Grant Thornton Partners on Friday confirmed it had been appointed liquidators of the Porter Davis Homes Group, with works on builds to stop immediately.
Construction firm Lloyd Group has also been placed into voluntary administration.
Porter Davis has more than 1500 homes in progress across Victoria and 200 properties in Queensland, while a further 779 customers with signed contracts for new builds yet to start.
One of those affected customers is Melbourne mum Katharyn Borg, who put down a $1500 deposit to build her dream home on Queensland's Bribie Island.
Mrs Borg and husband Simon were awaiting their first tender from Porter Davis when the news came through on Friday.
"We're definitely not in the worst position but it's still devastating," Mrs Borg told AAP.
"We thought we had locked in our dream home."
Mrs Borg said she had already contacted another builder but was worried about the next steps.
"Porter Davis, to me, was a massive company. So many people would have never thought they would go into liquidation," she said.
"Is there any guarantee for this home build now? It's just another level of stress."
Grant Thornton cited rising input costs, supply chain delays, labour shortages and falling demand as reasons behind Porter Davis' collapse.
The Porter Davis board of directors said it regretted the circumstances but hoped a solution could be found to support customers in completing their homes.
It acknowledged the group's 370 employees for their hard work and commitment to Porter Davis.
Construction firm Lloyd Group also went into voluntary administration on Friday, Deloitte confirmed.
The company specialises in the design and construction of building and infrastructure projects for state and local government, primarily in Victoria and NSW.
The process will affect 59 projects under construction - 29 in Victoria and 30 in NSW.
Deloitte would assess the financial position of the business and project-by-project status, voluntary administrator Sam Marsden said.
Lloyd Group has about 200 employees.
Mr Marsden said the sector had faced increasingly challenging circumstances in recent months that had eroded project margins.
Russ Stephens from the Association of Professional Builders said the latest developments were sad but expected.
"This all goes back to the COVID boom in construction. We predicted this exact scenario was going to play out," he told AAP.
"The large building companies signed three, four and even five times the amount of contracts they would normally sign without having the resources to to deliver."
Mr Stephens said there needed to be tighter controls around financial reporting.
"At the moment, it's way too easy to submit reports that allow these building companies to not only continue trading, but allow them to sign more contracts," he said.
Federal opposition housing spokesman Michael Sukkar said Labor had been warned about the issues in the industry but refused to help.
"The coalition's support for the industry through COVID is now being jeopardised by Labor's neglect," he said.
Independent ACT senator David Pocock said families with new homes under construction were being left in limbo and subbies out of pocket.
"Another day, another major construction company goes into liquidation in absolutely devastating news for subbies who now risk not getting paid for work done."
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