Article: Speak Easy

Material  Concerns with Michael BoturMaterial Concerns with Michael Botur

A Productivity Commission inquiry into housing affordability in 2012 indicated what we pay for building materials for a new home was 76 per cent higher here than in Australia.

The Productivity Commission inquiry found:

• Materials account for around half of all residential construction costs. Material
costs for a standard home (excluding those installed by sub-contractors) increased
by 19% in real terms between 2002 and 2011

• One third of this increase is due to changes in the nature of materials used (for
example, the introduction of double glazing to meet revised thermal efficiency
guidelines in the Building Code)

• The market suffers from a lack of competition. The firms concerned appear unable
to reach the scale necessary to match international product prices.

• NZ has high domestic transport costs… and those costs make materials more
expensive

• There are only two major materials manufacturers in New Zealand

• Building costs per square metre are estimated to be around 15% to 25% lower in
various Australian cities than they are in Auckland.

• Improvements in government procurement and technological and regulatory
changes that allow a greater use of internationally traded house components and
building supplies would lower construction costs to improve affordability, the
inquiry found.

Some of the discussions about all this stuff on Interest.co.nz get pretty ugly. Part of that ugliness comes from the type of schlubs who like to stay up late commenting on internet discussions which go nowhere. Some of the commenters call our limited range of building materials suppliers a cartel; one commenter, Bilbo, sarcastically says “We can’t easily use imported materials because NZ has ‘unique conditions’ which is just an excuse for councils, BRANZ, Fletchers et al to fatten their pockets. Case in point aluminium window frames, made of the same material used in frying pans and electrical cables.”

Even housing Minister Phil Twyford has been sounding like a schlubby internet commenter, telling media in May the building materials industry “Is rife with rorts and anti-competitive practises.” 

Newshub looked into it in 2015 and found examples of anti-competitive behaviour including contracts that give the house-building company cash for marketing and promotion and big discounts.

Builders are in turn asked to remain loyal to a certain product, and promote their brand.

That gap between NZ and Australia has widened, by the way - Twyford now says Kiwis are paying 30 percent more than Australians for the same building materials.

Even National’s Housing and Urban Development spokesperson Judith Collins agrees.

Building Industry Federation CEO Bruce Kohn said Twyford’s claims were an “exaggeration” and NZ suppliers’ resilience against increasing pressure from imported products and materials from China means margins in most areas of supply are tight. The real issue, Kohn said, is noncompliant products from offshore.

Kohn might be right. Think of it like this: if we want anything cheaper – say, window frames – they’re going to be a cheap product in every sense of the word. So we may be paying for quality, not cartels.

KLR Capital director Tex Edwards (famous for being behind 2Degrees Mobile) puts it like this on his blog:

“The F word in construction is Fletchers… which regularly pays rebates to large customers – a practice which is widely illegal internationally.

“A Commerce Commission benchmarking market study needs to be initiated by the government into building materials in New Zealand. Why are eight of the core 15 building materials in New Zealand three times the international price? Why does one company have over 90% market share in a selection of important materials? Fletchers contacted customers recently about increasing the price of Gib plasterboard – really? It’s already 10 times the international price… Although its construction division has incurred spectacular losses, the Fletcher building materials division has unique market power which inhibits innovation, price reduction and controls a cottage industry of builders.”

Spectacular losses? Poor Fletchers.
Oops, I mean rich Fletchers.

Michael Botur has published journalism in NZ Herald, Herald on Sunday, Sunday Star-Times and Mana and he writes a lot of fiction. He moved to Whangarei in 2015 and was ecstatic to be able to afford a house here.


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