This week five years ago the first case of COVID-19 was reported in Australia.

It set off a chain reaction through the building industry which brought down some of the best and brightest, while many others carry the scars of those tumultuous times.

The basics of this story are familiar to many of you, but to set the scene: 

In early 2020 SEQ was enjoying a balanced market, there was plenty of registered land, the price of building materials was steady, interest rates were low and for buyers the dream of owning their own home was achievable. It was a strong, stable building industry. 

Buyers could find good land from between $200,000 – $350,000, and the average 200 sqm, single story, 4 bedroom home cost less $250,000. 

As COVID-19 mania swept the nation, the first national lockdown in March 2020 saw fear shoot through the construction industry as a spate of clients cancelled contracts, and the phones stopped ringing.

Yet the leads only dried up for a matter of 3 – 4 weeks, as buyers soon realised the world wasn’t ending, and there were whispers about significant government stimulus.  Few had any foresight on the cyclone that would soon be unleashed on the industry.

The Federal Government’s HomeBuilder program was launched on June 4, 2020. 

The program provided $25,000 tax-free grants to eligible homeowners and first-time buyers to build new homes or renovate existing properties. Combined with the existing $15,000 State First Homebuyers Grant, someone buying their first place would receive $40,000 in deposit funds.

Add to this a record low cash rate at .25%, and the ability for buyers to withdraw up to $20,000 of their superannuation from April 2020, it was the perfect storm to send demand beyond levels the industry had yet seen. 

The HomeBuilder Grant, as a stimulus, was a quadruple shot of caffeine when a single shot would have probably got the job done.

It was this century’s equivalent of a gold rush, a stampede of builders trying to stake their claim. 

By late 2020, land was sold out across the State, and developers had people camping outside their sales offices to secure a block. 

Builders monthly sales doubled and tripled and they simply couldn’t keep up. 

Yet by March 2021, there were the first signs of trouble.

Finding concreters to lay a slab became a job in itself – and others materials quickly followed. 

The cost of timber frames increased by up to 80%, if they could be sourced at all. Builders turned to steel frames, but they became difficult to source as well.

Windows, colorbond roofs, even bathtubs. They all followed. 

A combination of domestic and international demand pushed up prices seemingly weekly, with builders scared to open the latest emails from suppliers.  

Cost of wages also soared, the prime example being brickies who asked $1.30 a face brick in 2020, wouldn’t take less than $3 a brick not 12 months later. 

As land prices started to soar in late 2020, land developers were rushing their DA’s into local councils across Queensland, and soon civil contractors were completely swamped. 

As they ran out of resources, most land developments were delayed, and registration times were pushed out. 

The councils couldn’t cope either as they tried to work through record DA, op works and building applications. 

Every month that land was delayed coming to market, the cost of building would increase another 2 – 3%, and if a fixed price build contract had already been signed, the cash-flow forecast started to look dire.

It was wave after wave of challenges. The industry could survive any one of them individually, but combined they turned into a tsunami which threatened to wipe it out.

By the middle of 2021, a year after the stimulus package was introduced many builders with fixed price contracts faced two grim choices – deliver on their fixed priced contracts and go broke, or go back to the buyers and beg for understanding and adjustments to the price.

Many good builders drowned in their debt, while many others barely managed to stay afloat. We talk to survivors to find out what happened to them, what they did to navigate such tricky waters, find out what lessons they learnt, and how they are looking now.

Simon Curtis – GJ Gardner Homes – Chief Operating Officer for New South Wales and Western Australia when COVID hit

How was the business going in the lead up to COVID?

The 2019 market was similar to how it is now, we weren’t shooting the lights out but it was bubbling along quite well, everyone was fairly upbeat and positive.

How quickly did life change for your business?

Within the space of a month it became a very big thing. I distinctly remember the time we sent out a note to all of our 34 franchisees and said everyone will be on a zoom call within the next 48 hours and we had every single one of them on a zoom call and we said to them we need to start acting now. 

As a franchise network we’re able to act relatively quickly and we said to everyone, first things first, we want everyone to update their cash flow to the point of every deposit you have will no longer proceed. Every job you have under construction it’s highly likely that it will stop. Our first forecasts predicted we would have no cash flow within six weeks.

We had tears on the call, I distinctly remember seeing wives of the business owners in tears. We were talking about making immediate cuts to staffing and overheads and talking to your landlord. We went straight for what was the worst case scenario and it was incredibly confronting.

How did you deal with it?

It was really interesting to talk people who were saying I’m thinking of cutting my mark-up to try and win business, and we said absolutely not. They were told you’re not to adjust anything to try and win business. And that for us was probably one of the big things that we did. We held the group to a mark-up, and that probably held us up well financially for the group, we didn’t lose anyone during COVID.

