Builders welcome call for more competition in building supplies sector

Thursday, 4 August 2022

Former Commerce Commission chairperson Anna Rawlings discusses its draft study into building supplies (video first published in August).

Builders across the country have welcomed a Commerce Commission report that identified a lack of competition in the building supplies sector.

Chairperson Anna Rawlings said investigations showed “tried and tested” products had become embedded in home-building practices in New Zealand.

To combat this, the building regulatory system should include competition as a “deliberate objective”, she said.

Your Place Building director Josh Chapman said there was an appetite for change in the construction industry, but more needed to be done at the central government and council levels to make it happen.

* GIB and the competitive problems of plasterboard

* Shortage sees builders buy Gib board for six times retail price on Trade Me

Your Place Building director Josh Chapman says builders continue to use Gib despite frustrations in the industry because it is the “path of least resistance”.

He said builders continuing to use Gib plasterboard, despite widespread frustration at the way supply issues were handled, was a prime example of the failure of competition in the industry.

Builders across the country have welcomed a Commerce Commission report that said a lack of competition in the building supplies sector was not working for the construction industry.

“Builders use Gib begrudgingly because it is the path of the least resistance. Yes, they are the big player bossing everyone around, but we need to go with them because there is no other options really,” Chapman said.

Gib was the only product of its type on his merchant’s shelf and the only product the council would approve without resistance, which made it hard to avoid, he said.

“It is like Coca-Cola muscling out smaller drinks companies, or Countdown and Pak’nSave not allowing a third player to enter the market. These are big issues we need regulation to solve, as it is hard to change at the level of the builder.”

Pragmatic Building director Richard Smith said small builders would welcome more competition, especially in light of supply failures with major products such as Gib.

“Winstone Wallboards is owned by Fletcher Building – no matter how you look at it, they are going to be helping themselves first. Fletcher Living was having their Gib delivered to houses when they hadn’t even got their roofs on,” Smith said.

Councils allowing architects to specify individual products on building plans is the “single biggest prohibiter to competition” in the building supplies industry, according to Ockham’s Ben Gibbens.

Supply issues had worsened because clunky building regulations made it difficult to change products during a project, he said.

The commission also recommended further information-sharing regarding the use of rebates by suppliers and merchants, to help create more competition.

The commission did not recommend new laws to restrict the use of rebates, but Rawlings said in some cases they could breach the Commerce Act, and that they were more likely to do so once already legislated changes to the act came into effect next year.

Rawlings appeared to indicate that businesses that misrepresented the true cost of building supplies in their invoices to customers to disguise the impact of discounts they had received could be breaching the Fair Trading Act.

“We would expect if customers were being told the price paid for a product, that should be the price,” she said.

But Smith pushed back on the criticisms of the rebate system.

“I work with ITM. In any given month they give me a percentage of the money I spend with them back in points. But you should always be passing those savings on to clients.”

Builders accessed discounts on supplies as a result of money already spent at the merchant, so to pass on the cost paid directly to the client would mean losing money for a builder, he said.

“For a big ticket item like timber framing, I buy it for less than half of the retail price, because I turn so much of it over. When I invoice the client I may add 10% to 15% to that price depending on my overheads, but the reality is I am still passing it on to the client for cheaper than they could buy it themselves.”

Ockham construction chief operating officer Ben Gibbens said the commission should focus on the issue of a particular building product being specified on architects’ plans.

This had occurred because under-resourced building consent teams in councils were approving recognised brands, which was easier and faster than researching a different brand, he said.

“We see Gib often specified in projects, which should not happen. You should just need to specify plasterboard.

“We would love councils to stop allowing specific products to be specified on plans. It allows competition to come back and for contractors and subcontractors to explore the market competitively,” Gibbens said.

The failure to do this was the “single biggest prohibiter to competition” in the building supplies industry, he said.