House building costs under scrutiny

Property

Government issues paper released for comment on why it costs so much to build a house in New Zealand

11th May 13, 11:58am by David Chaston

Why are some house construction costs are as much as 30% more expensive than Australia? (Image courtesy Productivity Commission)

Following the Productivity Commission's conclusion that the costs of building a house in New Zealand are too high, the Ministry of Business, Innovation and Employment has released an "issues paper" seeking comment on the problem.

“This issues paper and market study is about identifying why some house construction costs are as much as 30% more expensive than Australia and how we can get costs down,” Housing Minister Nick Smith said.

The document is primarily focused on improving competition and productivity.

“The competition work focuses on potential barriers to effective competition within the building materials and services market, while the productivity work focusses on factors to improve the overall productivity of the residential construction sector,” said Craig Foss, the Minister of Commerce.

The two Ministers are due to report back to Cabinet later this year on proposed solutions to the problem.

“There is no single silver bullet to making New Zealand housing more affordable. This work builds on the Auckland Housing Accord, in which a commitment was made to examine materials and construction costs. We need to address all of the issues from land, infrastructure, materials, labour, and compliance costs if we are to achieve our goal of more affordable housing," they said in an emailed statement

Submissions on the Residential Construction Sector Market Study issues paper close on 10 June 2013.

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34 Comments

by Henry_Tull | 11th May 13, 1:01pm 1368234091

DC, good work.

and not to be forgotten other professional hangers-on...

Looking at organising pre-sales (requirement of construction funding) one Auckland legal professional we referred to would provide a contract usuable for all 12. Cost $24,000 please.

We referrd to our usual chum whose is happy at $2,500 for the document to be used for all.

Both happy to run settlements etc as well as..

With referrals to that who needs friends....

- everybody is looking at the big number.......

by jh | 11th May 13, 3:21pm 1368242510

True

http://www.stuff.co.nz/print/4834145a6011.html

by jh | 11th May 13, 3:40pm 1368243637

The Commission has found that taxation was not a key driver of the recent housing boom.

“We carefully considered the claims that housing is tax advantaged, but concluded that any advantage is much smaller than often suggested” said Mr Sherwin.

Containment policies such as ‘Smart Growth’ and Auckland’s Metropolitan Urban Limit (MUL) were also found by the Commission to have an adverse effect on housing affordability by limiting the availability of land for housing.

.................

Whereas the Savings Working Group came to a different conlusion:

Immigration and tax breaks for investment in residential property are being cited as the underlying causes of steep increases in the cost of housing over the past decade.

Productivity Commision:
We recommend that you:

Agree/disagree
b agree that Commission’s second tranche of inquiries be selected on the degree that
they:

• are relatively uncontroversial given the desire to establish broad political support for the Commission

http://www.treasury.govt.nz/publications/informationreleases/productivitycommission/pdfs/t2011-2000.pdf

So we want you to look into this but we don't want you to look here and here. I'm assuming issues that don't gives us "broad political support" could be substantial issues?

by KH | 11th May 13, 8:44pm 1368261840

The imminent 50% drop in the price of electricity will help just a little bit. Not a big deal, but it will help.

by jh | 12th May 13, 9:49am 1368308999

CEO's earn fantastic salaries, lawyers, architects Jenny Shipley ($1000/day to oversee CERA).............. because they are worth it! And the whole thing sits in the Property investing ethos of wealth from nothing.

by waymad | 12th May 13, 8:42pm 1368348170

Thank you kimy for sharing this (I recall suggesting it a thread or three back). very revealing

Can you hazard a 'carry' (interest at say IRD rates for use-of-money) on all this, so far?

This would bring a really commercial aspect to the example: it's the carry as what does in many a contractor.....

An eyeball/ballpark estimate: at say 10%, I'd guess $700-$1000 so far and counting....

by jh | 12th May 13, 10:09am 1368310179

Here's a good case study for you Hugh:

A BNZ spokesman said lending to iwi posed issues.

“It’s not that we can’t, it’s just different, more complicated, and due to these challenges, freehold title security is the most common form of security,” the spokesman said.

“The beneficial ownership of a Maori land title typically links back to, say, a hapu, so multiple ownership of more than 50 people is not uncommon. To undertake any sort of transaction, you need collective stakeholder consent.”

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10882929

..........................

