First it was the retail fuel market, now the outgoing Commerce Commission Chairman is suggesting the competition watchdog's next probe should be into the construction sector

First it was the retail fuel market, now the outgoing Commerce Commission Chairman is suggesting the competition watchdog's next probe should be into the construction sector
Mark Berry cartoon by Jacky Carpenter

Outgoing Commerce Commission Chairman, Mark Berry, suggests the competition watchdog should do a market study on the construction sector once its study on the retail fuel market is complete.

Speaking to interest.co.nz before his term expires on May 31, Berry said the construction sector was “clearly a market of national importance”.

“The affordability of housing is naturally a major issue for the wellbeing of New Zealanders. I think if there’s some exploration as to what’s behind the cost of housing and the extent to which construction is a problem in that industry, that certainly would have merit.”

Berry flagged the cost of construction materials as an area of concern, but wouldn’t elaborate on the parts of the supply chain he believed required particular scrutiny.

He suggested work the Productivity Commission’s done in this area could form the basis of a study’s terms of reference.

The Government in October responded to a public outcry over high petrol prices that varied significantly across the country by fast-tracking the passing of the Commerce Amendment Bill 2018 to empower the Commission to undertake market studies.

The retail fuel market study it started in December last year is due to be completed by December 5 this year.

While Berry believed there would be a “dialogue” between the Commission, the Ministry of Business Innovation and Employment and Commerce and Consumer Affairs Minister Kris Faafoi before picking the next sector to be studied, he said: “My prediction is that it will be the Minister who directs the next market study, and likely to be the path in the future.”

Legally market studies can be initiated by the Minister or the Commission.

Law change needed to crackdown on supermarkets

Asked about whether he was concerned decisions would be driven by politics rather than problems identified by the experts in the Commission, Berry said he didn’t see any major rifts or tensions.

“I’d expect some collaboration in the exercise.”

While the Green Party had pushed for a study into the Woolworths/Foodstuffs supermarket duopoly to be undertaken, Berry wasn’t entirely sold on the idea.

He noted the narrowness of the law had in the past restricted the Commission from taking action against supermarkets.

“Our ability to intervene in it is only if we find there to be unlawful conduct through collusion or through the exercise of monopoly power, and we haven’t seen that in my time at the Commission.”

Nonetheless, Berry acknowledged broadening the law could be looked at as a part of a supermarket sector study.

Patience and persistence 

Overall Berry was pleased the Commission had been empowered to do market studies.

“We often do analysis and can’t take cases, because we simply are applying strict legal frameworks. We see market failure and market problems, so if we can actually do studies and reach a conclusion as to whether competition is working properly in a market or not, and then endeavour to make recommendations as to how markets could move to be more competitive, I think that’s quite a positive role that we can fulfil.”

Berry cautioned against passing judgement on studies’ success too soon, saying six to 10 would need to be done before their value could be fairly assessed.

Pressed on whether the studies could be done more quickly than the year allocated to the fuel one for example, Berry said no.

Five full time Commission staff, assisted by others, are working on the fuel study.

Berry said the work was complex and market studies in the likes of Australia were typically done in 18 months.

Challenge going forward: Regulating companies based overseas

Looking ahead, Berry believed international giants, like Google and Facebook, would pose the biggest challenges to the Commission.

“Suddenly everyone’s woken up to market power and control that those kinds of major entities have,” he said.

“It is going to be very difficult to litigate companies that have no domestic presence here, who engage in quite openly misleading and deceptive conduct.”

He said his counterparts around the world were likewise grappling with how to regulate these companies, and particularly their use of data.

He believed an international forum like the OECD could take the lead enforcing international laws created, but conceded it was a difficult area to navigate.

On a high level, Berry was supportive of open data enhancing competition, but stressed the importance of protecting privacy.

Banks have been among the first companies to be pushed by governments around the world, including in New Zealand, to share their data with third parties to enhance competition.

Having been the Commerce Commission Chairman for 10 years, Berry will return to practicing law as barrister in Auckland. He will be succeeded by a Commissioner at the agency, Anna Rawlings.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Not only the cost of houses, but the quality of building them. Very difficult indeed to nail down a builder under the various warranties if the builder has been paid in full and is uncooperative, and they know it.

Sounds like you need a project manager. Negotiate the warranties before you sign the contract.

