Why builder insolvencies increased after 2020

Construction company failures rose from 1,284 in FY2021-22 to 3,596 in FY2024-25, a 180% increase in three years. Construction remained the single largest industry for insolvency appointments and accounted for 24% of all appointments in the first eight months of 2025-26.

The surge was not a simple post-pandemic catch-up. It was the result of a chain reaction: a demand boom, a materials cost shock, fixed-price contracts that locked in prices before costs rose, and a cash-flow squeeze that took years to force companies into formal administration.

Construction insolvencies rose faster than industry growth

The clearest way to understand the post-2020 increase in insolvencies is to compare company failures with the size of the industry itself. The ABS counted 462,939 actively trading construction businesses at 30 June 2025, up just 2.2% year-on-year. Over the same period, Australian Securities and Investments Commission (ASIC) first-time external administrations in construction rose far more quickly, meaning failures significantly outpaced industry growth.

Across all industries, administrations increased from 4,912 in FY2021–22 to 14,722 in FY2024–25. ASIC reported the overall share of companies entering administration reached 0.41% in FY2024–25, up from 0.33% the year before. Construction accounted for much of that increase, representing 24% of all appointments in the first eight months of FY2025–26.

Between FY2021–22 and FY2024–25, construction services insolvencies rose 197%, residential building construction insolvencies increased 157%, and insolvencies across the full construction division rose 180%. The increase extended well beyond large builders and moved through the broader subcontracting chain.

Between FY2021-22 and FY2024-25, construction services failures rose 197%, residential building construction rose 157%, and the full construction division rose 180%. The insolvency wave moved through the entire subcontracting chain, not just large builders.

HomeBuilder and low interest rates drove a demand boom

The rise in insolvencies followed an earlier increase in residential construction demand. The federal government introduced the HomeBuilder grant during the pandemic, while interest rates were at historic lows and more households were seeking detached homes. Together, these factors helped drive a sharp increase in new house approvals, which peaked in March 2021.

That surge quickly filled builders' order books. Build queues lengthened, labour demand tightened, and builders became exposed when costs rose on projects already priced.

Demand softened through 2022 as government incentives wound down, interest rates rose, affordability weakened, and build times lengthened.

Fixed-price contracts and how rising costs became losses

The most important structural pressure in residential construction was the use of fixed-price contracts. Builders usually agree to a price up front, and that price cannot easily be renegotiated if costs rise during construction.

In normal conditions, this is manageable. But when material costs rose sharply from early 2021, thousands of projects were already underway at earlier prices. Longer build times also increased the gap between progress payments, reducing cash flow while costs continued to build.

Key events in the cost-and-insolvency cycle

Sources: ABS PPI (Cat. 6427.0); ASIC Series 1 and 2; RBA Financial Stability Review, October 2022.

How cash-flow pressure pushed builders into insolvency

Cost increases on fixed-price contracts do not usually appear as insolvencies straight away. They tend to appear first as cash-flow pressure. A builder losing money on a project still has to keep the site running, pay subcontractors, meet payroll and service debt. Losses can build while the company continues trading.

The RBA's 2022 review found that builders typically had liquidity buffers of less than three months of turnover. This was roughly 25% lower than comparably sized businesses in other industries. Around 40% of the median builder's liabilities were short-term unsecured trade credit, which was approximately double the share recorded by other businesses.

By FY2024–25, non-payment of PAYG withholding, superannuation guarantee, and GST appeared as an indicator in 83.2% of construction reports alleging insolvent trading. The share of construction insolvency reports where a company was assessed as having become insolvent more than two years before formal appointment also rose from 33.1% in FY2020–21 to 55.1% in FY2024–25.

Why construction insolvencies remained elevated after material costs peaked

Construction insolvency appointments continued rising into FY2024–25 even after material inflation slowed. By then, financial pressure had broadened beyond material costs to include labour expenses, higher interest rates, weaker trading conditions and renewed tax enforcement activity.

This shows the pressure was no longer just about material costs. By then, several other factors were weighing on the sector, including the end of pandemic support, weaker trading conditions as the economy slowed, and the ATO restarting enforcement on unpaid tax debts. The pressure was felt most strongly by construction firms and property developers. At the same time, failures among larger residential builders were starting to ease.

• ATO enforcement resumed in January 2024. After a pandemic-era pause, the ATO began referring outstanding debts to external collectors. Total collectable ATO debt grew 5.2% in FY2023-24 and a further 2.8% in FY2024-25. For construction businesses that had deferred PAYG withholding, superannuation and GST obligations through the crisis, this represented a new and immediate catalyst for formal administration on top of existing trading difficulties.
• Labour costs remained elevated at 4.2% p.a. Building-construction output prices were still rising at 4.2% annually to March 2026, with labour cited as a key ongoing driver by the ABS. Unlike materials, which are globally traded and subject to international price signals, wages in a domestic trade-shortage environment are stickier and less responsive to reduced activity levels.
• Finance costs rose approximately 300 basis points. The rate-hiking cycle from May 2022 lifted borrowing costs sharply for both builders and the developers who commission their work. Development projects financially viable at 2021 borrowing rates became unviable after rates rose. Lenders requiring pre-sales on apartment projects found buyers reluctant to commit, constraining supply and concentrating risk among mid-rise developers.

Small business restructuring became a pressure release

Not every distressed construction company went straight into liquidation. From 2021, ASIC's small business restructuring process gave eligible companies a way to restructure debts while remaining under director control.

Of the restructuring plans sent to creditors, 87% were approved. Of the plans completed by 30 June 2024, 89.4% of companies remained registered. This means the post-2020 period should be read as both an insolvency cycle and a restructuring cycle, with sector-wide balance-sheet repair taking place alongside company failures.

How builder insolvency affects new home projects

With 3,596 construction companies entering external administration in FY2024–25, and insolvency rates well above pre-pandemic levels, the risk of a builder failing mid-project has increased compared with five years ago.

About the data

The ASIC broad construction division includes builders, subcontractors and other construction firms. This article separately compiles the residential building construction group from ASIC's detailed Series 1 dataset, but cause-of-failure tables are only available at the broader construction industry level.

ASIC Series 3.2 is based on initial external administrators' and receivers' reports, not the company-count insolvency series. Multiple causes can be nominated in each report. Those tables are best read as evidence on the character of failures, not as a count of failed companies.

The cleanest builder-specific company-count series in the current ASIC detailed workbook runs from FY2021-22 onward. Rebuilding a fully consistent long-run residential-builder series would require additional extraction from older ASIC files.

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