Government launches inquiry into high cost of building materials, suspecting poor competition to blame

Politics

An overview of New Zealand’s affordable housing crisis and how house prices have changed in relation to income over time. Video / Paul Slater

The government wants the Commerce Commission to look into whether Kiwis are being ripped off over the cost of building materials.

The cost of building materials has been a long-standing concern in New Zealand, even before the latest inflationary spurt.

The Productivity Commission has estimated that New Zealanders pay 20-30% more for building materials than Australians.

Trade Minister David Clark said the government wanted to look at “how we can lay the foundations for a more competitive buildings sector”.

“Understanding market barriers could play a key role in helping New Zealanders access home ownership, so I’m delighted the Commerce Commission is launching this work,” Clark said.

Clark said materials were a big factor in the high cost of construction and renovation.
“It is clear that a significant portion of the costs associated with the construction of residential housing are related to building materials.

“As New Zealand’s population has grown over the past decade, residential building permits have more than tripled. Along with this, current demand for renovations and extensions to existing homes is at its highest level since 15 years,” Clark said.

“There are long-standing concerns about potential competition issues, particularly given the highly concentrated nature of some supply chain markets,” he said.

The Commission will be authorized to investigate all factors which may affect competition for the supply or procurement of essential building materials, including the cost of foundations, flooring, roof, walls and insulation .

In 2018, the Commerce Commission was given market investigation powers, meaning it could carry out wide-ranging investigations into sectors where it suspected the economy was not performing well for consumers.

Trade and Consumer Affairs Minister David Clark has instructed the Commerce Commission to investigate the cost of building materials.  Photo / Dean Purcell
Trade and Consumer Affairs Minister David Clark has instructed the Commerce Commission to investigate the cost of building materials. Photo / Dean Purcell

The Commission can then recommend changes to the government to help these sectors operate more efficiently.

So far, the Commission has investigated the cost of fuel and groceries.
Labor pledged in the election to investigate the cost of building materials during the 2020 campaign.

“We make this manifest commitment because good housing underpins a range of social, economic and health outcomes. Therefore, it is essential that Kiwis have access to building materials at a fair price,” Clark said.

The final report will be delivered to ministers in December 2022.