New Zealand’s building supplies industry isn’t as competitive as it could be and making it easier for competitors to join the market would help, the Commerce Commission says.
The competition and consumer watchdog released its draft report into building supplies on Thursday morning after it was asked by the commerce minister to investigate in 2021.
It says the solution to New Zealand’s lack of competition in building supplies is improving the conditions of entry for competitors.
It singled out regulatory systems as hampering competition and has recommended that competition be introduced as an objective to be promoted in the building regulatory system. The commission found it was too hard, slow and costly to get new supplies approved to be used, and recommended new compliance pathways be introduced for a broader range of key building supplies.
The draft report found there are few competing suppliers for many categories of key building supplies and competition at the supplier level appears limited for some key building supplies.
The commission also recommended an investigation into whether the barriers to certification and appraisal of building supplies products could be reduced.
“New Zealand is facing the same global cost of living and inflation pressures as other countries and it is just not acceptable that such an important sector is not working as well as it could be,” Minister for Building and Construction Megan Woods and Minister of Commerce and Consumer Affairs David Clark said in a statement.
“With good, affordable housing underpinning so many other social, economic and health outcomes, and given population growth and an increase in building consents over the last decade, it’s vital consumers get the best deal,” Woods said.
New Zealand has what is called a ‘performance based’ system for consenting.
Commerce Commission chair Anna Rawlings said the objective of a performance based building regulatory system such as New Zealand has lets designers and builders to meet the requirements of the Building Code in flexible and efficient ways.
“But despite some flexibility, as I've said, the building regulatory system seems to continue to incentivise the use of tried and tested products over new and competing products.”
Many submissions from the building industry on the report singled out building consenting authorities and the product certification process as lumping costs and time delays onto suppliers.
The market giant, Fletcher Building, said in its submission to the commission that the regulatory framework wasn’t broken but improvements could be made. It pointed to product certification as being costly, slow and impeding the entry of new products.
To streamline the compliance process the commission offered up some solutions including updating and adding more acceptable options and verification methods, letting international bodies certify products as compliant with the Building Code and developing guidance for key building supplies that helps prove compliance with the code.
Vertically integrated businesses (those who produce and retail goods) like PlaceMakers and Carters may also be impacting competition between suppliers. These business have a “built in” advantage, the report said, which could make it difficult for other suppliers to get access to distribution channels. It found there are five major building supplies players in the New Zealand market.
The report also found that rebates paid by established suppliers to merchants appear to be reinforcing barriers to distributing new or competing products in some markets.
These rebates reward merchants for purchasing greater volumes through a supplier by offering higher rebates that apply across all of a merchant’s purchases with that supplier. They can deter merchants from stocking competing products in their stores, making it more difficult for new or smaller suppliers to get established, the commission said.
And changes to the Commerce Act that come into force next year might make a difference.
Under the new “effects test” under section 36 of the Commerce Act firms with substantial market power will be prohibited from engaging in conduct that has, or is likely to have, the effect of substantially lessening competition in a market. Previously this part of the legislation focused on only the purpose of a large firm’s action, and not its impact.
The commission said some rebate structures may breach the Commerce Act and the effects test changes will strengthen the law to prohibit firms with a substantial degree of market power from engaging in conduct that substantially lessens competition.
But National’s building and construction spokesperson Andrew Bayly said the report didn't go far enough.
He said he was surprised the report failed to deal with the competitiveness of the industry or suggest urgent recommendations that will result in lower building costs.
“The report concluded that vertical integration does not appear to be a factor affecting competition over the longer term, when the commission itself raised the issue of quantity-based rebates and potential land covenant restrictions."
He said the commission should have worked out whether these entities may be extracting excess profits.
"By not doing this, the commission may have missed the opportunity to recommend more meaningful changes."
Land covenants featured heavily in the previous market study into supermarket competition. They effectively lock competitors out of building new outlets on land that might be suitable. The draft report said restrictive land covenants and exclusive lease terms benefit merchants that may in some cases impede the entry or expansion of competitors in the supply of key building supplies.
The final report will be published on December 6.
