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Govt proposes lower import tariffs on building materials and fewer anti-dumping duties in effort to cut house building costs

Property
Govt proposes lower import tariffs on building materials and fewer anti-dumping duties in effort to cut house building costs
<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Housing Minister Nick Smith and Commerce Minister Craig Foss have announced proposals to change anti-dumping duties and reduce tariff concessions to reduce the cost of imported building materials and lower the cost of house building.

The Government's also taking steps to avoid "industry capture" of a key organisation involved construction-related research and building materials product appraisal.

The proposals came in an options paper produced by the Ministry for Business, Innovation and Employment (MBIE) in response to the Productivity Commission's inquiry into housing affordability. Submissions are sought on the proposals by December 18.

“Building materials costs are too high and can be as much as 30 per cent more in New Zealand than in Australia according to the Productivity Commission. The industry needs a shake-up through increased competition and greater transparency to ensure kiwi families can get access to more fairly priced building materials and homes,” Smith said.

“Our market study has flushed out some very real issues in the building materials industry. I worry that high duties on some imported building products, combined with limited competition in New Zealand is allowing excessive margins by building product manufacturers. I also have concerns over a lack of transparency for consumers over what benefits builders are getting from using certain products,” Smith said.

The options paper comes after the Commerce Commission announced inquiries into Fletcher Building's dominance of the plasterboard market and potentially anti-competitive practices in Auckland's timber supplies market, which is dominated by Fletcher Building and Carter Holt Harvey.

Foss says the options paper was the second round of consultation for this study, with an Issues Paper released in May.

“This paper identifies a range of barriers that could impact competition and productivity in the residential construction sector. The barriers appear to lead to a bias towards the continued use of ‘tried and true’ brands, products, methods, and systems. This impedes the ability of new firms to enter the market and of existing firms to innovate,” Foss said.

Smith said bringing down the cost of building materials was an important part of the Government's work to improve housing affordability.

"We are taking action on a range of fronts including freeing up land supply, reforming the RMA, reigning in council development charges, keeping interest rates lower for longer, investing in skills and productivity, and supporting first home buyers through changes to Welcome Home Loans and the KiwiSaver First Home Deposit Subsidy,” Smith said.

The options paper describes the barriers to competitive and productive outcomes in the residential construction sector as identified through the previous consultation on the Residential Construction Sector Market Study: Issues Paper. It presents a suite of potential options to reduce or remove the barriers

Through this consultation, the Ministry of Business, Innovation and Employment (MBIE) is seeking further evidence of the barriers as well as feedback on the benefits and costs of the options identified. This feedback will inform decisions on which options to implement.

In the paper there are 11 specific "issues" identified and 24 suggested "options" are given. Below is the summary of these issues and options as presented in the paper, along with any existing work that is already being done in a given area.

The discussion paper says that many of the barriers that have been identified "arise in part because of liability concerns".

"Understanding risk aversion and liability will therefore be crucial to overcoming the barriers to competition and productivity.

"Liability in and of itself is not a problem, but a balance needs to be struck between ensuring parties are liable, where appropriate, but not hamstrung by liability fears (whether founded or not)."

The paper says that recent experiences with leaky buildings, including the liability of most parts of the sector, have undermined trust and confidence within the sector.

"This drives the industry structure and creates coordination and transactional inefficiencies. It leads to risk aversion and, in this way, hinders innovation or change within the sector."

The paper says that responses to the issues paper produced earlier in the year also raised the importance of understanding what is driving demand in the residential construction sector.

"A common theme raised in submissions is that competition and productivity are hindered by the lack of demand for new and innovative materials, and for new and more efficient ways of constructing homes. To the extent that this is the case, supply-side fixes will have a limited impact.

"This paper therefore includes options to help reduce any underlying demand-side barriers – such as a lack of transparency and information – that are impeding demand for innovative products or more efficient service delivery."

Here is the summary of issues and options identified in the paper:

Issues and options around the regulatory framework:

ISSUE: COMPLEXITY AND INACCESSIBILITY OF ALTERNATIVE SOLUTIONS: The complexity of the product assurance system for demonstrating Building Code compliance may act as a barrier to new products or systems getting to market. There are also concerns that decision making processes and risk aversion in relation to product assurance may reinforce the position of incumbents in the industry.

