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The Commerce Commission's draft building supplies report is a buy recommendation for Fletcher Building shares

Business / opinion
The Commerce Commission's draft building supplies report is a buy recommendation for Fletcher Building shares
[updated]

It should be no surprise that Fletcher Building shares are having a good few days.

The construction giant has yet again dodged a bullet with the Commerce Commission’s latest report into residential building supplies, although chair Anna Rawlings said the firm and others like it, hadn’t been given the “all clear”.

Regardless, I expect its public relations team is grinning and taking off for an early bevvy in the winter sun to celebrate a job well done.

Fletcher, who is both a maker of goods and a retail seller of those goods, and other so-called vertically integrated firms were not the target of this report, as much as people like me might hope. Rawlings noted having makers and sellers in the market like Fletcher could give rise to difficulties at times. But, in what felt like an inevitability, it didn’t find that these firms were substantially lessening competition. They almost never are, are they?

The mere fact Fletcher’s Winstone Wallboards has something more than 90% of the plasterboard market is neither here nor there apparently. After all, the commission looked into this specific issue in depth in 2014 after some market players stuck their necks out and made complaints. 

That report found no action needed to be taken against the GIB maker although it said Winstone’s market share “was very high and has been for many years”. 

That report, remember this was in 2014, laid the finger of blame with the Building Code and those involved in designing, consenting and building houses, for picking GIB. It also said wannabe entrants didn’t make good enough offers to entice merchants to stock their products.

Sound familiar? Like from Thursday, August 4, 2022?

And we’ve also been down this road before with petrol and with supermarkets and energy. Isn’t it strange how in these markets, where there are wholesalers/makers who are often also retailers, are the same markets where it’s widely accepted there is a competition issue?

The commission has picked up the baton waived furiously by market players and industry associations about how tough life is out there for them to bring in new products and how, woe is us, it’s all the fault of someone else that the market isn’t working as well as it could.

Many of the points raised by the commission in its report into how competitive the sector is could have been ripped straight from Fletcher’s own submission into whether the market for key building supplies works well.

Fletcher laid a lot of the blame for weak competition (but remember things aren’t really that expensive here anyway, small market and so on and so forth) at the feet of the territorial authorities, the building consenting authorities (BCAs), like councils. Councils, it says, are so slow to consent anything that it makes perfect sense for designers or architects to specify say, GIB plasterboard must be used, because the councils won’t question it as possibly they would some other weird new-fangled overseas made (the horror) product.

And why do the councils do this? Have a google for leaky building claims and settlements and it all makes sense. Our local authorities have basically been the only organisation left to sue by bereft leaky homeowners who often lost a lifetime of capital after the fly-by-night limited liability firms set up just for that development collapsed under the weight of another crappy new build.

Of course the councils are going to choose something they know they shouldn’t get sued about. 

Fletcher, and the commission, also went into detail about how certification of building products is slow, costly and too-hard basket to the extent that building supplies firms with new products just won’t bother with New Zealand, at all.

But is any of this really a thorn in the side of the big players like Fletcher?

I would argue it’s all been wonderful for the incumbents. Their position as vertically integrated firms has worked beautifully with having councils tightly controlling the consents process, and certification dominated by BRANZ and led ultimately to all of us paying through the nose for anything we build.

At this point the whole system seems paralysed. It is reliant on so few safe, not scary products, with lagging standards, lack of international benchmarking and terrified councils still nursing wounds from the leaky build disaster.

There won’t be an easy fix here. GIB is so tightly wound into the designing and consent process you feel that even if lives depended on it, GIB will still be chosen most days of the week. 

There are suggestions the building consent authorities should be junked and consolidated into a few so at least there are less than 60-odd different consenting authorities to deal with. Master Builders, Fletcher and co are keen on this idea, and Master Builders is also calling for the Ministry of Business, Innovation and Employment (MBIE) to take over consenting.

Really? The same MBIE that after the country basically ran out of plasterboard in volume investigated whether regulatory changes were needed but, you guessed it, determined that existing legislative and regulatory settings “allowed MBIE, BCAs and the sector to respond to the plasterboard shortage with practical actions addressing key barriers to substituting and using alternative plasterboard brands and building materials”.

