Western Australia Offers Interest-Free Loans to Struggling Builders

Scott Kuru January 10, 2024 3 min read

KEY POINTS

Western Australia’s state government is providing interest-free loans to builders with cash flow problems so they can complete unfinished home builds
A COVID-19-era boom saw many home builds started in WA and then stall - sometimes for years - as builders encountered supply and labour shortages
WA is facing an unprecedented housing crisis, with rental vacancy rates in Perth at historic lows

Western Australia has thrown struggling builders a lifeline, offering them interest-free loans to help complete unfinished properties and get people affected by delayed construction time frames into their new homes.

In what could be a model for other jurisdictions, the state government is setting up a new $10 million fund, which will see loans of up to $300,000 offered to small and medium-sized builders to complete new homes that have been under construction for more than two years.

Eligible builders will be able to apply for loans of up to $60,000 per home, paid in instalments to stimulate more completions.

"We know that the construction industry has experienced significant labour and material price hikes over the last few years,” State Treasurer Rita Saffioti says.

"This has delayed some residential builders from completing homes as the cost has increased significantly.”

"We have also seen many families building new homes left stranded with incomplete projects and no timeline for delivery.”

"The innovative loan facility will enable builders who have been unable to complete homes under construction for two or more years due to cashflow constraints, to complete these projects,” Ms Saffioti says.

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Image from: Business News

Unprecedented housing crisis

The government’s move is the latest in a suite of measures designed to tackle a severe housing crisis in the booming, resource-rich state, which has seen some of the lowest rental vacancy rates on record in Perth.

But at the same time, problems in the construction industry have led to whole streets in the city’s outer suburbs filled with half-completed homes that have lain dormant for months and sometimes years, as the building industry battles supply and labour shortages.

Many frustrated owners have been forced to continue as tenants in a tight rental market for longer, as their plans to move into their brand-new homes are pushed back again and again.

The government says the loan scheme will be “targeted and measured to help builders complete outstanding projects, as well as prevent further insolvencies, and more homes being left incomplete.”

Industry lifeline

The interest-free loans scheme came from a suggestion by the building industry at a recent emergency housing summit held between the state government, the Housing Industry Association’s WA branch, and other members of the housing and construction industry.

Not surprisingly, the government’s move has been warmly welcomed by industry leaders.

"Skilled labour and cash flow have been builders' biggest challenges over the last 12 months.”

“Implementing the Builders' Support Facility takes steps to support builders who may be suffering cash flow issues to complete homes for their customers,” according to Michael McGowan, Housing Industry Association WA Executive Director.

"When a builder enters administration, the industry and the State suffer.”

“The builder and their family lose everything, trades and suppliers suffer losses, with consumers having to wait to restart the home building process.”

“The Builders' Support Facility will hopefully minimise the number of people that have to go through this process."

Boom and bust

State and Federal Government stimulus grants handed out during the COVID-19 years, combined with record-low interest rates, created a boom in the construction industry.

But with building material supply chains being disrupted and severe labour shortages, thousands of buyers have been waiting for years for their homes to be completed.

The Home Builders Action Group, which represents about 100 struggling builders, says smaller builders and contractors who’d entered into fixed-price building contracts with customers, would generally be able to absorb price increases of 5 to 6%.

But the group’s chairman, Jason Janssen, says during COVID, builders saw prices escalate by an average of 25% annually.

Those difficulties saw over 130 construction businesses based in WA enter administration in the 2022-23 financial year alone, leaving thousands of customers in the lurch.

"Building a new home is a major life event and can be stressful in the best of times,” says WA’s Commerce Minister Sue Ellery.

"We are doing everything we can to support builders to complete unfinished properties, get Western Australians into their new homes, and boost overall housing supply."

The Home Builders Action Group’s Jason Janssen welcomed the loan facility, but he told the ABC the total cap of $10,000,000 was a "drop in the ocean".

"It's probably going to mean about 200 homes getting assistance," he says.

Nevertheless, with problems in the residential construction industry right around the country, it’s a sure bet other state and territory governments will be watching closely to see if WA’s attempts to tackle the backlog of thousands of homes waiting for builders to complete them actually work.