House-building costs are more than three times what they could be, ComCom told

Tuesday, 1 March 2022

CoreLogic's Kelvin Davidson says construction costs could rise 10 per cent this year. Video first published February 9, 2022.

Arguments over the cost of building new homes have begun in earnest with competition advocate Tex Edwards telling the Commerce Commission in a submission that massive economies are possible.

The watchdog is currently carrying out a market study into the building materials industry after voicing concern that there is a narrow choice of suppliers, some of which may be using “loyalty payments and rebates” to restrict competition for some key products.

Edwards said in a Monopoly Watch submission that its research indicated the cost of building “entry level social housing” ran to about $3800 per square metre in New Zealand, but should be about $1200/square-metre according to international best practice.

Monopoly Watch’s submission said “well-capitalised, institutional international scalable-sized integrated builders”, that could be wholly or partly owned by the Government-owned could bring down costs.

* Unfinished homes as severe building supply shortages stall construction

* Tex Edwards' proposed supermarket venture secured meeting with ComCom

Monopoly Watch has promised a mystery expert witness to back up its claim action is justified.

A “large scalable player” established to build about 3000 to 5000 properties a year could roll-back the “margin-on-margin culture and resolve the ‘death by a thousand cuts’ conundrum” that small builders suffered, Edwards said.

The construction industry’s ability to deliver affordable housing fell apart in the late 1980s and early 1990s, when builders shifted to “bespoke and premium builds”, he said.

“New Zealand has got the best tradespeople in the world, but we are not using them properly.”

Edwards, who is best known for founding 2degrees and breaking Spark and Vodafone’s duopoly over the mobile market, promised to back up his arguments with evidence from an unnamed industry insider.

Monopoly Watch’s submission said “an expert witness from a recently departed large building materials multinational” wanted to give evidence to the commission on problems and fixes.

“A series of international associates” could share data and propose world-best solutions, it said.

The price of new houses, excluding the land they were built on, leapt 16 per cent last year, according to Stats NZ.

2degrees founder Tex Edwards says NZ has the best tradespeople, but isn’t using them properly.

That was partly down to product and labour shortages during construction, and CoreLogic has forecast contruction costs could increase 10 per cent this year.

But submissions by building materials’ suppliers to the commission’s market study, which have also been released online, suggested a narrow focus on products themselves would largely be a waste of time.

Construction giant Fletcher Building said it believed the markets for building supplies were competitive and that competition was “generally working well for consumers”.

New Zealanders’ “preference for bespoke houses”, the fragmented nature of the building and renovating sector, and an “understandably risk-averse approach” to building-product consents were all affecting construction costs, it said.

“The commission should carefully examine whether the regulatory environment is as efficient and effective as it could be for a country of New Zealand’s size and demography.”

Fletcher Building submitted that the commission’s proposed focus on a limited selection of materials such as flooring and roofing products, wallboards, insulation and windows meant less than 8 per cent of the cost of building a new house would be in the scope of the review.

Fletcher Building says the cost inputs the Commerce Commission is assessing aren’t significant enough to make a difference.

“In our view, this is too narrow to deliver a meaningful difference to the cost of housing,” it said.

Carter Holt Harvey told the commission the price of framing-timber had risen 20 per cent since 2008, while the consumer price index had risen 30 per cent over that time and total building costs, excluding land, had increased by 90 per cent.

The Master Builders Association told the commission that about 70 per cent of all building products were either imported or required “some component of imported product”.

That showed the heavy reliance the construction industry had on overseas markets that were “outside New Zealand’s jurisdiction and influence”, it said.

Edwards said Fletchers and Carter Holt Harvey had made some good points in their submissions.

“We need international benchmarking on every part of the value chain,” he said.

But the main impact of a lack of competition in building materials came in lowering the levels of innovation and productivity in the industry, which went well beyond pricing, he said.

Edwards said Monopoly Watch’s submission was designed to set out the problems and opportunities in the sector.

He also made a separate joint submission under the names of “Mike and Tex”, and a third submitted on behalf of “Kiwi Infrastructure”, both of which he said were intended to detail solutions.

The commission should recommend that manufacturers of building products, including wall board, did not also own the companies that distributed them, Edwards said.

It should also focus on factors that impacted the cost of providing lower-cost social housing and avoid getting distracted by a “blame game” over the price of land, he said.

Kiwi Infrastructure could have an interest in building social housing at scale, he said.

It appears similar in nature to the “Northelia” venture in which Edwards is involved and which has expressed interest in establishing a third supemarket chain in New Zealand, depending on the outcome of the commission’ market study into the groceries industry.

Edwards played a key but largely facilitatory role in the gestation of 2degrees and has never been understood to be in a position to personally bankroll a major venture in either groceries or construction.

He would not confirm whether Kiwi Infrastructure, like Northelia and 2degrees before it, included any Māori backing but said he prided himself on being consistent in the investors he worked with and respecting “long-standing relationships”.