Australia is experiencing a housing shortage, but builders are still failing. Why?

Across Australia, thousands of people are waiting to find out if their homes will be built after several individual construction companies went bust.

By far the biggest of these recent collapses was the Bathla Group, a Sydney developer that was one of the largest builders of affordable housing in Australia.

Owing to private creditors some $3.4 billion, the Batla voluntary administration has left the construction of more than 2,000 apartments in limbo, while jeopardizing the construction of another 14,000 houses.

After COVID, more and more builders went bankrupt

Figures released last week showed 3,472 Australian construction companies failed in the financial year ending June 30, 2026: one in four (24.5 percent) of all insolvent companies in the country.

The only good news? Developer bankruptcies have dropped slightly for the first time since they began spiking during COVID.

However, our research has shown that insolvency rates in the construction sector remain consistently higher than in other industries. This makes it difficult to build the housing we need.

Australia is falling further behind the federal government’s target of building 1.2 million new homes by 2029. Official forecasts published last month indicate that the target will not be reached until December 2030. New South Wales – Australia’s largest housing market – may not reach its targets until March 2032, three years later than the five-year target.

There is no shortage of demand for new homes. What we lack is a building system capable of providing them reliably, sustainably and on a large scale.

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Financial ripple effects of Battles

On Monday, more than 200 of Batla’s 350 employees were laid off as the administrator continues to work on a rescue deal.

While the majority of the company’s construction projects are in Western Sydney, Batla’s collapse is being watched across Australia due to its wider financial implications.

Like any collapse of a company, Batla’s current problems are due to certain circumstances. Its business model was based on high-volume, low-cost construction.

The NSW building regulator has also carried out more than 40 inspections of Batla sites in recent months and ordered the developer to correct serious defects in one major project.

Batla may have taken up to 1,000 deposits from buyers for houses whose construction is now stalled. But home buyers aren’t the only ones affected.

“Worrying developments” in the private lending sector

In addition to money to subcontractors, Batla owed money to a long list of non-bank lenders, also known as private lending firms.

This reflects the construction industry’s heavy reliance on alternative financing as banks have reduced their exposure to riskier loans.

On Friday, Australian Securities and Investments Commission chair Sarah Court said the corporate watchdog was closely monitoring “several troubling developments in the private credit sector, most notably the recent collapse of Bathla”.

The court noted that many Australians access private credit through their superannuation funds, meaning “this is not some minor issue”.

The perfect storm hits construction workers

Batla is not an isolated case. The construction industry as a whole is under strain: costs are rising, profit margins are falling and risks are rising.

Data released last month showed that home building costs are now 51 per cent higher than before COVID.

For builders with tight margins, rising costs can make some projects unprofitable.

As costs rise unpredictably, builders locked into fixed-price contracts are absorbing losses they cannot bear. This has been a major reason for the surge in builder bankruptcies during COVID.

Falling house prices and poor market sentiment mean some projects are no longer financially viable.

Many investors and buyers are spooked by three interest rate hikes this year, rising costs and recent federal budget changes to housing tax credits that have made housing less attractive to investors. The prospect of further interest rate hikes could also cause projects to stall as the market waits for conditions to improve.

In addition, there is a constant shortage of specialists. Additionally, home builders are now competing with data center builders for talent, which has pushed up wages.

Unsurprisingly, construction insolvency rates have returned to pre-COVID levels despite strong demand for housing.

Structural changes needed

Governments cannot solve all the problems we face, such as rising prices caused by the war in the Middle East.

But federal, state and local governments are increasingly aware of their role in creating structural barriers to building more homes.

The Productivity Commission’s draft report, published in July, identified many problems we need to address, including restrictive land use regulations, slow and inconsistent approvals, poor co-ordination in key infrastructure and complex regulation. All this increases costs and delays.

Our 2025 report found that overregulation is particularly hard on small builders, who struggle to comply with overlapping national, state and local requirements. This is important because our research also found that nearly two-thirds (63 percent) of construction company bankruptcies were concentrated among small builders.

The National Building Code is another issue. Even though some states are delaying code changes until 2025, national regulations remain complex and frequently updated, again making compliance difficult for small builders.

What’s safer than houses?

Some developers are responding by turning to infrastructure and commercial projects, such as the Great Victoria Housing Development or the Queensland Olympics projects. They can offer more manageable terms and less exposure to market volatility.

Good builders can choose their jobs. At the moment, housing is the riskiest option on the table.

Until the situation changes, we’re likely to see more Australian builders pull out of building the homes we urgently need, as well as more headlines about yet another builder going bankrupt.

Lyndall Bryant is a senior lecturer and Amanda Bull is a lecturer at Queensland University of Technology. This part appeared first on The Conversation.

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