The rules of the game are that the land is owned collectively and you can't on sell to wealthy migrants.

by jh | 12th May 13, 10:08am 1368310124

Having insulated my house last winter I found Knauf knocked the socks off Batts. I bought on line and delivery to my house was only $40

German-based group undercuts Fletcher by half

by Chairman Moa | 12th May 13, 1:03pm 1368320608

Elephant plaster board can be bought for about $6 for a standard sheet.. but Gib protested and forced the govt to put a tarrif on them so they have top be sold for about $14/sheet. Way better product and higher ratings than Gib. Just a small example of kiwis being ripped off..

by Boatman | 13th May 13, 10:30am 1368397824

Damn right , the product from Thailand is actually GYPSUM which is a top quality UK product made in Thailand under licence

Its criminal that the Government sees fit to protect the Fletcher monopoly to the detriment of millions of New Zealanders .

by Boatman | 13th May 13, 10:08am 1368396523

Looking at the price differentials of 30% , one cannot help but I suspect there is price rigging in NZ , and would further suggest that Fletcher group are the price makers with everyone else taking their cue acordingly .

We really need a serious international competitor to open up here

by notaneconomist | 13th May 13, 4:42pm 1368420166

As the RBNZ owns a large chunk of Fletcher shares I suspect that there will be no competition for quite sometime.

I have pointed this fact out on interest.co.nz an provided all the links to the Companies Office on many occassions but the journalists here are not interested in interviewing Politicians or bureaucrats on this topic.

The material costs provided in the article miss out many costs involved.

by Boatman | 13th May 13, 10:25am 1368397523

GOOGLE THIS ONE " Winstone application for tarriff protecttion " .. The Govt cannot claim to be surpirsed about materials prices , they need some introspection ....If anyone ever needed proof of Fletchers price gouging and anti-competitive beahaviuor , take a look at Fletchers application to keep competition out of the Plasterboard business and block perfectly good quality imports ... see extract from MED finding on imports

27. The application was submitted by Winstone, which is a wholly owned subsidiary

of Fletcher Building Limited (FBL). Winstone is the only New Zealand manufacturer

of plasterboard and therefore, in accordance with section 3A of the Act, constitutes

the New Zealand industry.

by Simon | 13th May 13, 10:27am 1368397630

remember there was a time pizza hutt got away with selling a single large pizza for $24 (in 1995 dollar terms, so prob closer to $30 in today terms). Now they're $4.85 thanks to domino's.

We need scale and competition. Possible for auckland given the numbers to be built..

by Boatman | 13th May 13, 10:37am 1368398237

Right -on the money , we need competiton its like the price of Chicken , which is cheap protein everywhere on the planet , except in NZ , where importation is prohibited .

In India a frozen chicken in the supermarket is under $2, in the rest of Asia its about $1,50.

In countdwon its 300% more expensive , and why we are protecting an Australian owned business (TEGEL) floors me

by bob | 13th May 13, 4:54pm 1368420879

You eat a chicken from India and you will become vegetarian like most locals.

by iconoclast | 13th May 13, 10:42am 1368398527

Hang about

$85,000 = total material costs as per schedule above

$35,000 = total council consent costs plus design costs - per kimy post

$120,000 before development costs, labour, drainage, site works, excavations

No contest

by Chairman Moa | 13th May 13, 10:40am 1368398423

Here's another example, Paslode nailer (99% of builders have on of these). Placemarkers (Mt Wellington) $989, Bunnings Australia $619 AUD ($750 NZD), jump on ebay and you can get one from Australia for $450 AUD, roughly $550 NZD. Even cheaer if you go to ebay.com (US site).. all came out from same factory and carried international warranty. Go figure.

by Stephen Hulme | 13th May 13, 11:06am 1368400007

The shopkeepers of the nation have entrenched licence to price us back to the Stone Age - how do we cut this noose around our competiive endeavours?

by waymad | 13th May 13, 12:36pm 1368405361

Light a fire under ComCom, perhaps?

Oh, wait.

Clean Air regs.....

by Gertraud T. | 13th May 13, 5:07pm 1368421652

@ /Chairman Mao

But you have to add the cost of freight and unfortunately also Custom duty or/and GST for articles above $ 400.-.

Buyer be aware!

by Chairman Moa | 13th May 13, 5:45pm 1368423919

My old builder bought quite a few for his work. extra freight and GST were about $70 extra..

by bob | 13th May 13, 12:05pm 1368403536

As terrible as this all is a huge chunk of the additional cost is in windows (like 1/3 of it).

Whenever I'm in Australia it's suprising how crappy a lot of building products are - in particular windows and window detailing. I wonder how much cost difference is a result of building standards in a cold/wet climate needing to be better than those in a hot/dry climate?

NZ windows are crap compared to european, but seem better than Australian ones.

