Probe into home-building costs reaches key stage

Sunday, 25 September 2022

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

The Commerce Commission will begin a three-day conference on the building-supplies market on Tuesday in a bid to nail down recommendations that it hopes will reduce the cost of new housing.

But competition advocate and 2degrees founder Tex Edwards doubted the watchdog was currently on track to deliver reforms that would significantly improve the $19 billion house-building industry.

He said groups that could have represented the interests of consumers seeking cheaper housing had not registered to be consulted at the conference.

Commerce Minister David Clark ordered a market study into building supplies last year, hoping it would address longstanding concerns that home-buyers were paying too much for materials because of a lack of competition.

* Competition reforms would weaken key prop for Fletcher's Gib arm, says analyst

* Building supplies report not an 'all clear' for Fletchers, says watchdog

Defenders and critics of big building supply firms will face off in Wellington this week.

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

* Carter Holt Harvey supply shakeup could change the future of housing in New Zealand, federation says

A draft report published by the commission in August recommended measures that it believed would make it easier for companies to bring new products to market and have them certified.

It also signalled a likely crackdown on controversial volume-based “rebates” offered by large suppliers, including Fletcher Building on its Gib plasterboard, saying they could make it hard for rival suppliers to get a foot in the door.

However, the commission stopped short of recommending breaking-up any existing companies.

Edwards will be attending this week’s conference as a founding member of the Affordable Building Coalition and spokesperson for Monopoly Watch, which said it was concerned the commission’s draft recommendations would not deliver results.

Self-styled competition advocate Tex Edwards expects to be a bit of a lone voice at the commission’s three-day conference, which he expects will be dominated by “incumbents”.

Other potentially interested parties including Consumer NZ, Generation Zero, the Housing Foundation and Kiwisaver funds were not giving evidence at the conference, which instead looked set to be dominated by “incumbent” businesses, he said.

“To make this study a success the commission must answer the question in its final report of why it costs $3500 a square metre to build a social house in New Zealand and it only costs $1100 internationally,” Edwards said.

The commission put the average construction cost of new housing at $2696 a square metre, which was based on published data from building consents approved in the March quarter, but did not provide any international comparisons.

Monopoly Watch has called for the commission to seek “a peer review” of its draft decision not to recommend any structural reforms of the industry.

Building suppliers giant Fletcher Building should be forced to sell its Placemakers distribution business and Carter Holt Harvey should be forced to sell Carters, Edwards said.

Commerce Commission chairperson Anna Rawlings said in August that the commission “hadn’t found vertical integration was substantially affecting competition across the supply or the merchant level”.

Edwards questioned that and suggested vertical integration would become a more obvious issue if the use of other, alternative, potentially anticompetitive practices in the industry, such as volume-based discounts, were stamped out.

ITM, which runs a franchise of 91 hardware stores, is also expected to challenge some of the commission’s draft findings at the conference.

As a franchise serving independently-owned stores, ITM could be expected to benefit from volume-based discounts offered by suppliers and it has urged the commission “not to throw the baby out with the bathwater”.

But it said it was surprised by the commission’s draft conclusion that vertical integration was not a problem, saying the last 18 months had provided “a real-life example where our individual independent merchants faced significant difficulties and dealings with the vertically integrated players”.

It said Carter Holt Harvey stopped supplying structural timber to ITM stores when it was in short supply and instead “preferred supply to just the two vertical players – Carters and PlaceMakers”.

“ITM stores loyal to Carter Holt Harvey for over 20 years were told they would lose all timber supply overnight. Communications were typically by phone call only, nothing was put in writing, and no negotiations were willing to be entertained by Carter Holt Harvey.”

The commission signalled in March that it was looking into the matter.

Monopoly Watch said the commission’s draft report, coupled with its earlier market studies into the supermarket and fuel industries, “illustrates the need to restructure and reform the Commerce Commission”.

“Such is the significance of the volume of broken markets in New Zealand … that a structurally-reformed commission is required to resolve these matters,” it said.

Edwards said the few million dollars the commission would spend on the market was value for money given the market was one of the country’s “worst economic performers”, but it needed to be more than a one-off piece of work.