Government to shake up construction sector in bid to cut building material costs

Nick Smith
Fletcher Building 12-month price history (NZX.com)

The government is set to shake up the construction sector in a bid to bring down the cost of building materials, which it says are "too high", unveiling a raft of proposals such as rejigging compliance settings, tweaking import anti-dumping duties, and using its heft to influence the market.

Housing Minister Nick Smith and Commerce Minister Craig Foss are seeking submissions on an options paper which aims to cut building material costs, which are 30 percent higher than across the Tasman.

The Ministry of Business, Innovation and Employment paper found barriers in the market perpetuated the use of 'tried and true' brands, products, methods and systems which have impeded new entrants into the market and sapped firms' appetite to innovate.

"Our market study has flushed out some very real issues in the building materials industry," Smith said in a statement. "The industry needs a shake-up through increased competition and greater transparency to ensure kiwi families can get access to more fairly priced building materials and homes."

The steps are part of the broader response to making housing more affordable, which has been hindered by a lack of supply in the country's two biggest cities, Auckland and Christchurch, and comes amid an 'all of government' procurement for building materials as it seeks to cut its annual spend over the coming years.

The MBIE paper found players in the industry were overly risk-averse in response to concerns over liability associated with the leaky-buildings saga, and that "the residential construction sector is not as competitive or productive as it could (or should) be."

That risk averse stance by industry players "may have gone beyond what is economically rational, or may have negative effects on the industry overall." As a response, the paper put up a proposal to recognise manufacturers' warranties, meaning those firms would face quantifiable risks which are more easily mitigated.

Options put forward to improve the regulatory framework included greater specification of lower-level product, encourage more transparency from certification providers, prevent designers from preventing the use of substitute products, and lift the use of risk-based consenting.

The paper also put forward reforming the governance of Building Research Association New Zealand by imposing a greater role for government to allay fears of the entity being captured by industry.

To address unsubstantiated accusations of strategic practices hindering competition, the paper proposes requiring greater disclosure and the use of government procurement as best practice and to influence market conduct by its sheer size.

As a means to foster competition from imported products, the paper put forward ways to limit the restrictions on building materials subject to anti-dumping duties, and consider tariff concessions on key construction materials.

The government paper found the fragmented industry created challenges to adopting new innovations. It proposes tweaking what funds from the BRANZ levy can be spent on, and building on an existing partnership between government and industry to improve innovation and productivity.

Submissions close on Dec. 18.

(BusinessDesk)

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Appropriate for Smith of Rotten, Crumbling, Leaky Buildings infamy to be stepping up 15 years after the events he let slide with the 'self-regulatory' mantra.
We have a $20-billion bill, excluding medical impacts.....ongoing, esp in the leaky classrooms and hospitals...Fletchers, CHH and James Hardie are on top of the world, creaming profits and able to over-pay the owners and, of course, the geniuses leading the companies.
So how about Smith and Foss come up with a plan that takes $10-billion off each of them over the next seven years?

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Spot on. The story is that Jame Hardie brought the mono-clad systems to NZ and BRANZ did not know what standards to apply and had no internal expertise on the matter and so 2 execs from James Hardie were seconded to write BRANZ's standards for them. Surprise, surprise, the James Hardie products met the standards!

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The key issue in NZ is the dominance of Fletchers in all aspects of the building and building supply industries. This severely limits supply and price competition. But of course we will not see a national government take on their mates at Fletchers.

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You maybe right about Fletcher's dominance. But I think you'll find that they are more mates of Labour than any others --this mateship goes way back to the original State house building era.

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Ross, you are so right. this is another little known fact about the rise of Fletchers; and one which I suspect the Labour Party would not like publicised. Fletchers made a fortune out of NZ WW2 construction, and post war construction.

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Poor old Fletchers. They have a monopoly on materials and subtrades. Sit back and watch the suits Key and Joyce dance around the issue.

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Monopoly... good to see such a classic example of end phase capitalism. Time for the government to intervene to re-establish competition.... just as it always has to.

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would be interesting to compare prices that some of these big players sell into NZ versus overseas markets - would go some way to highlighting if super normal profits are being earned out of the local economy. Am pretty sure the Australian Government have issued some international software companies with strong "please explain" orders over price differences in local market versus US market - maybe NZ Govt could adopt similar approach?

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Bring it on !!...yesterday

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The sad thing about Fletchers is its predominantly owned by overseas interests, who are enjoying the benefits of these monopoly profits. Meanwhile the NZ government has just sat back & flogged its citizens to death. NZ Citizens, its time we turned this round.

I suspect its already happening, with increased shareholding in locally listed companies, before the rules change and the last of the state assets are sold. This is no coincidence folks. Its the pension funds that will take a bath of this.

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