60 Comments
Funny that.... "It singled out regulatory systems hampering competition".
I imagine the govt will now move to add more regulation in order to sort out the other regulations that are hampering competition, which will no doubt have further unintended consequences, further exacerbating the problem.
All it may really require is a check on how it is hampering competition. Take away regulation could result in shoddy products being used.
One thing that mystified me was how Winstone's was able to trademark the colour of the Gib markings preventing any other manufacturer to use the same colour marking for plaster board for the same purpose. Idiotic really and anti-competitive. A solution would be a regulation that required to be defined, including colour.
The leaking homes issue is about HOW homes are built mostly and less about the products. The Europeans don't seem to have the same issues as far as I'm aware, because of their building standards. Lobbying and vested interests have change the type of regulation to better allow profiteering.
As we've tried to make houses more efficient, the standard of building has not kept up. But it is not unachievable if we can learn from others who are ahead of us.
Untreated pine framing timber seemed to be a product issue, too.
However, yes, the building industry didn't cover itself in glory. The problem with LLC being too easily used to dodge responsibility for delivering poor products seems to have resulted in massive regulation as councils have to try to prevent all the ways in which the industry might build rubbish, lest ratepayers and taxpayers be once again left with the clean-up cost.
Perhaps it would be ideal for the industry to have some layer of responsibility, or mandatory building industry insurance - but for the fact no one will underwrite the industry. If the industry and its players can be held responsible for the quality they deliver, there will be less need for regulation to attempt to prevent them delivering rubbish.
Actually a classic example of throwing the baby out with the bath water is the steel standard. NZ has a unique Steel standard because of the Christchurch earthquake. The steel standard has been designed as a seismic standard to help prevent buildings collapsing in an earthquake. The standard is so unique it bars imports from the worlds 3 biggest steel producers - Japan, Taiwan and South Korea.
Ironically - the 2 countries with the most exposure to high seismic events- Japan and Taiwan. The NZ building standards have not been made to protect the NZ consumer - they have been made to protect NZ business.
Ha, bollocks old chap. I mean that in the nicest possible way. I think your natural goodwill may have fallen for the standard government line:
"It is all the fault of those grubby business people, whereas we bureaucrats are divine and have your best interest at heart."
This is not what this report finds at all, astonishingly, it finds that business responds to Government regulations and incentives and that these are stupid.
The issue with leaky homes was climate related. We had leaky homes in the 1920's with the art deco stucco designs. mediterrainian homes work well in the med, because there is nowhere near the average rainfall you get here. In NZ we get a bit more, and so you need overhanging eaves and sound flashings around windows to keep the water out. Moderately pitched roves also help. (I've seen first hand what a 7 degree roof pitch falling into the direction of the prevailing wind does to the inside of a house - skylight water feature in your entry way, madam!!!).
True some materials were an issue, but the bulk of the issues were designed in at planning time. I was cutting my teeth as a draftsman in the 1980's and saw first hand the fashion trends in housing which lead to the crisis. It is true workmanship standards were a factor, as was slack regulation, but the bulk of the issues were inferior designs for the climate.
You then have a situation where the local governments were adjudged to be liable, so they responded by adding more red tape to the process.
Oh dear, that sounds too harsh and unfair. What I mean is, not that government employees are second rate, but they have been beaten down and forced to comply with a strongly risk averse culture. Their natural ability and diligent work ethic should be released into the private sector, where they can be re-trained in a risk management culture, learning to be opportunistic where appropriate and risk averse when appropriate.
Build Back Better, but better.
"The market giant, Fletcher Building, said in its submission to the commission that the regulatory framework wasn’t broken but improvements could be made. It pointed to product certification as being costly, slow and impeding the entry of new products"
Getting some excuses in before hand.
About 15-20 years ago, there was a product being marketed here for exterior cladding, an English product called onduline.
Imagine if you will, corrugated cardboard.
The product fails after 5+ years.
The company in NZ disappeared.
This is why "tried and tested" remains the status quo. While anyone can fill some containers and bring them to NZ to sell, you need a decent sized entity to bring building products to market.
I'm sure there was a point you were trying to make.
