Windows in, plumbing out - ComCom homes in on building materials concerns

Friday, 17 December 2021

Shipping gridlock, empty shelves, a depleted workforce, record building permits and the rise of house prices have shaped the building industry. (First published December 14, 2021)

The Commerce Commission has homed in on some of the issues of concern it expects to investigate during its market study into the building materials industry.

Among them are a potential lack of competition as a result of there being too few players supplying some building products through too few channels, and the use of loyalty payments and rebates within the industry which critics argue makes prices less transparent and less subject to competitive forces.

It is questioning whether the benefits of such rebates and loyalty payments are being passed through to consumers.

The commission expects to look at the supply of structural and non-structural building products including flooring and roofing products, wallboards and insulation.

It will also look at windows but doesn’t intend to include electrical and plumbing products, saying that would add significantly to the scope of the study.

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In additional to physical products, the commission will consider whether the processes involved in securing building consents and the quality assurance of products are causing problems, along with the “decision-making behaviours of the market participants involved in or influencing purchasing decisions”.

The market study is the commission’s third after its examination of the petrol market and its study of the supermarkets industry which is due to wrap up in March.

It is expected to be complicated by the sheer number of businesses in different parts of the industry and the wide range of products they supply.

Windows will be included in the commission’s market study but not plumbing and electrical fittings, according to its current thinking.

Commission chairwoman Anna Rawlings said the goal was to look at whether competition was working effectively within the residential building supplies industry and, if not, what might be done to improve it.

“If competition is working well in the industry this will benefit consumers through the prices they pay for building supplies, the range and quality of supplies available, and the level of innovation within the industry,” she said.

The study is kicking off amidst a residential building boom that has coincided with supply chain problems caused by Covid, resulting in severe product shortages and price rises.

The commission said it would consider the relationship between “supply chain resilience” and competition as it explored the extent to which competition was working well in the industry.

‘Monopoly buster’ Tex Edwards has been a central figure in the market study of the supermarket industry and has already started speaking out on building materials.

It is seeking feedback on whether the increased use of prefabricated housing would address some of the longer term pressures facing the industry.

The commission has called for submissions by February 4 to help further define the issues it should look into, and expects to publish a draft report in July before finalising its findings and any recommendations in December next year.

2degrees founder Tex Edwards has indicated he intends to participate in the market study through a lobby group he has been fronting, MonopolyWatch NZ.

MonopolyWatch NZ had been carrying out its own research into best practices in building social housing over the past three years and had visited 32 international house-building factories, comparing costs and assessing their processes, he said last month.

The commission said building materials were estimated to account for about 20 per cent of overall cost of building homes.

But Edwards believed anticompetitive practices in the building supplies industry were also pushing labour costs, in part by hindering innovation.

Commerce Minister David Clark said in an earlier Cabinet paper seeking approval for the market study that two companies controlled about 85 per cent of the supply of concrete, and three companies controlled about 85 per cent of the supply of glass wool insulation.

He also noted that one company, which is Fletcher Building subsidiary Winstone Wallboards, supplied about 94 per cent of the country’s plasterboard.

But Edwards has said the commission might need to analyse 500 products commonly used to build houses and go on to identity the 50 or 60 key ones where competition was of most concern.

Clark’s Cabinet paper said the price of building supplies was not transparent, referencing a 2013 study by the Ministry of Business, Innovation and Employment (MBIE) that highlighted the use of “rebates” within the industry.

That study indicated that dominant suppliers were suspected of using rebates to reward merchants that succeeded in entrenching their market shares.

The commission cleared Winstone Wallboards of abusing its dominant position manufacturing and supplying plasterboards after an investigation in 2014.