Building industry investigation

TV3’s 3d have done an investigation into price rorting in the building industry. We certainly seem to have higher building costs than Australia, and this is on top of our land costs and cost of burearacracy.

Are we paying too much to build our homes?

A 3D investigation has uncovered a whole range of practices in the building industry keeping New Zealand prices high, from perk trips for builders to exclusive stocking deals at hardware chains.

Kiwis are paying so much for building materials – the building blocks like timber, concrete and plaster – contributing to ballooning costs.

Tony Sewall, head of Ngai Tahu Property, the biggest developer in the South Island, has sent teams around the world to investigate building material prices.

“We’d be paying around 30 percent more than in Australia, probably 60 percent more than the United States,” he says. “And the United States’ product is better.”

The latest Quotable Value statistics tell us $280,000 to $312,000 will build you a medium home in New Zealand. In Australia it’s much cheaper – an equivalent house will set you back $260,000 to $280,000.

That’s just the house building costs.

“We need to open up the New Zealand market to the international one,” says Mr Sewall. “If there’s a product that’s being used on a building here, the builder should have choice from all around the world. That will keep the competitive tension up and keep the pricing at the right level.”

Bunnings New Zealand blames transport costs and our small population, but there’s a myriad of things industry insiders say are pushing up prices.

There are exclusive deals between some suppliers and big hardware chains to stock only one brand of product, so there’s no choice for the consumer. And then there are also kickbacks and rebates – rewards designed to keep builders loyal to a particular type of product.

So claims there are anti-competitive practices in the industry. A specific example was given:

When it came time for the Government to decide who would supply plasterboard to the Christchurch rebuild, the contract went to Gib and a major German firm, Knauf. The Government said it would help improve competition.

But within a year, the German company ran into problems. There were resignations and the company announced it was reviewing its New Zealand operations. The world’s second biggest supplier of plasterboard simply couldn’t gain traction in a market dominated by Fletcher Building.

In fact, Fletcher’s share of the New Zealand plasterboard market is 94 percent. After several complaints, including from Knauf, the Commerce Commission investigated.

It found evidence of aggressive market behaviour, but no illegal, anti-competitive practice.

But official MBIE briefing notes for the Commerce Minister from February this year, well after the Commerce Commission’s decision, warn the building sector could be susceptible to cartel-like behaviour and that aggressive market tactics do “curtail competition in the supply of alternative wallboard”.

It went on to say the “comparatively high cost of wallboard in New Zealand is having an impact on the cost of construction”.

Big business monopolies and duopolies can be bad for competitive pricing.

The journalist who investigated for that report, Michael Morah, has also posted an opinion piece. Opinion: Govt action needed on building industry. He concludes:

Considering these issues have the potential to affect thousands of ordinary Kiwis, you’d think it was something one of our politicians or policymakers would front up to talk about.

To be fair, the Government did appear to take action last year in an effort to improve competition. What it did was cut tariffs or taxes on some imported products, the idea being that we’d get a lot more international products into the market for less and it would push prices down.

Unfortunately, however, this move hasn’t had much of an impact and the Government knows it. In fact, it was told the perceived benefits didn’t stack up.

Official Cabinet papers 3D has obtained reveal the behind-the-scenes decision-making process when the cut on tariffs was about to be introduced. The documents show the Ministry of Foreign Affairs (MFAT) advised Housing Minister Nick Smith that any competition gains from a tariff suspension would be “limited”, and that in any event, the impact of these taxes on the price of residential construction was “marginal”. Despite this, the Government went ahead with the rule change.

On the rebate and loyalty issue, the Government effectively decided it was all too hard and left it alone. But in my view there must be greater transparency and accountability.

Consumers rely on builders, architects and draftsmen to make calls about what materials they use. The problem with this, as we discovered in our 3D Investigates story, is that there’s often a cash deal or a perk helping shape opinions and key decisions – this as MBIE officials pointed out in briefing notes on the issue can be used “to reinforce market power”. It appears this is exactly what’s happening currently across a range of products.

Whether the Government will do anything further to promote greater innovation and competition in the industry remains to be seen. MBIE to its credit does sound genuinely interested in improving the status quo.

But in the meantime, if you’re getting some work done on your house, considering building your own home, or purchasing some materials at your favorite DIY store, don’t forget to ask some questions. And if you’re not satisfied, go online and Google some alternative brands or products. You might find you’ll make some significant savings.