Option: Sector education about product assurance
Option: Greater specificity of what is needed for ‘lower level’ product assurance
Option: Promote better transparency by Certification providers
Option: Reform of BRANZ governance

ISSUE: SPECIFICATION BY BRAND: Specification by designers of particular brands of product in designs acts as a barrier to later substitution of equivalent products that might be cheaper or more effective. This reinforces the use of “tried and true” products.

Option: Prevent specification of “no substitutes”
Option: Require specification by performance

ISSUE: RISK AVERSE BEHAVIOUR: Risk averse behaviour underlies decisions about consenting. Moreover, liability risks throughout the industry incentivise conservatism and this may act as a barrier to getting products accepted for use (or selected for use in the first instance).

Existing Work: Law Commission review of joint and several liability
Option: Recognise manufacturer warranties in liability and consenting

ISSUE: LIMITED AVAILABILITY OF ACCEPTABLE SOLUTIONS: Acceptable Solutions are ‘deemed to comply’ with the Building Code. They often rely on citation of complex technical Verification Methods, which are not always available in relation to innovative new materials or processes or new market entrants. This could act as a barrier to entry.

Option: Further government funding of development of Acceptable Solutions

ISSUE: INEFFICIENT AND INCONSISTENT CONSENTING BEHAVIOUR: Slow and unpredictable consenting procedures across BCAs introduce delays to construction and make it difficult to plan construction projects. This particularly affects larger builders looking to realise economies of scale through improved planning and management.

Existing Work: National Online Consenting
Option: Residential risk-based consenting

Competition impact of strategic conduct in construction markets

ISSUE: LACK OF TRANSPARENCY OF STRATEGIC PRACTICES: Strategic practices such as the provision of rebates or targeted discounts have the potential to constrain access to distribution channels for building materials. The lack of transparency around their use also means that benefits that result from them are less likely to be passed to end consumers.

Option: Require disclosure of financial and other benefits
Option: Industry self-regulation to achieve disclosure
Option: Targeted advocacy of the Commerce Act

ISSUE: STRATEGIC PRACTICES INTRODUCING INEFFICIENCY: Practices within the market, such as cover pricing can have negative impacts on competition. Some strategic practices are also inefficient, and result in higher prices than optimal competition would.

Option: Government procurement as best practice
Option: Government procurement to influence market behaviour

Import Barriers

ISSUE: ANTI-DUMPING DUTIES: Anti-dumping duties imposed on certain imported building products effectively serve to set a minimum price for imports, impeding import competition on price, thereby allowing domestic manufacturers to maintain higher domestic prices.

Option: Bounded public interest test
Option: Allow for consideration of government policy statement
Option: Limit continuation of anti-dumping duties

ISSUE: TARIFFS: Tariffs remain on some imported building materials. Although Free Trade Agreements mean that in reality most products are imported without any tariff, there is still some restriction on the ability of imported materials to compete.

Option: Tariff concessions on key construction materials

Industry Fragmentation, Innovation, and Productivity

ISSUE: LIMITED INTRODUCTION AND DIFFUSION OF INNOVATIVE PRODUCTS: The residential construction sector is characterised by the limited introduction of innovative products to the market, and slow diffusion once introduced. This impedes its ability to realise continuous efficiency gains and input price reductions.

Existing Work: Productivity Partnership building systems workstream
Existing Work: Building and Construction Industry Research Strategy
Option: Social housing as “proof of concept”
Option: Innovation network
Option: Criteria to promote innovation through BRANZ use of Building Research Levy
Option: Targeted education

ISSUE: INEFFICIENT CONSTRUCTION MANAGEMENT PRACTISES A lack of specific project management and business skills within the industry prevents the realisation of efficiency gains, and consequent price reductions, on building sites.

Existing Work: Productivity Partnership skills workstream
Option: Industry education programme
Option: Licensed Building Practitioner requirements

 

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39 Comments

In a competitive market when prices rise, customers are able to switch to alternatives. This basic fact ensures price rises are minimal and customers are not exloited.

 

Housing is not a competitive market. When existing house prices rise. Landbankers and local councils use the planning system to prevent competition and so extract greater revenue for themselves. And if the house buying customers manage to get past that cost then the oligopoly building supply companies extract any other cost savings.

