Below is a press release from Commerce and Consumer Affairs Minister David Clark issued on Sunday afternoon.
Govt to review high cost of residential building supplies in market study
Ensuring Kiwis have access to fairly priced building materials is a driving factor in Government’s decision to review the residential building supply market, Minister of Commerce and Consumer Affairs, David Clark, announced today.
“We’re looking at how we can lay the foundations for a more competitive building sector,” David Clark said.
“We are delivering this manifesto commitment because good housing underpins a range of social, economic and health outcomes. Therefore, it’s critical Kiwis have access to fairly priced building supplies.
“Understanding any market barriers could play a key role in supporting New Zealanders achieve home ownership, so I’m pleased the Commerce Commission will be getting this work underway.
“It’s clear a significant portion of the costs associated with building residential housing is tied to building supplies. As New Zealand’s population has increased over the last decade, residential building consents have more than tripled. Alongside that, current demand for renovations and extensions to existing homes is at the highest it’s been in 15 years.”
The study will allow the Commerce Commission to investigate any factors that may affect competition for the supply or acquisition of key building supplies. This includes: the foundation, flooring, roof, walls and insulation.
“There have been long-standing concerns about potential competition issues, particularly due to the highly concentrated nature of some markets in the supply chain,” David Clark said.
This is the third market study of its kind in New Zealand. It follows a similar piece of work into the retail fuel sector completed in December 2019 which found that motorists were paying higher petrol prices due to a lack of competition, and led to the Fuel Industry Act. The second market study into the retail grocery sector is ongoing, with the final report due in March 2022.
The Commerce Commission will present its final report on residential building supplies in December 2022.
Editor’s notes
Market studies help improve consumer outcomes in sectors where competition is suspected not to be working well.
The Commerce Commission will have the ability to commence the study once the Terms of Reference is published in the Gazette, which is expected to happen on 22 November 2021.
The matters to be considered in the building supplies sector study may include, but are not restricted to:
- The industry structure for key building supplies covered by this study
- The nature of competition for these key building supplies, including any industry pricing practices or acquisition requirements that impact on competition
- Impediments to the entry or expansion of new or innovative building supplies, such as ‘green’ building supplies or novel prefabricated products.
The Commission is required to publish its final report on the study by 6 December 2022.
19 Comments
Because capitalism is the core problem, Kate. That's why we can't.
This isn't a competition/monopoly problem, any more than fuel was (and note what is happening there, since.....). This is a 'not enough planet, too many people, too much demand' problem.
And it's going to get 'worse' exponentially.
There is no way back from this; exponential growth was always a temporary thing within any Bounded System; Earth, NZ, timber growable...... you name it.
Because capitalism means supermarkets put covenants on commercial sites to not allow other supermarkets to be built there and stifle competition. Capitalism means the companies set up to certify competing building products spend more time in the courts vs the bottomless pockets of the Fletchers legal team than reviewing materials and products.
The sooner the government knifes some of these practices the better.
""It’s clear a significant portion of the costs associated with building residential housing is tied to building supplies"
What a genius bright star of the Labour cabinet. Ahem land cost and associated council costs is a biggie. Then the gst is over 100k of the cost of the average home. Same minister who tried to enforce replanting paddocks in the deep south by 31 October.
Here’s an idea..
1. Get rid of building consents
2. Get rid of BRANZ in the materials approval process to open up competition for alternative products
3. Every builder / developer pre pays for 10 years of insurance cover against defects to the property and is also personally liable. The dodgy ones will find premiums prohibitively expensive and dissapear - the good ones will make money and thrive.
Hi Roark,
We tried deregulating the building trade (including materials, design, and qualifications) completely in the 90s under Douglas and Richardson. It worked out just peachy with market really coming to the party: the weathertight homes litigation and aftermath still ongoing, ripping the social fabric and costing billions more than even a mediocre regulated system such as exists now.
Any other ideas?
With the leaky homes saga you have every participant running for cover - the designer, product manufacturer, builder, council - and the poor home owner is left carrying the can. With what I suggested above, the insurer needs to underwrite the project (and premiums are prepaid so the cover continues even if the builder disappears). Council and BRANZ did not save us from leaky homes - and readily shirk responsibility which is what they’re there for. Employing more cowardly bureaucrats certainly won’t help.
Not so. The homeowner while benefitting does not take out the policy and they are indemnified only (no better or worse position). The builder cannot undertake risky behaviour because their insurer will punish them - either via punitive premiums or withdrawing future cover. Of course the cost of premiums will be covered by the end user - but the law of the jungle will drive business to the lowest risk / lowest cost operators.
Negative. The rot has quite literally long set in by the time BRANZ and other half-baked regulatory responses came on the scene. Don’t mistake me as clamouring for a totalitarian regulatory system: sometimes the costs of regulation most definitely do outweigh the benefits. Not so in the case of deregulation.
Your suggestion to load all risk on insurers is equally untenable. Insurers won’t be able to tell what works and what doesn’t in a deregulated industry, so they will quite sensibly jack their premiums, precipitating their own death spiral. Just look at housing insurance if you’re within a few km of the beach, now...
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