction liquidation numbers lead the pack over other industries, making up nearly a third of the total liquidations for January and February 2023,” Grant said in a newsletter out this month.

“This is likely a result of the cooling property market and we may see this ratio continue to grow in the upcoming months.”

Consumer NZ said customers can be left high and dry when builders fail.

“Unfortunately, if a company becomes insolvent then as a customer there is not much you can do.

“In this situation you, the customer, become an unsecured creditor and all you can do is register your interest with the liquidator or receiver if one is appointed.”

Consumer NZ advised people to see whether they’re covered by a building guarantee and what any existing insurance policy will cover.

Former television presenter Ingrid Hipkiss and partner Jack Tarrant were creditors with the failed Bayside Designer Homes. Photo / Chris Gorman

“It is definitely worth seeking legal advice as soon as possible.”

Master Builders chief executive David Kelly said homeowners should remember they are entering into a legal contract.

“They [should] receive good legal advice from a specialist residential construction lawyer from the outset to help protect them in case something does go wrong,” Kelly said.

He said it is a “highly stressful and emotional time” for any homeowner impacted by a construction company going into liquidation.

Kelly also said homeowners should be wary of fixed-price contracts in the current environment, “as with rising material prices, it is tricky to predict how much a build will cost”.

“In a fixed-price contract, homeowners may be paying too much contingency, or too little, which puts the entire build project at risk.”

Master Builders also said that people should buy a building guarantee before a renovation or building project to provide an “efficient process to get a resolution”.

Kelly said neither the Consumer Guarantees Act nor the Building Act provided financial support if someone’s builder went out of business.

Peter Wolfkamp, Newstalk ZB’s resident builder, is worried about the recent string of failures.

He recalled speaking to around 130 builders at a conference a few years ago where he asked people to raise their hands if they had been paid on time for every job and not suffered payment delays.

“Not a single person in the room raised their hand,” he said.

Peter Wolfkamp.

The cost of builder financial failure was high to individuals as well as the sector as a whole.

“I personally don’t know a single person with their own business in construction — builders, plumbers, electricians, drainlayers — who would say ‘I have never had a bad debt’. We’ve all had them.

“Sometimes it arises out of disputes but sometimes it’s just someone being a prick who decides not to pay.

“If you added up the small businesses carrying bad debts, that stops businesses expanding, taking on another staff member or buying new plant or equipment,” Wolfkamp said.

Liquidators were this week also appointed to KBL Joinery, trading for 49 years and with 28 staff, although one sector leader hoped those staff would be kept on by a new buyer of the business.

Last Thursday, M W Residential, trading as Stroud Homes Pukekohe, went under.

Nine contracts had been signed to build new houses, although work was yet to start on some while it was nearly done on others.

JHIM Homes was refused funding in January, so it called in liquidators.

Builders are often having insolvency declared at their own behest, rather than creditors or Inland Revenue appointing liquidators.

Creditors are left claiming many millions of dollars yet with little likelihood of getting a cent.

Those parties are invariably suppliers and subcontractors in the sector, themselves facing rising costs and attempting to recoup those.

Westpac senior economist Satish Ranchhod said construction cost inflation was likely to remain strong for some time and in the past year, the cost of building a new home rose by 14 per cent nationally, but in Auckland was up 17 per cent.

Commerce and Consumer Affairs Minister David Clark said in the 11months to November last year, 283 building companies were liquidated.

Liquidations weren’t always due to insolvencies but could also be due to a company being sold or finishing what it was established to do.