Builder-Developers Emerge as Key Drivers in Residential Development
The economics of residential development and construction have changed dramatically over the past five years. Today, integrated builder-developers are often best placed to deliver projects — a shift from the traditional preference for developers working with third-party builders on fixed-price contracts.
Why the Model Has Changed
Historically, private real estate credit financiers such as Centuria Bass Credit (CBC) preferred projects with an arm’s length arrangement between developer and builder. This separation reduced conflicts of interest and offered greater clarity.
However, the model has come under significant pressure this decade due to sharp increases in material and labour costs triggered by COVID-related supply chain disruptions. These pressures were a key factor in the collapse of numerous building firms — with more than 11,000 building-related companies going out of business since 2021¹.
This shift has opened a window of opportunity for builder-developers, whose vertically integrated structure provides greater resilience in the current environment.
The Advantages of Builder-Developers
CBC is increasingly funding builder-developer projects, as these groups are achieving:
An example is a townhouse project in Western Sydney that CBC supported with a residual stock loan. The builder-developer opted against pre-sales, instead progressively selling down stock above valuation in a rising market. The strategy has proven successful — delivering a quality product to market, securing strong returns for the developer, and attractive outcomes for investors.
Stabilisation Ahead
Looking ahead, there is reason for optimism. According to Turner & Townsend’s Global Construction Intelligence Report, construction costs in Australia and New Zealand rose 4.7% in 2024, with increases forecast at 4.2% in 2025 and 4.6% in 2026.
This stabilisation gives builders more confidence to price jobs accurately and fairly while maintaining a reasonable margin buffer for unexpected costs. Combined with potential upside in gross revenues and an improving interest rate environment, CBC expects greater demand for construction loans and is actively assessing new builder-developer opportunities.
A Dynamic Future
While integrated models are thriving now, residential development is highly dynamic. With government financial incentives and planning support accelerating housing delivery, CBC anticipates there may be a gradual swing back toward the traditional third-party builder and developer model over time.
What is clear is that the role of private credit remains central — supporting developers, builders, and builder-developers alike to deliver the much-needed homes that Australians require.