Watching the commentary about the residential construction industry, you might wonder: “How did it get to this point?” It's not that complicated. Let me break it down.
Builders don't put their hands up and say, “We're in financial trouble,” because that honesty would become a self-fulfilling prophecy. Instead, they keep up appearances and keep taking deposits, until they can't.
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.
A 5% deposit isn't going to keep a company with 400+ staff and thousands of homes under construction afloat. In Queensland, the deposit under a signed domestic building contract is capped at 5% for contracts of $20,000 or more (10% under $20,000). Pre-contract work like drafting, soil tests and surveys is usually covered separately, through a preliminary agreement or initial fee, and the deposit is paid once the contract is signed and selections are wrapped up.
Builders often market the initial fee or deposit as practically risk-free. Why? Because they know most people won't walk away once they've started. Commitment bias and the sunk cost fallacy are powerful, and builders use them.
Ever noticed the “limited time offers”? There are only two kinds of specials: time-limited and quantity-limited. Builders have dangled these carrots for decades because they work.
Your deposit isn't free money for the builder. It pays for real work: certifiers, engineers, drafters, estimators, contract administrators, schedulers and supervisors. Once it's spent (well before the slab goes down), everything up to the base stage claim comes out of the builder's own cash flow.
So until the slab is poured and the base stage is claimed, the builder is carrying the costs. A 5% deposit doesn't come close. Some argue raising the deposit cap would fix builders' finances. Spoiler: it won't.
Meanwhile the overheads keep coming: wages, suppliers, subcontractors. If supplier terms tighten (say from 30 days to 14) while client payments slow, the wheels fall off, and 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 lack of innovation from builders
Builders haven't meaningfully changed how they build, or run their offices, in decades. Why innovate when timber has worked fine for 100 years? 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 add rise and fall clauses (letting the price move with material costs), but these aren't standard in residential building contracts. Most are fixed-price, with the admin-heavy variations that come with that. It's manageable, but you need a contract administrator who actually understands contracts.
The same goes for prime cost allowances and provisional sums (allowances for items not yet selected or quantified). They give builders some flexibility, but provisional sums must be reasonably estimated, a concept that's often poorly understood or ignored.
Here’s why builders shy away from using these tools:
- They increase admin load. You need trained contract administrators, not staff set up only for data entry.
- Admin is underpaid and undertrained. Many builders staff these roles to follow a checklist, which works fine until things go off-script (like, say, during a global pandemic and housing boom).
- Builders don’t understand cash flow. Many building businesses grow faster than their financial systems, and the owners often come from the tools or from sales rather than finance. 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 becomes a cash-flow treadmill, where new deposits fund old jobs. When new deposits dry up, the whole thing collapses.
And the worst part? Many builders blame everything else (the market, interest rates, the weather) rather than looking at their own systems.
The admin teams that should be steering the ship often have no site experience, no contract admin training, and little understanding of what their decisions mean for the company's survival.
"No chain is stronger than its weakest link."
– Critical Chain Theory, probably ignored by your builder.
Many builders have prioritised low overheads and big marketing budgets over operational competence. When the supply chain hiccups, the whole process unravels, and instead of adapting, they keep going.
They stick with what's familiar and wait for disaster before acting.
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 tend to change only when forced to. The 7-star energy rating requirement under NCC 2022 is a good example: it only happened because it became mandatory.
Self-regulation? Not likely. The industry is too short-sighted or too entrenched to act without outside pressure.
And the associations?
Don't hold your breath. Industry associations are funded by the builders they represent, so they're unlikely to rock the boat.
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 can't deliver enough homes reliably, fix the bottleneck: let governments take a bigger role. At least then we'd have a shot at real change.
Protecting yourself
If you're building now:
• Check your builder's licence and financial category on the QBCC licence search.
• Never pay ahead of a completed stage, and only pay the deposit allowed under your contract.
• Keep your QBCC Home Warranty Scheme certificate.
• Ask how many jobs each site supervisor runs.
Final thought
For the builders going through hell right now, maybe this is the wake-up call to invest in systems, staff and innovation.
Or maybe they'll keep walking in circles, dragging the industry with them, stuck in a long COVID of their own making.
