Are we paying too much to build our homes?

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.

By 2020 the value of building in New Zealand will top $200 billion, with hundreds of thousands of new homes and apartments.

But the very idea of home ownership has become a pipe dream for many thousands of people, especially those living in Auckland.

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.

"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.

The Government was concerned enough about these deals that it investigated.

"We have to ask some questions around some of the businesses that go on in terms of rebates and discounts that go on within the industry," said Housing Minister Nick Smith two years ago.

When he says rebates he's talking about anything from trips overseas to cash-back loyalty bonuses.

Confidential briefing notes given to the minister show the practice is "widespread" and give the example of "a trip to Fiji as a reward".

It also shows the Government considered forcing builders and suppliers to disclose their perk deals, but in the end enforced transparency was considered too hard and too expensive.

But some shops get paid money to stock only one brand of product.

Mitre 10 wouldn't comment on specific arrangements, but confirmed it has what it called "national suppliers for some products".

It was the same story at the hardware chain, ITM, where 3D Investigates found nothing else but Gib plasterboard.

Some of the rebate bonuses for sole stocking can mean big money, in the hundreds of thousands of dollars.

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".

So how do you build a cheap home, how do you get around the lack of competition?

One builder says he might have an answer.

Watch the video for the full 3D Investigates report.

MBIE Statement