Surging cost of materials is driving some builders up the wall.

Prices for key materials like steel, timber and ceramics have risen by between 15 per cent and 60 per cent in recent months, and it has slashed builders' profit margins and driven some into insolvency.

"We've been dealing with extreme price pressure for over 12 months," said Matthew Pollock, chief executive officer of Master Builders Tasmania, the industry body of builders in the state.

"Prices for key materials like timber and steel have jumped up between 35% and 40%. We've seen price increases across almost all other materials," he said.

The price rises are starting to scare off business - new house building approvals fell by 2.5 per cent in May in Tasmania, according to the Australian Bureau of Statistics.

But they are also driving some builders to the wall - the Tasmanian arm of Hotondo Homes entered receivership in January, leaving some Tasmanian families with partially built homes that they'd already laid out hundreds of thousands of dollars for.

On the mainland, builders are collapsing at an alarming rate, said Carl Tailor, a Launceston-based builder.

"There hasn't been too many builders down here go broke yet, but the mainland's just falling apart," he said.

There was a 12 per cent increase in home builder insolvencies in the three months to April compared with the same period of 2021, according to figures from the Australian Securities and Investments Commission.

Victorian-based builder Metricon is the latest company in trouble - in an apparent sign of desperation, it last week put 56 display homes up for sale at cut-down prices.

Every state except Tasmania requires building companies to take out insurance for defective or incomplete work resulting from insolvency.

Driving these insolvencies are the sharp rises in materials.

"Alot of house builds are quoted years in advance, they take a deposit and a year or two later they start building," Mr Tailor said.

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If anything goes wrong, builders generally have to absorb the additional costs, he said.

"Normally the prices rise a little bit and you factor that in, but now the prices have risen so much that whatever they factored in a couple of years ago doesn't matter anymore."

Tasmanian builder Mark Holman said builders' margins have probably fallen from about 30 per cent to as little as 5 per cent as a result.

He said demand for new homes and renovations lifted following government stimulus and schemes like the Morrison government's Homebuilder programme.

But it came just as material prices began to rise after the onset of the pandemic, when building materials sat stacked on foreign wharves waiting for the bottleneck in shipping containers to clear.

This shipping and logistics bottleneck, as well as bushfires that saw Australia importing timber, are among the reasons sending builders to the wall, he said.

"Around Christmas time, I could buy a cavity sliding door frame for $200 - now it's $246. We've got to wear these costs, " he said.