 

Differing views on how competition is created is at the heart of the problem. Our incumbent government has spent the last five years with a laisev faire attitude of doing nothing in the belief that the 'market' will sort itself out. It is now obvious this is just a license to exploit. Due to poitical pressure they are being panicked into doing something, hence announcements like this. I am not convinced they genuinely believe it is their responsibity to ensure the regulations and institutions provide a competitive market place.

 

Meanwhile our major oppposition party don't believe in competition either. They want to add new nationalsistic monoploy players to this system -Kiwi this, Kiwi that. This seems to be about making kiwis economically and of course politically dependent on their distribution of 'benefits', rather than ensuring genuine competition takes place.

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Brendon - sorry, but that's just wrong. Plain wrong.

 

Firstly, that economist crap - you've got to include the cherry-picking (all the good rimu is gone, kind of thing) and ultimate scarcity, including applying both to the energy required. There was every guarantee that things would 'get more expensive' with growth over time.

 

Councils don't 'aim to make more money' - they aim not to cost ratepayers. One of the way this is changing, is more user-pays - those who pushed for it hoist with their own petard. The other river is owners scared of losing their 'value' and demanding guarantees - which requires paperwork and inspections of the ever-more-complex houses designed to fit rules driven by said fear.

 

The difference between 'state' and 'private' is nothing compared to the effect of the real drivers. Try not weighing the social thing so strongly, and maybe look more to the physical.

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PDK. Your cherry picking argument is terrible. Way back in the 1920's? NZ scientists and governments realised that native forestry would not meet the countries needs. So through various government and private initiatives the exotic tree indusry that we are all familiar with was developed. It is reasonably sustainable. Maybe we could have developed alternatives to Pinus radiata given the prolems preserving it. Maybe we will develope a hard wood that doesn't need preservatives. I think the wine industry are looking into this.

 

But surely you are not arguing that we will run out of wood?

 

And why when we have a sustainable resource that more than produces for the needs of New Zealand is that resource cheaper overseas? Why can you get wooden framing 30% cheaper in Australia.

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Brendon....   I think PDK might be meaning that economics is unable to factor into pricing ,such things as environmental costs.

The laws of supply and demand don't really work in this regard  ( ie. The real costs do not get factored into price )

A great example is of a gold mine in the 1960s' that generated $400 million in profit during its life......   BUT... 20 yrs after it closed the State ( Montana I think )... had to spend $billions in cleaning up the toxic, environmental mess.

And I think he is right about that....    

http://en.wikipedia.org/wiki/Tragedy_of_the_commons

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If that is what PDK meant I have no problem with it. Economics is not perfect. There is no such things as 'perfect competiton' that you read about in text books.

 

In the real world regulation and referees like the commerce commission, environmental protection agencies etc are needed to get some approximation of competition and fairness.

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Brendon the exotic wood industry would have been a boomer for NZ, but pretty much as soon as it got any value the National party sold the timber...as standing trees to Asian interests (Chinese IIRC)  ...including the land...     Really slammed our forestry and forestry support industries.  for a quick buck.

 

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PDK - that is rubbish and you know it. Councils DO aim to make more money.......it's called user-pays with a profit margin built in to it.

 

The State and the NIMBY's play an extraordinary role in price manipulation........for someone who advocates sustainability you actually have the poorest understanding and interpretation of the concept.

We are not short of the physical resources required. We have too many bureaucrats eating from the trough - which is physically unsustainable as too many people have to work an honest living supporting the parasites.

 

 

 

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Because of our tiny market and far-flung location practically everything we buy in NZ is supplied through a mono-/duo-/oligopoly. In other words we do not have a competitive marketplace. The net effect is what Eric Crampton calls the "bought in NZ penalty"

 

Unfortunately we don't really have the option, either, of competing ourselves with the cosy little group of suppliers because of the highly restrictive government rules on building, water and waste, and council planning rules.

 

We are left with two bunches of clueless buffoons in parliament continuing to impose their solutions to the wrong problems.

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Maybe it is true that the more regulated a market is the less competitive it is.  Certainly our building industry has a lot of regulation.

 

There will always be that tension between demand for certainty over building code, guarantee and liabiity versus the cost of creating such certainty.

 

What I can say for sure is although the house I owned in Sydney was cheap to build i was certainly not of the same material quality of the house I built in Christchurch.