Yes that’s true, and if it’s true for us then it’s true for thousands of others. Goes on and on. Now in CHCH there is a new commercial building central city being seriously questioned re potential EQ performance. Signed off by the council. Just like CTV once was. Let’s hope for future occupants, the critics are completely wrong. I mean, seriously, how could history ever repeat?

There's nothing wrong with that building. My partner is an expert in seismic design, and although not a structural engineer, says that basically that building was designed by the original designers to deform in an earthquake - the building will stay standing and the occupants will be able to evacuate, but in a big enough quake the building will sustain enough damage that it will have to then be demolished.

The large building company that has done the new seismic report is holding the building to a different standard, where the deformation is not accounted or allowed for, and under those assumptions the building is "weaker" than it should be. But since those weren't the parameters used to design the building initially, that's not surprising.

Thanks & that is interesting & captures to a large degree, the number of buildings that “failed” and had to be demolished eventually, but were sufficient to not cost a life. So could the CTV building not have been the same? It survived the 2010 but in its weakened form collapsed in 2011.
Therefore it it had not be reoccupied, lives would not have been lost. All easy in hindsight of course, but would be interested in your partner’s view on that argument.

The general standard for seismic design of buildings is that they stay standing and allow evacuation, and that the internal services such as air conditioning, ceilings and stairwells stay intact and don't injure anyone or prevent egress.

How repairable a building is after that is a secondary concern and up to the funders of the project to decide how much they want to spend up-front vs the long term cost to repair and insurance costs etc.

The CTV building was totally negligently designed and should not have been occupied after the first quake.

Prior to the earthquakes, seismic design of building services was always a requirement, but no one really took it seriously and even if the architects/engineers had a design for it (often there wasn't one) the builders often ignored it and did their own thing, or some times didn't do anything at all and the inspectors just box-ticked without actually ensuring a design was present and that the installation matched the design. That is no longer the case.

The CTV building was a flawed design from the outset: a set of floor plates which were connected to a shear tower which stood outside the footprint of those plates. That being the case, everything depended on the number and characteristics of those connections. Which were initially passed by CCC at consent time, reviewed and somewhat strengthened later, but which basically failed sequentially in the quake sequences. The shear tower remained standing throughout, so it's design was adequate - the footage of the aftermath shows this clearly.

Yes, the building should have been shuttered after the September 2010 quake, as in hindsight the connections were compromised. But do remember that the assessors were all working under severe time, building owner, and general uncertainty pressures. Without some demolition to get into the connections themselves and equipment to perform a thorough structural analysis, it should not have been possible to just eyeball the site and make a real judgement. But that's exactly what happened. Hindsight - 20/20 etc.

Firstly, I should make it clear that I am not aware of anything specific about this building and am only speculating. Take what I say with a grain of salt.
Nonetheless, I feel I have something useful to add.
What you have stated misses the point as to what structural engineers actually do when designing a multistory building.
To design the building to undertake deformations allows you to design for lower forces. This results in a building with smaller steel sizes and smaller foundations. This is a perfectly legitimate approach that has been shown to work time and again in labs and in the real world, provided that you detail the connections in such a way that they can accommodate the deformations.
If the connection design within the building has not been done adequately however, then the building will collapse before the required deformations are achieved, meaning that the building is under strength.
Engineers typically don't go out of there way to stake there reputation investigating a building without getting paid (one would assume MBIE will have paid only one firm, possibly 2 but unlikely to be the three stated). Not unless they were seriously concerned about public safety that is.
I reiterate that I am only speculating here and I'll let you make your own mind up as to what has happened in this case.

The construction sector is an example of what happens when the government abandons its commitment to looking after the population and instead sits on its hands while the profit motive runs amok in society. The need to regulate and enforce has never gone away but in the name of the free market and making money at the expense of a vulnerable sector of society thats all been stripped back, disasterously I might add. Now with the rise of the global tech companies the vulnerability of entire democratic functions is at risk. Our Governments must respond and enact legislation that reflects the risks posed to our society in these days of unregulated technology. Don't get me started on the supermarket duopoly, why that has still not been addressed simply underlines how happy successive governments have been to abandon its citizens to the jaws of commerce and greed....