That MBIE? 

There is nothing new here. The issues aren’t new, the solutions we’ve heard all before as recently as 2014 and the nuclear option of splitting up the vertically integrated behemoths isn’t on the table.

To be fair, in June Building Minister Megan Woods formed a taskforce to help resolve the plasterboard crisis, including industry critic 2Degrees founder Tex Edwards.

Woods also announced in July that four alternative plasterboard products to GIB could be used to meet the requirements of the New Zealand Building Code for bracing qualities, although we had to hit a crisis first. And there are the legislative changes this Government has made; the market studies themselves and it has tinkered with the Commerce Act in the hopes of dealing with anti-competitive behaviour.

So let’s see what happens next. The commission has a new toy to play with in terms of the changes to the Commerce Act’s section 36 and the “effects test” which it is hoped might give it some muscle to put to use rather than just baring its teeth.

But I fear I will be writing yet another piece in another eight years or so, regurgitating the same thoughts. I would love to be wrong.

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39 Comments

There seems to be plenty of competition in the insulation market, I think because it is much less restricted by building controls, an R value overseas is recognised here. Yet GIB is considered as a bracing element (probably not so much overseas) and hence new entrants must prove their bracing capability too (even though it is all just plaster between two sheets of paper). GIB provide a tool for architects to calculate their bracing to include in their plans, but of course if you use that tool (as our architect did) then the calculations only apply to GIB. 

Its hard to know what the solution to all this is... We do have earthquakes and hence we do need more bracing than elsewhere, so I guess it all makes some sense. But maybe the building code could have more generic / simple bracing calculations for generic plasterboard. Or we just stick to GIB and it will all be solved once they open their new factory. 

Having watched a few building shows from the US I noticed that they use a layer of somewhat weather resistant particle board under their rooves and cladding. I guess that provides significant bracing as well as much improved weather tightness (as well as weather tightness and security during the build process). Sometimes I think it would actually be cheaper in the long run to mandate something like this and then ditch all the calculations and certifications etc (as it would provide so much more bracing than GIB ever will). Simplified overengineering may be a lot cheaper (and definitely better) than highly calculated exact engineering. 

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I'm not an architect or a builder however have built a few houses over the years. I would have thought it better to ignore plasterboard lining and ensure that the framing / RAB meets std bracing requirements on its own.

In my current home we used 140mm external LVL framing at 400 centers, mainly for additional insulation (& potential for future 2nd storey). Solid as the proverbial.

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The then new building code NZS 3604 was introduced around 1979 and that introduced the using of Gib as a bracing structural element for the first time.  I remember going to evening classes at MIT at the time to learn the about the new code as I was about to embark on a speculative build with my father...unfortunately, there was a slump in the building industry and we almost lost our shirts.

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I'd be surprised if they used the word Gib when it was introduced into the standard. I'm sure plaster board (or even dry wall which i think is the US term), would be used, not Gib. The plaster board bracing system would have gone through Branz testing to ensure its integrity. This is open to  other plaster board manufactures as well. I suspect the the other manufacturers of which there aren't any in NZ would have to submit their plaster board bracing system to Branz.

Some of the imported plaster board/s are most likely imported by a "salesman" who know nothing about building requirements. This is not an issue if its not being used as bracing.

Those who want to sell a plaster board bracing system need to have it tested by Branz. Probably too expensive for the local salesman/importer and possibly too time consuming. The overseas factory could also very likely not want to go to the lengths of funding the Branz tests due to the local market size.

As an amateur/hobby interested in residential design and construction I have made myself familiar with many technical aspects. Using plaster board (gypsum between paper and suitably re-enforced) as a bracing element, even if passed by Branz is anathema to my engineering sense. It is probably very cost  effective compared with other forms of bracing.

I'm going through the Com Coms report using a few selected search words and phrases for my own edification, particularly as journalists do not have the time to go through a 360+ page document.

