Opinion: Govt action needed on building industry

Opinion: Govt action needed on building industry

The Government has taken some action to address competition issues in New Zealand's building materials industry, but in my opinion, it needs to do a lot more. There's deep resentment and frustration among builders and homeowners alike, and it needs to be sorted out.

We've been told some of the deals hardware chains sign up to, which dictate that they only sell one brand of product, can be worth hundreds of thousands of dollars annually for the shop or company head office. When having a look at the supply deals between Fletcher Building's Winstone Wallboards and the big hardware chains, the Commerce Commission said if rebates were stopped, it "wouldn't expect" to see any greater competitiveness in the market. It also said it didn't believe Winstone Wallboards was acting in an anti-competitive spirit.

That may be so, but what we witnessed at various stores seemed to make it pretty difficult for a competing brand of product to get any market traction whatsoever. In fact, we were even warned off buying anything else, and told a brand we know to be well respected (Elephant Plasterboard) had a "bad reputation".

These types of comments are seriously damaging for the company involved, Elephant Plasterboard, and the product it's worked hard to promote.

Comments like this also shape consumer opinion. If you're told a product is no good, you believe what you're told and you won't buy it. While comments like this, and exclusive supply deals to cut out competitors, might not meet the legal definition, it certainly seems like anti-competitive behavior if you ask me.

I suspect some will say that perk trips to Fiji, tickets to All Blacks matches and cash bonuses for product loyalty are strategies employed by many businesses and so we shouldn't worry about it. That's a fair point, but I disagree, and here's why. Many advertising and marketing firms now have rules around disclosing these types of benefits, but in the building industry there is zero transparency. If you ask one of the big house-building companies to build you a home, chances are there will be an arrangement you won't be privy to, which dictates what type of materials are used.

We've seen contracts that give the house-building company cash for marketing and promotion and big discounts. But in exchange, the contract states the builder must remain loyal to a certain product, and if any prospective buyers ask you have to promote their brand and no other.

Considering how many Kiwis will renovate or even build a home in their lifetime, I think we should all know more about the perks and behind-the-scenes deals. Building materials and the industry in general are an integral part of the New Zealand economy.

Rebates and hidden contracts aside, one of the most common complaints we encountered was New Zealand's unwillingness to accept "like for like" products. If a product is approved and used in Germany, London and Australia, chances are you'll spend months and tens of thousands of dollars convincing certifying and appraisal groups in New Zealand that it's okay to be used here.

MBIE says New Zealand has a unique environment and to an extent I accept that. We do have some of the highest UV levels in the world. But apart from that I would argue that it rains and gets windy in London, just like it does in New Zealand and we need to stop being so precious.

The upheaval involved in getting quality products approved for use here is a huge barrier to innovative and consumer choice, according to those we've interviewed.

There are also problems with council inspectors showing a bias towards particular products when signing off building plans. There is no clear path to product acceptance and serious inconsistencies when consenting authorities make decisions.

Many council inspectors side with products they know, and in many instances, when an alternative product is specified, even if it's tested to an acceptable standard, the plans simply won't get signed off.

MBIE accepts there are issues with product bias and they are looking at changing the rules to improve the situation.

There's also widespread concern about the independence of product testing groups like BRANZ. In fact, BRANZ itself initiated a review of its governance as a result of concern its decisions are being heavily influenced by industry players.

All of this is important stuff, and so we wanted to get insight from the Government. I did try to interview relevant ministers and the MBIE itself about the issues I've outlined.

But perhaps not surprisingly, we got back-down after back-down. After initially indicating interest, the Housing Minister said no to an interview. So we went to the Economic Development Minister who then referred us to the Commerce Minister or the Housing Minister. The Commerce Minister then told us it was really a matter for the Housing Minister, even though he's personally met with companies who have complained about aggressive marketing and the lack of competition. So we went to MBIE. At first it sounded keen to be part of the story and to talk about some of the challenges. But alas, when word got out that the Housing Minister wouldn't be talking, it appeared MBIE decided it better keep quiet too.

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.