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9 Comments

  1. grumpy

     /  7th September 2015

    This is just tinkering around the edges. The high cost of building in NZ is a systemic issue, starting with the compliance costs with councils through to the retail end kick backs. The market needs completely opening up. Fletchers should face an Anti-Trust investigation. The vertical integration of Fletchers into the building market needs to be completely broken up.
    How can a house be built for less than half the cost in the US using better products?

    Reply
    • Alan Wilkinson

       /  7th September 2015

      Dead right, grumpy.

      Reply
    • DaveG

       /  7th September 2015

      The issue does not lie in vertical integration, or within fletchers as too many keep saying. Fletchers has to compete hard with imported products, often very inferior from Asia, Australia, and america. Kiwi homes are built to very high standards t owithstand earthquakes, wind and snow loading. A typical kiwi house would contain approx 40% more timber (by mass) than a typical Aussie house. The difference in the framing in the roof / ceiling cavity between an Aussie home, and a Kiwi home is unbelievable, and then they stick heavy concrete roofing tiles on fop. I for one could not believe how flimsy the Aussies build their homes.

      Fletchers do not need to be broken up, the vertical integration into the supply chain has not disadvantaged anyone, except fletchers. Placemekers compete hard at the supply wnd with the very aggressive Carters, and Placemekers, who import a lot of their product, and use their Aussie head office to broker sharp deals with suppliers. If they were so good, and if the aussies and fletchers competitors could compete so well, then fletchers would be sufffering. The fact is, they are efficient, make very good products, and their price is reasonable, given the quality and supply / delivery.

      If anyone wants to challenge that, try building a house, but specife NO Fletcher products, and watch the costs rise, and quality drop. ask any serious internal plasterer – elephant board V genuine Gib…….

      Reply
      • DaveG

         /  7th September 2015

        Oops, if only we could edit. 2nd Para……. :with the very agressive Carters and BUNNINGS (not Placemekers) sorry.

        Reply
  2. Brown

     /  7th September 2015

    I agree with Dave. We need to compare end results based on the quality of the finished product and the scale of the market. Plasterboard is a pretty cheap component of a dwelling – I always contemplate replacement rather than skim coating the old during renovations because replacement may be more economical when seeking a good finish.

    That doesn’t mean I rate Fletchers but they are not the main problem.

    Reply
  3. David

     /  7th September 2015

    They need to introduce full disclosure rules to the building industry and treat it like the financial planners and doctors where all incentives are disclosed. The government also needs to kick BRANZ in the head because the big barrier to competition is having to spend tens of thousands to get an imported product approved locally.
    Have a look at Home Depot in the USA and Bunnings in Aussie…its outrageous.

    Reply
    • jaspa

       /  8th September 2015

      This is one of the problems. There are plenty of good alternatives to products like gib worldwide, but fronting up to your local council here with plans that include anything they haven’t seen before makes you realise why people don’t bother.

      Reply
    • DaveG

       /  8th September 2015

      David. Do you knowanything about how the industry operates, do you realise Home Depot has a joint partnership with Woolworths to run a massive chain of stores under the Masters brand, having Purchased the Danks Group. Do you know the Masters group LOST in excess of $100 Mill running the group. Do you actually know how very slim the margins are in the Hardware industry. A sheet of Gib for example, the merchant makes around $2.00 – yes, $2.00 a sheet. Bunnings dominate the industry in Australia, Mitre 10 is a very small insignificant chain in Aussie, and is completely seperate from Mitre10 in NZ, a joint agreement many many years ago from the two businesses to share the name. As to Branz, a leftie commie outfit if ever ther ewas one, but they do good work, sue, they are pedantic, and a law to themselves. But, their testing rejects crap products that do not meet NZ’s strict standards, written by the dept of building, and enforced by Branz. Lets not forget, NZ is a DAMP, WET, WINDY place that shakes and grinds often. Homes nee dto meet very high standards.

      Reply
  4. jamie

     /  7th September 2015

    I don’t understand all the focus on Gib board. I can get it for about $16 a sheet and I bet others can get it for less than that. Pretty cheap considering what it does.

    There are plenty of thing to complain about in the cost of building but I don’t think Gib board is one of them.

    Reply

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