But if it was about other places still having building issues, well yes they do.
The question then becomes, if that is going to happen to a degree anywhere, then do you want a problem on a house that only cost you 3x median income like in Texas or 8x median income like in NZ?
Which then begs the next question, what extra do you get in NZ for paying 5x the median more? The answer - Nothing.
The best system is Texas land use policies with the German (Passive House) building methodology.
It's a really hard task getting the seemingly captured Auckland Council to liberalise zoning near transport routes, the CBD and various places it makes sense, sadly. Wonder if there are a few entitled authoritarian NIMBYs in positions of power or influence there.
Their entitlement that causes more sprawl unfortunately has simply too high a cost in terms of infrastructure maintenance, congestion, pollution, and housing poverty. Rates have to be higher to accommodate them.
You need the right type of liberalization both up and out, so those that want to be closer in can be, and those that want to be further out can be, but whatever they choose is at a more affordable capital cost, which then leaves more money in their hand to be charged the true cost of their operating choices, For example, all transport mode users could pay the full unsubsidized cost of using that.
And there is nothing in your last sentence that is factually correct.
Sorry, are you about to tell us forcing development to fringe suburbs doesn't result in extra costs to provide services like transport? Because living in North West Auckland, I can tell you there are thousands of new houses going in over the next five years in addition to the ones they've already built, but there's no Link Bus like you'd find in Mt Eden or Sandringham to be found.
The simple answer is to provide services to the places prepared to take on additional population by taking them away from the parts of Auckland that refuse to intensify. The city's planning cannot simply be run as a benefit exercise for the inner suburbs who get all the gold plated services like frequent transport, but don't want to have to share.
You may be right RS, I don't know. However, I wonder whether the economic case for in fill housing and other modes of intensification has ever really been made. At least the greenfield subdivisions do get a reasonable standard of new roading and reticulation. Intensifying within existing residential areas on the other hand usually involves little or no road and reticulation development,...more just connecting to existing infrastructure....which, within the older, inner suburbs was never designed for significant increases in population, or has just got old and in need of extensive improvement. Given existing built up environment, replacing old pipes is never going to be easy or cheap.
In other words, the idea of increasing population density near to transport etc., sounds good,....sounds very "green", but I have never seen a comprehensive examination that might support this "good idea".
...the idea of increasing population density near to transport etc., sounds good,....sounds very "green", but I have never seen a comprehensive examination that might support this "good idea".
You make a good point. Imagine putting 10,000 houses in a couple of suburbs and then needing to upgrade overloaded services. Given NZ's predilection for putting services under roads, imagine the disruption to the existing occupants plus the 10,000 new residences upgrading these services. It won't matter how good the public transport system is if the roads are dug up.
After seeing the prices for light rail I have reservations as well, for example are autonomous vehicles coupled to home based activities going to change the need for high density housing and mass transport. Then there is climate change plus epidemics facilitated by high density living.
Time for a pause and reflection.
"Self-driving xyz" that will still require massive roading corridors are the do-nothing tech-bro solution based on a solution that's always five years away. When we first started the Light Rail journey under Central Govt, we had people telling us we'd have autonomous vehicles by default by now. So... where are they?
Light rail is a balls-up from start to finish, it could be done for a fraction of what Wellington wants to deliver it for, and it's been corrupted by ticket-clipping fund-managers to the point where half of it has to be tunneled for no tangible benefit but at extreme cost. The problem is you need this kind of network before you can offer decent high-density living, but no one has the capability or, apparently, desire, to do it at a reasonable cost or timeframe. That's what you're paying for.
the building industry is a classic case of protectionism.
Protectionism : policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors.
The restrictions that created this was a regulatory system with "uniquely designed NZ Specs" all with the main purpose not to protect the consumer but to prevent competition.
Oh, six more months to get a final version of the report you've already let us know the draft findings of?
About an industry regulatory body that is too slow to come to conclusions about how good a product is?
I can't wait to snag a role in the Commission they set up to oversee the Commerce Commission.
There are two main issues.