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I think you'd find the morass of regulation is pretty universal Ralph. Where there is little regulation what there is would be subverted by bribery and corruption.

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It is claimed that The Bill of Rights 1688 led to the industrial revolution.

 

The irony now of course is that the people don't have a Monarch and her army controlling them instead we have an army of bureaucrats and none of them answerable for their actions.

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Indeed, I'm not sure how a government that is willing to undermine the Commerce Commission with regards Chorus, could then proclaim to be advocates of a competitive market.

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Exactly Hamish. You have to question our governments commitment to competition, when it undermines its own competition regulators.

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Maybe the Commerce Commision is playing politics also.  I cant think of a better time to make this announcment - hard on the heels of the Chorus announcment.  What is the government going to do.  - interfere on both issues?

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Overseas construction material suppliers produce on such scales of economy that costs could be reduced significantly i.e. plaster board linings retailing 15% cheaper.

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Is it really economies of scale? Where are the economies of scale -manufacturing, distribution, marketing? Give us some details. Take Gib board here in NZ. That isn't some small scale outfit. Pretty much every new home or building gets the stuff, that seems quite big to me. Yet we pay a price premium for it-economies of scale or a lack of competition?

 

I think this is more like 6 O'clock closing, the rules and regulations benefit a few lazy players.

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There are seemingly cheaper substitutes on Trade Me. Where's Tuff made?

http://www.trademe.co.nz/building-renovation/building-supplies/panels-boards/plasterboard/auction-658841583.htm

Maybe after the leaky buildings fiasco, home owners and builders want to stick with tried and true NZ made products and suppliers can get a premium for it.

 

Competition in windows would be good. There seems to be no standardisation or economies of scale here in glass and joinery

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Since the leaky building fiasco councils have no interest in taking on liability for random products imported by whoever. If your building products aren't BRANZ appraised try getting a Building Consent or CCC. It's not worth the hassle. 

 

 

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Building Act 1981 s17: all building work must comply with MoBIE-issued Building Code. Councils have no choice.

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Building Act 2004 enacts the Building Code. Each Building Code clause has an Acceptable Solution which isn't neccessarily the only solution allowed.

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It is not just the Councils who do not want to take on the liability for random products - builders and other tradesman don't want to go near them either.

BRANZ consent is very expensive. I know one Canadian product that has been used for years over there and about 25 years in Australia and I was told it was a $100k to get it BRANZ approved.

 

 

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Sounds like it is time to dump BRANZ and offshore the function.

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The trouble is it is not all about being competitive. Once a price for a product  has been set all other players who have a similar type/use products can use that price. E.g. look at the energy sector.

 

Just to keep my finger on the pulse and for a bit of fun I often price out building material costs for a specific square meter type building same design scenario.  I price out the same thing in Australia, UK, Germany etc. Builders are hamstrung in NZ. In fact the small builder who is actually the most competitive will probably be a relic in a few years as the compliance costs are ballooning and they don't have the ability to spread these over enough jobs. This is much like the problems that Agriculture faced 25 -30 years ago when farmers had to get bigger in order to survive.

 

I am currently pricing out Hebel and Ytong blocks and have chosen 5 countries to do an analysis on.  I already know the barrier issues to NZ pricing placed on the 2 products I have chosen.

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A government that genuinely wanted to bring down house prices, would be assessing overseas building products for free and trialling them in the likes of state homes and the Canterbury rebuild.

 

They would be looking at encouraging innovative and creative solutions...

 

I can't see much 'outside the square' thinking coming from our bunch of nuppties in Wellington.

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Yes I know but the fact of the matter is NZ has numerous bureaucratic organisations and not one of them undertakes any of the initiatives that would be necessary.

 

I'm just a small Joe Bloggs Private who is looking at innovation and creative solutions from around the world and I of course I'm hell bent on efficiency which is why I have time to do these little projects in my leisure. Beats watching the evening crap on TV too.

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Sheer volume Brendon reducing unit cost.

Better still we could go back to building houses out of mud and various other cheap materials - Now that wouldn't cost much.

 

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It is much higher than 15% difference the currency corrected difference between Bunnings NZ and Aust is that we are twice the price.  In the USA they dont bother with 10 mm board and their 12 mm board is a 1/3 the cost of ours.  In the USA treated 4"x2" is $1/m ours $4/m.  Cement is the biggest rip off NZ$ 0.42/kg A$ 0.27 Singapore bulk US$75/tonne China US$49/tonne.  The whole of the concrete based infrastructure costs in this country are held captive to an unhealthy duopoly.

