Fletcher Building will fall within construction supply investigation

BUSINESSDESK: Fletcher Building, the country's biggest listed company, will come under officials' gaze as the government embarks on a study of the construction sector as part of its wide-ranging response to making housing more affordable.

Finance Minister Bill English told reporters at a post-Cabinet press conference in Wellington the government plans to look at the cost structure of the building industry in much the same way it investigated competition in the electricity sector a few years ago.

That is in response to a Productivity Commission report on ways to make housing more affordable for low- and middle-income earnings.

"I think if you look at the building materials markets it pretty hard not to look at Fletcher's," Mr English says.

"We wouldn't want to pre-judge there's a problem, but it gets raised by everybody and as part of the comprehensive approach to housing affordability it's probably best to be better informed about whether those markets are working correctly."

The study is one of several the government is undertaking as it looks at ways to make New Zealand's housing supply more responsive to demand as a means to curb excessive increases in property values.

Mr English says the review of the electricity sector had led to a more competitive environment among power companies, and "maybe that's possible in the building industry, I don't know".

In August, the Auckland-based Fletcher reported a 17% drop in construction earnings to $50 million though its backlog of building work had climbed to $1.09 billion at the end of June from $764 million a year earlier.

The shares fell 0.7% to $7.07 in trading today.

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Fletcher gets given the plum government jobs, so it is hard to see the government being strong enough to dismantle their monopoly on building products and services. Fletchers are having a field day in Christchurch pulling down the buildings, rebuilding them, and also suppying all the materials and subcontractors. Any review will be just another taxpayer funded whitewash.

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Fletchers, just like anybody else, tender for the Jobs. The fact that they can provide a better product and service than most, does not mean that they are making a killing of it.
As a group they are still answerable to the Shareholder. If you think that shareholders, people like me or mum and dad investors, expect Fletchers to not perform, you would be right.
They have to balance what they do with the current market conditions. And as we all know the current market is crap. Also the current cost to build is going up because of Council Compliance cost, not so much building product costs........

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About time.
Sick of hearing about competitive products from UK, US etc being blocked and having anti dumping duties placed on them so they are the same price or dearer than the Fletcher owned version, basically a monopoly. Combined with the Council Issues (delays and over charging any private business would be in front of the Comm Com for) means new NZ houses are prbably 50% dearer than they should be.
Dont have much faith though , isnt Fletchers the only private company with an office in the Beehive,.....

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Fletchers get jobs with cost plus or charge out from the govt, who on earth does that these days !!!

No wonder any infrastructure here is so over priced.....

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Who are you kidding. New Zealand infratructure is Cost Competitive. It costs the same price to build a Brick Wall here, as it does in Australia. The reason it appears to be worse, is that we compare the per population costs to other countries.
PEOPLE, please realise that we are only a small country.

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We are a small economy at the bottom of the earth. I don't think there is really any doubt that Fletchers/Placemakers monopoly price/terms/rebate/etc others out of the market and gain larger distributed margins. Just take a look at Gib/plasterboard. You could argue they are better at brand building, but then additional margin helps there...

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Lets look at insulation:
Pink Batts are manufactured by Tasman Insulation, 100% Owned by Fletchers
Placemakers (Fletchers) and other merchants - Carters, Mitre10 distribute Pink Batts
Pink Fit - a franchise installation network owned by Fletchers provide an install service sold by the major merchants (such as Placemakers) installing Pink Batts into new houses and retrofit.
When Pink Batts are installed into homes built by the following Fletcher Residential Builders - Fyfe, Dempsey and Morton, Spaceline, Aston Marsh, Fletcher Living, Millhouse Mews.....
That's quite a few levels of margin that are maintained by the Fletchers group. Probably only New Zealand where that level of vertical integration has been allowed to develop, not forgetting all the other categories of building products products in the Fletcher network.....
Interesting to see what transpires from this market review

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Let's look at this.
Pink Batts are manufactured by Fletchers. Off the top of my head they compete with Knauf (world's largest insulation company apparently), eco-insulation, Bradford, Autex, Premier insulation, Insulpro...... the list probably goes on.

Your line about Fletcher Residential's house building...
According to the herald this morning Fletcher Residential built 231 properties last year. 231 of the 15,000... means they built 1.54% of all houses in New Zealand, while other companies built 98.5% of the houses.

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Ask any Fletchers shareholder and they will say that Fletchers isn't profitable enough. Probably means the balance is right.

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It is to be hoped researchers here in New Zealand are acquiring the United States R S Means Construction Cost Handbooks - and comparing them with the NZ Rawlinsons Handbooks.

Bear in mind too these professionally produced publications cut themselves some slack - and true markett pricing is often lower.

All up costs for starter homes on the fringes of the affordable US markets are in the order of $US600 tp $US7-- per square metre - as I explained within "Houston" We have a housing affordability problem" - refer Highlighted Articles Section www.PerformanceUrbanPlanning.org .

We urgently need to see a detailed breakout of these numbers. The Surveyors Institute and Quantity Surveyors Institute need to join forces on this work and assist the Government.

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Given the waterview tunnel project is 1.3 billion, you can understand where the "backlog" or to use it's proper name forward order book comes from. As for getting it handed to them on a plate, that is rubbish. It is a competetive industry across two main sectors (road construction eg Waterview tunnel and civil construction eg Christchurch housing rebuild) ,so there is plenty of competition and the prices will be tight with margins.
Yes I work in the industry but I work for their competitors, and want to clear up apparent misconceptions so comments have.

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