1) The Performance Standard is on individual products, not on how individual products come together as a system. So individual products could pass a test, but when put together as a system fail. Sometimes because the individual products together are not compatible, and/or the installation of all these products is poor.
This affects existing products and any new imports. There are three main components to building successfully, Design, Materials (and how they come together as a system), and Installation. A fail in one means the whole will fail.
2) Irrespective of a product having a higher performance certification from overseas, the 'powers that be,' try to make you, at great cost, obtain a NZ certification, which in many cases is to a lower standard. IE it is expensive and adds nothing to the certification that the product already has.
Naturally, if the product comes in without the certification, then they need to have it tested in NZ.
New Zealand’s building supplies industry isn’t as competitive as it could be and making it easier for competitors to join the market, and expand, is what needs to be improved, the Commerce Commission says.
Had to read that twice to understand it. We are simple folk, we like simple sentence structures.
Remember when we had "chilly bin" houses? Plastered Styrofoam.
Then we had cladding made from compressed hardboard that rotted out in a few years.
Then we had untreated kiln dried timber - relying on a weathertight envelope.
Then we had Mediterranean style houses with no eaves or window flashings.
Next we had cladding fixed to battens, accepting that the cladding will leak.
Then a complete reliance on caulking and sealants instead of mechanical flashings.
The culprit is BRANZ. An organization in thrall of the big players that actually fund them.
I've been building houses for 40 years and the nonsense from our politicians is astounding.
The irony is all the products you mention can be legitimate building products if used in the right designs, with the right other products, and installed correctly.
For example, using treated timber instead of untreated timber is not a long-term solution to prevent leaky buildings, if the building is still leaky. All you are doing at best is delaying the problem, and also not addressing other issues like thermal efficiency.
Then GIB will close their Christchurch factory and ship in from Port of Tauranga to save cost. Then they will discount (or improve rebate offers) to drive off the competition. Cost to import containers from Asia is still 4x what it was in 2019 on top of all the other barriers to entry. The new players have a small window to make sales. GIB just need to stop them getting economies of scale.
Some are claiming the GIB supply shortage is already over, along with the building boom. Developers seeing diminishing returns are being forced to cancel projects.
Gib shortage 'over' due to construction industry slowdown | Stuff.co.nz
https://www.boxabl.com/ NZD 80 K Fully set up appliances and all. Unpack/Assemble and move in 1 hour. Let anyone in NZ with the spare land and ability to connect to services put one of these on it. No council permits or permission required. Housing crisis solved. Ship them in 100's at a time. Government is spending 28 million a month on Emergency Housing.
That would pay for 350 of these Boxable units every month
So you just need the hugely overpriced bit of land and the hugely overpriced services hooked up to it then?
Nevermind that the land bit is the main issue in places like Auckland, and this doesn't seem like it would offer you the same density as you could get with apartments or townhouses.
I didnt read the report as saying we shouldnt have regulation more that the process was to hard, slow and costly
This is unfortunately a wider Govt problem - think drug approvals, immigration visa approvals etc - which has been getting worse over time. So lots of streamlining required in central Govt as well as local where even getting a consent issued is now a long delayed and clumsy process
One solution would be a better incorporation of overseas approval processes
Easiest way to stop 'crappy expensive cartel products' resulting in 'leaky buildings' is to build more than 1000m away from the coastline...but that is like 50% of NZ housing so won't happen.
People have no idea how the sea air will eat your building alive no matter what it's made of.
I've just tried to get some window/door joinery. What a mess the industry is.
There are scores of companies to choose from but about just a handful of actual manufactures. The retailers do their best to hide which actual product manufacturer they use.
Try and ask for anything out of the ordinary - like upvc - and all sorts of walls appear and you get nowhere and are forced down the cheap and cheerful crap that is NZ std aluminium joinery.
All I want is a upvc sliding door with level entry for wheel chair access. How hard can that be?
So it must be about 10+ years since we realised we had a housing crisis, and only now have they looked into building supply costs! And who would have thought, the crazy BRANZ approval process is part of the problem. Wood isn’t wood and plaster isn’t plaster unless you spend millions proving it to BRANZ.
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