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A significant cost of house construction in  NZ is simply the low volumes from a small market with high freight costs and the fact that many products have a natural freight shield that prevents imports ever obtaining a significant market share. For example:

 

Gib Board - local manufacturer offers a cut to length service so each single sheet reaches floor to roof. Imports can never do that - remember a significant share is commercial and industrial that is all bespoke design with differing heights even within the same building

 

Concrete Roof Tiles - very heavy and expensive to transport so local mnfg will always win with the ability to make to color vs take what's in stock. Also contract will be installation as well. Hard to emulate just by importing.

 

Timber precut frames & trusses - very difficult to transport - and that's how timber is sold so almost impossible to import. Yes timber is cheaper - but that's not what builders buy in bulk

 

Colour Steel Roofing - ( Should be compulsory in an earthquake zone ) - Delivered cut to length to a particluar roof design and in the colour of  choice which can never be done from offshore.

 

Ready Mix - Always local

 

The list goes on. Until we manufacture stock standard houses - to a reduced standard I might add - no ensuites, no double glazing etc  and put them on flat land we will continue to have high build costs.

 

Look at what is happening at North Lakes north of Brisbane - 15,000 houses under construction in a relatively short time frame and very good value BUT not too many choices and fairly economical builds by our standards.

 

This is all going nowhere other than pollies trying to be seen to " doing something ".

 

 

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OK explain this: a fence post 100x100 2.4m, buying it here in Australia is about 50 cent more than what Mitre10/Bunnings selling them for in Auckland (in NZD).  Both products are NZ made and one has to be shipped 2000 miles over  to Australia.  

A Paslode frame nailer, Placemakers is selling for $960, you can buy the same model via US for under $400 (NZD) from a retail store online + NZ 230V adaptor for $15

 

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Thats because all the best timber gets shipped offshore.  That way we can pay more for the rubbish

 

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Need to remember builders would not pay anything like advertised retail prices, and of course there is no GST  of 15% in the USA.  Couple in the FX rates and incremental freight to NZ of small shipments plus the very small volumes and I woud suggest prices in NZ  are about where you woud expect.  Placemakers have not been making super profits and have struggled over the last few years as permit numbers remain low by historical standards.

 

Have a look at house prices in North Lakes  Brisbane ~ A $ 300 - 340 - but pretty limited by our standards. Given their much higher incomes this is very much cheaper than here. Will be quite close to the new rail line to Kippa Ring now under construction.

Typically a 250 - 260 sqm  section ie less than 1/16th of an acre. Our housing standards are  simply way too high for first home buyers.

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Do you think Australian builders pay the retail price?

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JB, there is sales tax in the USA, it varies from 5%-10% state to state.  If I can buy one at under $400, buying 100 would be even cheaper.  Placemakers only give 20% off trade at best, so it's still way over $400.  Even my builder is buying his tools from ebay US.

As for houses at North Lakes, at least they aren't leaky after few years!  Not sure about "our housing standards are simply way too high.."

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in reality Auckland's competition is Brisbane, Perth and Adelaide more so than Melbourne and Sydney.

I don't know about Perth, but in both Brisbane and Adelaide you can buy good new 3 bedroom homes within 30 minutes of the city for circa 350K.

Puts Auckland to shame.

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You can buy a good new 3 bedroom home within 30 minutes of Hamilton for circa $350k. Puts Melbourne and Sydney to shame.

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no thanks, chances are that Lisa Lewis may be living neraby!

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Try again

Hamilton is a 100K population shithole, not a 1 million plus city

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Hamiltron ? .... A.L.I.N.A. .... at least it's not Auckland !

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There are many factors contributing to the high building cost in NZ.  IMO, the two main factors are:

Core building materials are controlled by certain manufacturers, i.e.Fletchers, Carters

Council compliance cost; as I have mentioned before.  Building a new house here in Brisbane, the cost of getting a permit is fraction of what it will cost in Auckland.  Please before you say it; there are way more parks, libraries (free), bike ways here in Brisbane than Auckland.  And I am paying $1200/yr for Brisbane council rates for a $600,000 house.  Try that in Auckland

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