Building material competition limited

03:02, Nov 06 2013

The costs of building materials are being driven up by a lack of competition and builders' bias towards better-known brands, a government paper suggests.

The options paper released by Housing Minister Nick Smith and Commerce Minister Craig Foss, is the latest stage of a government inquiry into the cost of building materials.

It is part of a wider investigation by the Government into housing, and follows moves to create special housing development areas in Auckland to increase supply.

Aware that building materials are up to 30 per cent more expensive in New Zealand than Australia, Smith said it looked like limited competition and duties on imported materials were allowing manufacturers to price gouge.

A "lack of transparency" in the industry over special pricing deals also made it hard to see whether they were being passed on to consumers.

The paper suggested that regulation and education could be used in several areas, including smoothing the path for building material imports.


Competition could be increased with changes to anti-dumping duties and the last remaining tariffs, it said.

One of the country's biggest players, Fletcher Building, declined to comment immediately, saying it needed to look closer at the paper first.

But Mike Fox, of large volume builder Primesite Homes and chairman of the Registered Master Builders Federation, agreed more competition in the building materials sector "would be good".

It was quite difficult to get imported goods into the supply chain to any large degree, he said.

Generally, however, he believed council development fees and land costs played a bigger part in the rising cost of new housing.

"Building materials is a part of it but it's not the major part; the major part is the land costs."

The report said another apparent driver of the cost of building materials was builders' bias towards "tried and true" brands, products, methods and systems.

This kept new firms from entering the market and existing firms from innovating.

Their aversion to risk was reinforced by a complex product assurance system and designers who specified certain brands.

However, Chris Preston, acting chief executive of the Building Research Association (Branz), said it was natural that builders stuck to certain products.

"I think there is a natural inclination for people, given the issues around weathertightness and the Christchurch earthquake ... for people to use products that they know of and have been accepted by the territorial authorities."

Designers often specified certain products "simply because ... that's the product they want to use for it to perform in a certain way".

However, Preston was surprised the Government was worried about imports being disadvantaged, as he had heard no comments in the industry about it.

The only thing that could drive up the cost of imports was shipping and whether the products were a limited run.

However, he did agree that the building industry could be slow to take on new practices and products.

"The merchants also spend a lot of time trying to educate, as do the territorial authorities, but yes, with lots of small to medium businesses, it does take quite a while."

Building materials issues include:

■ Risk-averse behaviour by the industry
■ A lack of transparency around rebates or targeted discounts, hampering access to distribution channels and making it difficult to tell whether consumers are getting the benefits
■ Slow uptake of innovative new practices and a lack of business skills on building sites to get efficiency gains, and therefore price reductions
■ Anti-dumping duties and tariffs impeding imported competition.

Submissions to the options paper close on December 18.