There are already a plethora of regulations. The issue is that the state is extremely ineffective regulator. Not that it does not want to regulate. Your theory of government controlled everything is what happened in the Soviets. Far worse than anything ever happened in the free market countries.
I do accept that government has a significant role to play. And for society to be able to counter the extreme power of super-businesses the Government needs to play its referee/watch dog role very well. That they are unable to play this role well though is not due to free-markets, but rather the inabilities and incompetencies of governments themselves.

True.I'd rather sue Amazon, Apple, Fonterra & Coundown combined than sue Auckland council. The latter will use my rates to pay for expensive lawyers to defend and delay and when they do so they say 'it is in the best interest of the public'.

Problem is the regulations are ineffective because they seem to focus on trying to prevent the construction sector from delivering a bad product, rather than ensuring that the construction sector can be held accountable for the quality of the product it delivers.

Exactly Rick. And there is the rub. You can have regulations and warranties to take you to the moon but if they are not enforceable? There is no effective remedy in place to call out bad workmanship by a builder. Master Builders Guarantee is toothless and self protective for its members, just like the contract they avail themselves of. LBPs group, completely ineffectual and take months to do nothing. So you end up with a builder being virtually flame proof for the job on hand. Popular catchphrase in current use “see you in court then.”

Infrastructure growth needs to be paid for by rates levied against land value. It's crazy how much connection fees and growth charges add to the cost of new builds. Add consenting fees to that too and you'll knock over $100k off new builds. Plus land values will reduce due to the added rates burden, and bam, affordable housing again. The banks would hate it though.

Indeed. It's ridiculous that as a city/country we choose to send more offshore to foreign owned bank in interest instead of having that money go in to building up of infrastructure. Self-interest driven short-termism.

10
up

Pre GFC a builder we used was driving a Holden Commodore ute with all the accessories it could carry.
After the GFC he was driving an aged Toyota Hi Ace van with various rust patches on it.
Now he is driving a Ford Ranger which is bigger than my house.
Too polite to ask questions.

Construction is a tough business full of tough people. It's success (if indeed, one can use that word) has been its ability to resist change as much as possible with everybody (in the construction food chain) getting a markup. It is based on the crafts & skills of its members, similar in style & structure to what was happening over the last 1,000 years. It is an industry ripe for disruption & it is happening, slowly. We're not far that away from the government buying bulk factory houses for those in need & they can't be any colder or damper than what we've currently got. $100,000 will get you a nice little 2/3 bed. All you need then is the land. This is a global issue & unfortunately we are at the end of the food chain, in that we do not have enough critical mass as a nation to address this head on. But we can (& will) get better at it. But remember the resistance. When you have created a successful life out of a system, it can be tough to redo the template if it means your huge salaries (a la Fletcher) will disappear.

Agreed. Very, very change resistant. I have been using broadly the same techniques my great grandfather and grandfather and uncle all used in their construction careers. The landprice issue may be close to solved if we follow the american approach of funding infrastructure via special debt vehicles, it will allow endless expansion of new development without sinking local authorities under too much debt. The other less talked about option as used in Germany would see the government take over ownership of the land but offer leases of the land which means the main cost is just your house....

Leases are an abject failure in most parts of Auckland and many will not touch them.

I disagree half of new car purchases are leases

It's sad, innit, when a ComCom wallah, half a week away from the next gig, suddenly sees fit to suggest - ever so gently - that there might be , maybe, could perhaps, sorta is, Something Wrong with the building materials duopoly.

The more ancient commenters on this august site have been pushing this barrow for a decade and more - phrases like 'ComCom is asleep at the switch' have been used. Yes, it's wakey-wakey time for the next Commish. But why, oh why, did it take 'em so long? Particularly when all it takes is a comparison between com.au and co.nz price lists for identical products.

And a bit of trust-busting would not go amiss, either: how come Gib is manufactured here, and retailed here, via the same 'vertically integrated' Opolist?

Let's hope that whoever is in charge of recruiting the next Commish, has the wit to specify a full set of incisors, plus vertebrae, plus cojones (or, even better the female equivalent) in the person description. Because, not to be unkind personally but to simply state the obvious - ComCom has operated with all the rigidity of a jellyfish in dealing with any of the Opolista which infest Godzone.

One can but hope....but not Bet the Farm on any substantive change.

My word. That was good fun. Problem though is it would be a lot more funny if it wasn’t true.Used to love Punch when it was around. Glad to know we have a slice of satire here too, still at large. Tks again.