Commerce Commission delivers final report on building material supply shortage

After a year-long enquiry into the material supply woes facing the construction industry, the Commerce Commission released its final report on the issue, which says opening up opportunities for new products and new methods is essential.

It follows a separate report released in August by the Commission, which found the regulatory system surrounding the construction industry failed to provide an environment for healthy competition – but stopped short of recommending any break-ups of large companies.

In this month’s report, the Commission doubled down on its primary recommendation – that the building regulatory system should include competition as an express objective.

The competition watchdog’s Associate Commissioner, Anna Rawlings, says in the time since she presented the last report four months ago, the Commission has consulted with industry stakeholders and tested their earlier findings – and have found ‘greater clarity’ on the importance of scale.

“Following the Draft Report, we have reviewed all submissions along with preliminary recommendations, and remain of the view that competition for the supply of key building supplies is not working as well as it could be,” Rawlings said in the December report.

“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.”

The publication of this report served as Rawlings’ final presentation, as she ended her term as Commission Chair on December 5. The new Chair, John Small, says the recommendations set out by the Commission seek to serve two purposes: to bolster competition; and to produce better outcomes for homeowners and other stakeholders in the sector.

“We have heard compelling evidence that competition should take a more prominent position in the regulatory system and its decision-making,” says Small.

“We are recommending that competition should be included as an additional express objective of the building regulatory system, which will contribute to and complement the existing system objectives of safety, health and durability.”

The recommendations were based on two ‘key concerns’ outlined by the report. First, that the current regulatory system is set up to incentivise stakeholders, including designers and builders, to favour ‘familiar’ products – at the expense of new and competing ones. Currently, uptake of these new entrants are too slow, costly and uncertain.

The second concern was that the current quantity-forcing rebates are stifling the entry of new and competing products to access distribution channels and increase sales.

Aside from its recommendation to improve competition across the board, the Commission also recommended a regulatory framework that would better serve Māori; that would create better compliance pathways for a broader range of building supplies; and would explore ways to remove impediments to product substitution and variations.

Meanwhile, one particular supplier who received immense media coverage has taken action in the wake of the report.

After the Commerce Commission released their findings on Tuesday, Winstone Wallboards, the company at the centre of the recent plasterboard supply crisis in New Zealand and a subsidiary of Fletcher Building, announced that it would remove its rebates structure – whereby a customer receives a better rebate if they buy pre-agreed volumes over a period of time.

As the only local manufacturer of plasterboard in Aotearoa, the company was the subject of much of the Commission’s scrutiny – and Building and Construction Minister Megan Woods says Winstone’s voluntary reaction to the report shows the effectiveness of such investigations by competition watchdogs.

"I think we should think of this as a sign of how effective these market studies can be, that even while the press conference is being held we're seeing major moves and announcements from industry players," Woods says.