I wondered why Elephant Board's profile had dropped. That's the next biggest. There doesn't seem to be any foundation/slab, plumbing, electrical, fittings in comparison?

by Chairman Moa | 13th May 13, 2:17pm 1368411456

Interesting obeservation Bob.

I am about the start our extension here in brisbane (and had done a few in NZ). At personal level, I can tell you the materials and construction method here are way more superior than NZ. For our low level deck, the poles are down 1.4m - where as in NZ I never seen anything more than 800mm depth. Our bifold windows are way more solid than anything we had in NZ, German made tracks and we paid $2500 for a 2.4m X 1.2m 4 panes bi-fold, double glazed (try to buy that in Auckland)

by BigDaddy | 13th May 13, 12:15pm 1368404157

Then there is GST.

10% in Aussie, 15% here.

5% can makes a big difference to the numbers.

by Roger Witherspoon | 13th May 13, 12:36pm 1368405391

Funny, Nick Smith seems to have missed that....

by carkeek | 13th May 13, 8:17pm 1368433056

too right.

When I built my house I calculated that I had spent about $90,000 on GST and council costs (about $130k if you include income tax on the money I earned to pay for the other taxes ).

The land and build for my house cost about $600k, so the $90k extra on taxes was a massive addition.

Taxes on building is the elephant in the corner that no one wants to talk about for some reason.

Does the state really need it's citizens to pay $100k+ in taxes to build a house? I say no. We should provide some tax advantages to make building a bit easier.

by AberdeenDunedin | 13th May 13, 1:11pm 1368407503

I have bought as much as I could from the UK for a major renovation that I am carrying out shortly - double glazed French doors, timber internal and external doors, triple glazed Velux windows, timber flooring, appliances, kitchen etc. etc. Even with the cost of duty, GST, shipping etc I will still save one half to one third on the price of the NZ equivalent. In many cases I will also end up with a superior product (eg Velux don't retail the triple glazed roof windows here.) I would prefer to buy in New Zealand but I can't see that the benefits of the high NZ dollar are being passed on to consumers here. The only downside is that the products won't be covered by warranty but the savings are such that this is a risk I am prepared to face.

by waymad | 13th May 13, 3:58pm 1368417525

Excellent, shows what can be done.

P'raps the answer is simply to fill a coupla container ships fulla building materials on spec, put up a FB page, and sell'em straight off the dock. Once she docks, of course.

Competition for the incumbents, whatever next?

by bob | 13th May 13, 4:34pm 1368419661

They still got you - even if the imported stuff is better than the NZ stuff it won't have Branz appraisal. So how do you prove it meets NZBC standards? If you can't how will you get a Code Compliance Certificate out of the Council?

by Chairman Moa | 13th May 13, 5:43pm 1368423793

good point!

Perhaps we should start writting letters to Dr Smith. BRANZ is the lot that approved Hardie compress cement sheet + plaster as cladding method many years ago and we all know its happy ending story..

by carkeek | 13th May 13, 8:08pm 1368432527

It's possible, but a lottery. When I built my house in 2010 I imported all my windows from California. They were twice as good as anything available locally and half the price.

They didn't have Branz approval, but I did get CCC from Wellington City Council without any questions (luckily). However when my builder tried to use them for a house in Whitby (Porirua City Council), the Porirua council kicked up an almighty stink about the exact same windows.

We really need to nationalise the building consent system, so that house builders have 1 set of rules for building materials. That way newcomers to the market can get their goods appraised and approved (only once) for use anywhere in New Zealand rather than having to repeat the same fight dozens of times at all the different councils if you want to introduce something new. It's madness.

by Kumbel | 13th May 13, 8:44pm 1368434689

One of the many madnesses of local government is enforced local responsibility for implementing and enforcing mandatory government legislation. Councils have no legal discretion to localise building legislation or hygiene legislation (food, hairdresser and funeral director) and virtually none in animal control. But the bizarre thing is that, at the local level, local cultures develop and we get exactly the situation you describe where you can drive a few kilometers, be governed by exactly the same regulatory framework and find a completely different implementation. Why on earth are we reinventing the compulsory wheel 70+ times?

Please count me as a yes for folding all building control departments back into DBH and all Environmental Health Officers back into MPI. Might even bring the fees down :-)

by Roger Ramsey | 18th Dec 15, 8:39pm 1450424349

As I am a resident of Auckland I know the problems during the period of build a house. Construction work of a house in New Zealand is really such a difficult tax. I am telling this from my own experience. Thanks our Government for such an effective step. Now most people of this area can easily build a home under authentic provisions.

Thanks for such information. Every one from New Zealand should read this, especially who are planning for a home.Roger Ramsey Building support this.