Building supplies draft report finds competition not working

Source: 1News

A draft report into the cost of building materials in New Zealand has found competition isn't working.

Construction site

The Commerce Commission's report found the regulatory system favoured established building products, and has recommended changes that could bring more choice, better quality and greater innovation into the industry.

The cost of building materials increased 18% in the past year and is the biggest driver of inflation.

Commission chair Anna Rawlings said the market study found "tried and tested" products are embedded in the NZ home building industry, and regulation should include competition as a deliberate objective.

Some rebates paid by established suppliers to merchants compound difficulties for those trying to introduce competing products. The structure rewarded merchants for buying large quantities from a single supplier and deterred them from looking elsewhere for other products.

"Our preliminary view is that competition for the supply of key building supplies is not working as well as it could, and would be improved if it was easier for building products to be introduced and for competing suppliers to expand their business."

The report also found that some merchants were using restrictive covenants on land to deter competition.

The commission did not recommend breaking up businesses in the sector, saying "vertical integration" was not a factor in a lack of competition long-term.

Ardern responds

When asked whether the study was a waste of money because it didn't reveal anything that wasn't already known, Prime Minister Jacinda Ardern said the draft report was only the first step.

She said there was value in the commission investigating sectors Kiwis felt there could be a lack of market competition.

"As a Government, there's some work we already have underway, but they've also identified other measures that are likely to make a difference."

Ardern said the Government was already working on the issue of land banking as part of its effort to increase supermarket competition.

Not far enough

But the National Party thought the commission's recommendations didn't go far enough.

Andrew Bayly, the party's building spokesperson, said the report "failed to deal with the competitiveness of the industry or suggest urgent enough 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.

“The commission should have better defined where operators are able to exercise market power, in the respective components that the study focused on - foundations, flooring, roof, walls (structural and non-structural interior and exterior) and insulation.

“They also 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," Bayly said.

The commission's final report is due in December.