Major changes recommended for building supply sector in Commerce Commission report to boost competition

Competition in the building supply sector is "not working as well as it could be" with smaller product brands finding it difficult to compete against "familiar" products, the Commerce Commission says.

Among nine proposals for the Government to consider, it's been recommended building supply competition be "an additional express objective of the building regulatory system", while also proposing a national system for information sharing about construction products and consenting.

"Ensuring the building regulatory system continues to deliver quality housing to New Zealanders is critical and must remain a core objective," commission chair John Small said.

Dr Small said in a statement on Tuesday the fact changes were needed "to enhance the building regulatory system for the benefit of all New Zealanders" couldn't be ignored.

Commerce and Consumer Affairs Minister David Clark, responding to the report, said the Government would "consider the recommendations, to understand what changes are necessary to help increase competition, and ultimately bring down costs for consumers, which is hugely important in these challenging global cost of living times".

The Government asked the commission in November last year to examine the sector and any factors affecting supply competition. 

"In the coming weeks and months, we will talk to stakeholders, with a Government response expected in March 2023," Dr Clark said. "In the meantime, important work already happening will continue."

The commission recommends:

  • Introducing competition as an objective to be promoted in the building regulatory system
  • Better serve Māori through the building regulatory system
  • Creating more clear compliance pathways for a broader range of key building supplies
  • Exploring ways to remove impediments to product substitution and variations
  • Establishing a national system to share information about building products and consenting
  • Establishing an education and mentoring function to facilitate a better co‑ordinated and enhanced approach by BCAs to consenting and product approval processes
  • Promoting compliance with the Commerce Act, including by discouraging the use of quantity-forcing supplier-to-merchant rebates that may harm competition
  • Considering the economy-wide use of land covenants, exclusive leases and contractual provisions with similar effect.
Major changes recommended for building supply sector in Commerce Commission report to boost competition
Photo credit: Getty Images

Competition 'not working as well as it could' - commission

Dr Small said the recommendations "would make a real difference" in delivering choice and better quality for New Zealand homeowners. 

Currently, the building regulatory system continued to incentivise the favouring of "familiar" building products over new materials, the commission said.

"This market study shows that familiar products have become embedded in home-building practice in New Zealand - and the building regulatory system should include competition as an express objective," associate Commerce Commissioner Anna Rawlings said.

She said competion wasn't  "working as well as it could be".

"It needs to be easier for new building products and new methods to be introduced into New Zealand, and for competing suppliers to be able to expand their businesses - that is the essence of competition."

Housing Minister Megan Woods noted the Government was already taking action within the construction sector.

"Building supplies make up a sizeable chunk of the costs of new residential housing so we already have building sector reforms underway, including a review of the building consent system," she said.

"But we know there is still more to be done to ensure consumers get a better deal and builders have the materials they need to do their jobs."

Megan Woods.
Megan Woods. Photo credit: Getty Images

Major plasterboard supplier scraps customer rebates

As the report was released, Fletcher Building immediately said its Winstone Wallboards subsidary would be scrapping customer rebates.

Fletcher's announcement came after the commission said it had opened an investigation into Winstone Wallboards, New Zealand's major plasterboard supplier, and its rebates.

Quantity-forcing rebates appeared to be, in some cases, "reinforcing regulatory factors impacting entry and expansion, making it difficult for new or competing products to access distribution channels and increase sales", the commission said.

However, Fletcher said in response to the report the rebates were "essentially a volume incentive, where a customer receives a better rebate, measured over all their purchases if they buy pre-agreed volumes of a product over a period of time".

"They are very common, not just across the building supplies industry but other parts of the economy as well," Fletcher said in a statement.

"We are confident that our customers choose our products because of their quality and range, along with the service we provide.

"That said, given its position in the market, Winstone Wallboards is showing leadership and has taken time over the past several months to consider the commission's preference that it not use quantity rewarding rebates.

"Consequently, Winstone Wallboards has already informed its merchant customers that it will discontinue use of that type of rebate and will move to a tailored, flat pricing model based on volume," Fletcher said.

The company added it would now take the time to review the rest of the report.