Builders are Bailing: Small Contractor Exits Jump 58pc

The exodus has begun. Small builders are walking away from the sector faster than they can be replaced, according to Equifax’s latest iCIRT Construction Index Capacity Report. Small and medium enterprise (SME) construction businesses exiting the sector grew 58 per cent year-on-year, with new small trade construction sector entrants dropping 19 per cent in the second quarter of 2026, according to Equifax. Overall construction company exits (accounting for deregistrations, cancellations and mergers, rather than insolvencies) more than doubled, up 114 per cent year-on-year. Equifax general manager for commercial Brad Walters says operators simply aren’t earning enough to make the business worthwhile. ▲ Equifax general manager for commercial Brad Walters: Small contractors are leaving the industry in droves. “They’re left with a tough decision about whether they wind up early and close out before it goes down a path that leads to harm,” Walters says. He says the 58 per cent increase in exits is a “real concern” as we strive to meet National Housing Accord targets. “It’s not a sustainable trend when you want to continue to see growth.” And the trouble is brewing across the eastern seaboard, and with all trades. “[It means] subcontractor capacity has effectively stalled. Larger developers with deep balance sheets can leverage scale, but SME builders are also deferring equipment investment, likely to protect working capital.” Credit demand and soaking up capacity Given the sector’s reliance on upfront credit, credit demand can be a measure of health. Equifax insights for the second quarter of 2026 revealed that while large construction enterprises recorded “moderate” credit demand growth, SME construction credit demand fell 3.8 per cent and asset finance demand contracted by 6.5 per cent year-on-year. This was dragged down by Victoria at a decline of 9 per cent, with demand in NSW also falling 6.7 per cent. “A lot of constructors rely on debt to support their bills,” Walters says. ▲ Credit demand can be a yardstick for the health of construction businesses, and demand is currently falling. “As inflation rises and the economic conditions continue to create adverse conditions, it will test liquidity further.” High demand for new homes would lead to positive forward orders, supporting upfront cashflow, Walters says. “But the unfortunate truth at the moment is that the data shows us a different story.” Business confidence had fallen into negative territory for the first time in six years, Walters says, and 78 per cent of people in the Equifax survey were worried about developer and contractor insolvencies. “So what we’re seeing in construction is a real buyer ‘flight to trust’ as we continue to see elevated company insolvency exits,” Walters says. He says that following debt capital markets research this year, Equifax found that six out of 10 funders in construction and real estate development were using iCIRT to support due diligence. Can remaining contractors absorb the work? While larger contractors can be insulated, to-an extent, by scale, smaller contractors are taking up the mantle and soaking up work. “We have seen a shift in smaller businesses looking at and taking on larger scale developments; a reflection of the property typology in urban environments where there has been a shift more for medium rise,” Walters says. “So we are seeing businesses seeking to scale up and to capitalise on that need.” ▲ Source: Equifax’s iCIRT Construction Index Capacity Report. But the challenge is twofold, Walters says. “We’re operating in an environment where the industry is seeing a bit of a pullback in terms of pipeline and consequently credit demand, and then in terms of their capacity to pass on increased costs into their pricing,” he says. “That means that their underlying liquidity metrics, their working capital and cash flows are all impacted as a result of having less strong and healthy pipelines and forward order books, and not being able to pass on the increases in costs into their prices.” This is likely to constrain the industry until these trends reverse, Walters says. Cost pressures on new build homes Equifax’s report found that early trade payment arrears rose 4.7 per cent year-on-year “spiking noticeably” late in the second quarter as businesses faced cash flow pressure. This is “concerning,” Walters says, in light of fuel cost, material and labour cost rises as well as other issues like the Payday Super reforms now in effect, where employers must pay employee superannuation guarantee contributions at the same time as wages. Despite these constantly fluctuating cost pressures, just over a third of Australians surveyed in Equifax’s report could absorb no more than a cost increase of 1 to 5 per cent before scaling back or halting their new home construction project altogether. ▲ While the situation looks grim, the remaining players in the sector will be well positioned for growth in the long term. “Household balance sheets really don’t have the capacity to absorb cost overruns,” Walters says. Compounding the issue, is that only 23.2 per cent of new builds are reportedly finished on time, Walters says. This makes the Federal Government’s National Housing Accord targets seem further and further out of reach. “The reality is it’s not one simple or single problem that is exacerbating the issue,” Walters says. “But I do believe that it’s of critical importance that governments and industry continue to collaborate and work together to identify positive and appropriate pathways to support those outcomes and meet those housing targets.”

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Clare Burnett
Fri 09 Oct 26

Builders are Bailing: Small Contractor Exits Jump 58pc

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