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You're probably correct that the term plasterboard was used and not Gib but we're not writing a legal document here and the general reader is more likely to understand the word Gib rather than plasterboard.

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I realised at about 45 that the whole thing is rigged. I'm a bit slow I suppose.

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BRANZ is in thrall of and funded by the big players. The art of lobbying is very much alive in NZ - as is the art of blaming everyone else for a cock-up. 

Of course the councils are gun shy. But then their inspectors have no balls and no support when it hits the fan.

Then the media piles in looking for a scapegoat. But most of all it is the consumer who plays the part of the sacrificed goat and expects the regulator to look after them. 

Our regulatory bodies are toothless and in fear of upsetting the corporate giants. And our regulators need some people with chutzpa. 

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The Commerce Commission, MBIE, Treasury etc are all working off a neoliberal model of economic activity that ensures mergers and acquisitions are rarely deemed problematic, while behaviour that used to be viewed as anti competitive, monopolistic etc is now seen as perfectly fine. All the major political parties seem to accept this also so nothing substantial ever gets done. Supermarkets, construction materials, the electricity market, banks,  etc etc - all continuing to gouge the consumer. 

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Minister of Commerce and Consumer Affairs David Clark:

There were clear signals for people in the sector to "think about their behaviour, to review their behaviour explicitly in some cases" 

About as effective as sending "thoughts and prayers" after mass shootings. Company behaviour is to maximise profit. If Labour's approach is to tell them to "think about it" I honestly don't know how they can consider that governing.

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Exactly, what a joke. World leaders in falling behind.

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This Government is a bad, bad joke.

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A compounded problem is the lack of an alternative major party that would not help out the industry duopolies even more.

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If you work at one of these evil corps, please consider working somewhere slightly less evil.

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By the time you have remove all the other evil like FIRE, Govt, Farming, and PetroChem, you aren't left with many viable places to work in NZ.

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Recently, after a 3 month wait, I collected 2 sheets of 1200x2400x10mm sheets of ordinary GIB at a cost of just over $54.00

If I lived in Oz (where I should have gone years ago) I would have paid $16 a sheet at Bunnings.

 

This country would be better service if the government got rid of all the staff in the so called commerce commission and let them apply for proper jobs, assuming they don't use the opportunity to join the ranks of the dole.

 

 

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I love how they price it now per sqm. So it looks a lot cheaper. But you can only buy it per sheet. 

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Time for a commerce commission inquiry into the commerce commission.

Or at least take half of their budget and put into a consumer minded lobbying group.

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I always wondered whether, as we approached the global Limits to Growth, we'd miss the point and complain about this or that.

It appears this is what is happening.

What we've seen over the last few decades, can be described as: Commandeering the Commons. Thus, you lobby for certification to put in the outer left-hand-corner nail in red roofs, get certified, and charge a (percentage of monopoly) premium.

Happened with everything, and inevitably in the process, eliminated home builders (who were the ultimate expression of a 'Commons'.

Atop that, the planet is being bled dry of material stocks, particularly fossil energy. So expect things to get more 'expensive', en route to 'unobtainable'.

Or, of course, you can believe that 'supply chain issues' are merely a hiatus....

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There is a woman on tik tok sharing her experiences of viewing new build kiwi properties. The building quality is shocking and honestly I wonder if we will refer to homes built in 2020 to 2022 in the same way as the ones built in the 1990s. As someone else alluded to above, Australia does not seem to have as many problems, so why are we so bad?

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Got a link?

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Looks pretty superficial. But yeah you wonder what it is like underneath. 

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Some maybe, but it also shows a lack of care and standards. Whatever happened to tradies having pride in their work?

The tollarances guidelines from the NZ building department also seem to be a very low bar, so many of the things they seem to be able to get away with. 

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A lack of accountability and responsibility is a big problem. Too easy to dodge responsibility for delivering substandard rubbish.

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Oh yeah I agree but it tells me a person with no building knowledge can walk into some of these places and pick out blatant bad work.

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When I came to NZ in 2014, it was really was with the anticipation of a land of milk and honey,,

The reality has been sacred cows and funny money.

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Did you came here to milk us and ended up getting milked?

