Construction industry continues to get hit, owners dipping into personal finances

CreditorWatch said that the high default and insolvency rates will not be rescued by the AI boom, which is largely non-residential and commercial.

It noted that the AI boom poses a risk to residential capacity and credit due to rising labour demand for data centre work, drawing these skills away from the housing construction industry.

This is because demand for data centres will attract labour, specialist trades, and materials toward premium commercial and infrastructure work.

Insolvencies

CreditorWatch’s data revealed a sharp increase in insolvencies in August, with first-time insolvencies in construction jumping to 868 (compared to an average of 300 a month over the past year) and total first-time insolvencies rising to 1,834 (concentrated in residential building).

The pressure has risen for the residential building sector, where defaults were more than three times the national average, according to CreditorWatch’s report.

Overall, in Australia, construction had the third-highest trade-payment default rate of any industry (1.94 per cent) and the second-highest ATO tax-default rate (1.58 per cent).

“The risk is that this boom draws skilled labour and materials away from housing and essential infrastructure at exactly the time we can least afford it. Australia doesn’t have a shortage of demand for construction - it has a shortage of capacity to deliver it. That’s the real test the numbers are pointing to,” Patrick Coghlan, chief executive at CreditorWatch, said.

“Approvals tell you where the money wants to go. They don’t tell you whether an industry has the workforce, the supply chains and the balance-sheet strength to build it. That gap is where the pressure will show up first,” he added.

“The winning sectors are likely to be parts of Mining, parts of Construction and other businesses that might directly benefit from the AI investment boom - businesses providing services to these sectors including Finance and Professional Services,” said Ivan Colhoun (pictured, right), chief economist at CreditorWatch.

Fragile cash buffers

Despite deteriorating business conditions, limited cash reserves, and growing reliance on owners’ personal funds to support working capital, further CreditorWatch research found that Australian businesses remain optimistic about their growth prospects.

In its September 2026 Business Sentiment Survey, CreditorWatch gathered responses from 1,015 business decision makers who were sole traders, micro businesses (2-19 employees), small businesses (20-199 employees) and medium enterprises (200-499 employees).

According to the survey, 41 per cent reported using their personal funds to support business working capital in the past 12 months.

Further, 12 per cent of respondents said they dipped into personal funds regularly, 29 per cent occasionally, and 33 per cent said they currently rely on personal funds to support working capital.

In addition, the findings revealed that 49 per cent of respondents said that they had enough liquid cash reserves to cover operating expenses for no more than six months, and 23 per cent said that these could last for no more than three months, and 8 per cent said that they could last for no more than one month.

On growth, 70 per cent of business decision makers reported being somewhat or very optimistic about their business’s growth prospects over the next 12 months. 

Meanwhile, 29 per cent of respondents said the current Australian business climate was poor or very poor (compared to 19 per cent in 2025), while the proportion rating conditions good or very good fell from 49 per cent in 2025 to 38 per cent.

“Cost-of-living pressures, high operating costs, and softer customer spending are still prominent concerns. When those pressures sit alongside limited cash reserves, even businesses with sound long-term prospects can become vulnerable to revenue interruption or slower customer payments,” Colhoun said.