Trade Commission says competition is not working well in the building supplies market

Business

Ministers Woods and Clark sent a warning to the construction industry, following the commission’s draft report. Video / Mark Mitchell

The Commerce Commission found that competition is not working as it should in the residential building supplies sector due to the regulatory regime, discounts focused on quantity, restricted land covenants and exclusive leases.

Committee Chair Anna Rawlings today announced the draft findings of a lengthy market investigation.

She said that exclusive leases with landlords have the potential to affect competition.

But it appears that vertical integration was not a factor affecting competition in the long run.

The Commission recommends that competition be an objective to be promoted in the building regulation system.

It wants to reverse the Maori perspective, to open pathways to a wider range of key building supplies, to conduct an examination to remove barriers to substitution and differences and to investigate whether barriers to certification of new products can be reduced.

A new registry for information sharing and approval of building products has been announced. This will help centralize information and allow people to share knowledge.

Rawlings pointed to the gypsum board sector in particular and said there were some initiatives already in place that were good examples of what is possible to better enable competing products to come here.

But the committee stopped short of recommending the break-up of any businesses in the sector, saying that the “vertical integration” of firms in the industry did not appear to be a factor affecting competition in the long run.

Rawlings said lawsuits were due this year against one law enforcement company.

Referring to discounts, she encouraged builders to bill their customers the true price they paid for the goods and to be “honest” about what they were paying when they billed their customers.

In 2014, the commission ruled out cuts as a cause of problems in the gypsum board sector. Subsequently, it investigated allegations that Winstone Wallboards acted anti-competitively to maintain its position in the gypsum board market.

“Based on the evidence gathered during the investigation, the commission does not believe that Winston has violated the 1986 Trade Act and will not take any further action,” the watchdog said in December 2014.

The watchdog said at the time that Winstone’s loyalty and significant market share was likely a result of the level of service, quality of Gib’s products, comparative pricing, regulatory barriers to market entry and, until recently, import duties on plasterboard.

Two duopoly building giants Fletcher Building and Carter Holt Harvey challenged realizing the cost of the commission house.

The cost of building materials has been a moot point, even before the recent bout of inflation.

The Productivity Commission estimated that people in New Zealand pay between 20 and 30 per cent more for building materials than those in Australia and that 28 per cent of product price increases are being recorded recently.

The December Ibos survey showed a 16 percent increase in the last three months of last year.

But participants expected another 12 percent increase in the next half year, leading to a 28 percent composite.

Auckland-based companies have sent defensive requests to Wellington.

He told Fletcher CEO Ross Taylor that commission materials are only a small part of the total costs of home prices, and she wasn’t looking in the right direction if she wanted to reveal why home prices are soaring.

Carter Holt said there are “many other competitors” in the sector. Discounts or loyalty payments through Carter’s National Retail Store chain of commercial customers did not affect their purchasing decisions.

Taylor said: “Building materials in total make up only about 19 per cent of the residential development cost of a typical two-storey home in Auckland, and it is one of the most common types of construction in that area.

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