 

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Good old white kiwi mentality right here, their is us and them.

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Fletchers is the sacred cow. Despite management attempts in recent years to kill the goose. It has been and will continue to be a license to print money. 

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Hardly a golden goose. Their shares price is less then half it was in 2007 and since then we have bailed them out twice.

I do agree with you on the management.

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Who owns the shares?

How much is owned by govt or MPs etc.

Ots all very odd how teflon coated Fletchers is and how its always there when the gravy train hands out goodies.

Tin foil hats are free :)

 

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FBU share prices have hardly rallied, buy as many as you want:

https://www.nzx.com/instruments/FBU

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... over the years I gotten the impression that FBU operate in a similar way to the NZRU ... steady as she goes , maintain the monopoly , an "old boys" network , favours for & from friends in Key political positions ... above all : be bland , never ever innovate ...

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It’s all been beer and skittles with banks willing to lend as much anyone could borrow

lets see how the industry reacts when the credit well runs dry

developers in Aus are falling over like flies… must be the same here.

I would say there are a few worried credit controllers at the moment

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Fletcher shares increased by a whole one cent today. They're hovering around $5 mark at the moment and have an "accumulate" rating and a fair value estimate of $6.50 by Morningstar.  But as we know from the Z-Energy debacle, Morningstar has a terrible record of getting it wrong:  e.g. they rated Z-Energy at around $5.50 but neckminute Z turns round and sells out to Ampol for $3.78.  Z's directors should have been shot and Morningstar's analysts put to the sword.

This time last year Fletchers share price was touching $8 but now only $5.   Fletchers isn't going anywhere, full stop.

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That made me laugh, nice to hear the simple robust language I grew up with.

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A little bit simplistic this piece if you ask me.  As others have pointed out, the Commerce Commission's report did nothing to move Fletcher's share price simply because what came out of it was about the only finding they could have made.  It's hardly Fletcher's fault, nor responsibility to correct, that other providers are either unwilling or unable to get into this market for a host of ridiculous reasons.  It would be a similar waste of time if we were to have a Com Com review of the dairy industry and yet milk prices to the local consumer in this country (which is, I think, the highest dairy producer per head of population in the world) seem to be an absolute scandal.  Supposed competition in this industry doesn't result in sharp or even fair pricing for Kiwi's so why should the building industry be any different.  Once again we the gullible New Zealand consumers just seem to keep saying "hit me, hit me!" whilst the more mobile up and leave for Australia.

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I'm so glad that we have virtually zero gib or plasterboard in our new home, Durapanel is a great product, made locally, no supply issues and I believe cheaper to use. Zero chance of holes in walls if kids get out of control on the trike too!

Fletchers are the biggest rip off cartel in the country

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I am so confused by the media around this issue, why are the right questions notbeing asked.......From what i understand the price of plasterboard has only ever increased in line with inflation over multiple years... Also a very quick check on Bunnings Oz vs Bunnings NZ, shows its cheaper in NZ and thicker -10mm vs 13mm.....Are the people ordering from overseas, buying the same spec, time will tell....As a  businessman i think Fletchers should have put the price up to slow supply.....first lesson in economics - Supply and Demand...but imagine the complains......

As for the shortage did anyone ask where the material actually went. (Surely Fletchers know ?)..... how many of the big players complained, I am sure I even heard on Hoskins show the head of the taskforce say they did not have a problem.... ? I Bet it was the "Toliet paper Syndrome" and they heard supply was going to be cut and bought up large (ones with Cashflow), I bet we see people looking to sell it now.

Also all this plasterboard that is coming in from overseas (100 containers) how is this going to be sold.....Bunnings, Mitre 10, ITM ????? (Is it cheaper and will it get to the right people ??)

Winstones are the only people with Manufacturing Capability in New Zealand, of course they can construct it for the cheapest, they don't have the shipping cost (who is going to invest in a plant with such a dominate supplier),....I am just glad that the manfacturing (Jobs and Money) stays in NZ, rather than going overseas( like the big Banks)

So many questions to actually understand the real problem......

 

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