Matt Hope (Master Franchisee at the time), was instrumental in strategic thinking during this time and provided incredible support to the group. They weren’t chasing business which was the attitude of quite a lot of builders in those very early days when the stimulus started, and they didn’t know it was going to be as big as it was, and they discounted to win that work,  whereas we were adamant we weren’t going to do the same.

How did you cope with building materials increases?

The beauty of a franchise network you know we have pretty quick communications when prices start to move or supply starts to change and again you know we’re able to get all of the franchisees on a zoom call start discussing the challenges we were facing both price and supply and make immediate changes to how we contracted, specifically
using the contract to allow us to escalate price as materials escalated.  And we had a long conversation about having courageous conversations with your customers but now it’s not the time to be absorbing costs. Now is the time to be having conversations with the customers about what is happening and the fact I need to pass on these cost increases and thankfully the group adopted that.

Incredibly stressful and our builders were very confronted by that because they wanted to do the right thing by that customer and hold contract prices, but we financially couldn’t, it was not something that could be done.

What were the top three lessons you learnt from the COVID experience?

• Use modelling and forecasting as a group to make decisions to act quickly. You can’t wait in those set of circumstances.
• Look forward. That was our job as a state office was to look forward to what may be coming in the next 3, 6, 12 months and provide advice to the group on what that might be, whether that’s supply or price trade. 
• Stay connected. Mental health was a thing.  The impact of mental health across the group during that period was significant. Offering services regularly, catching up, not talking about just business on zoom but having conversations to let people know we’re all in it together you’re not on your own. Support is here for you.

Peter Nastrom, Managing Director at Ultra Living Homes

How was the business going in the lead up to COVID?

We were four years young, and we were growing year on year. So it was seeming very positive. When the calendar turned over to 2020 we were expecting a solid year.

How quickly did life change for your business once COVID hit?

Within 24 hours, we started having customers emailing in cancelling contracts, cancelling their intent to proceed to contract. It all happened literally after Scott Morrison made that first announcement that all the pubs and clubs were going to be closed, and urging everyone to come back from international travel. Straight away we had customers canceling a huge forward pipeline of work.

How did you deal with it?

It was very much a fluid moment where we tried to avoid panicking tried to lean into the remaining customers we hadn’t heard from to try and get an understanding of how they were feeling. Not everybody cancelled. A lot continued to proceed. They felt like they had stable jobs, and they weren’t so concerned. We just had to adapt and just sort of brace ourselves.

It’s important to remember in 2020, from March through June the business was innovating itself to establish how we find customers when display homes were closed and open by appointment only. That was very challenging, but I feel like our team came together and we came up with some great solutions to try and attract customers and get them to commit to appointments. Then the Homebuilder grant was announced, and suddenly every builder’s blessings were met, and we all started writing a huge amount of business in the next six months. And we, along with every other builder didn’t think we were biting off more than we could chew, but, on reflection, we definitely bit off more than we could chew.

How did you cope with building materials increases?

That was when the supply chain started to really show its weaknesses. We started ramping our prices really hard and fast just in anticipation. We couldn’t weather a three or four grand increase on one product line, we were used to that sort of increase happening over a 12 month period, not happening within a week and with the prospect of more. We averaged a price increase to our customers around once a month. 

I feel like I’ve still got PTSD from COVID, having to sort of personally sit down with so many dozens of customers, just telling them about contract price increases and just dealing with the blowback from that, where they felt like we were just trying to profiteer and trying to get more money. And just the constant fear of more price increases coming, and what that meant from a financial point of view, definitely challenging. 

What were the top three lessons you learned from the COVID experience?

• Really understanding your numbers and really placing a huge amount of importance on understanding the finances of the business.
• Really leaning into the relationships that you build over time, because COVID would have been so much more punishing to us had we not been so loyal in our first four years of business. So we really leaned into a lot of relationships, and that helped with a lot of our suppliers.
• Leaning into our team more, because it was such a challenging time to deal with a lot of customer frustration, and dealing with frustration from trades and suppliers. I think we just really lent into our team more, chats about making sure they’re traveling okay, because there’s only so much adversity that employees like to face before they tend to look to where the grass might be greener on the other side.

We would love to hear your experience of this time, what you learnt and the impact it had on you. 

Author: Richard O'Leary

Experienced writer, commentator and political advisor, Richard held a raft of journalism and editorial roles before taking executive communication roles for multiple Premiers, Chief Ministers and even NBN Co. He grew up in his father’s construction business and joins The Good Builder as its founding Editor.