The Government’s strategy to deflect criticism for the failure of KiwiBuild is to blame the cost of building materials for the difficulty in constructing affordable housing.
When she announced her reset of KiwiBuild last week, Housing Minister Megan Woods said she had written a letter to Commerce Minister Kris Faafoi about the price of building materials.
Industry leaders say this focus is misguided, pointing to a Fletcher-commissioned Deloitte study that found building materials make up just 16 to 24 percent of the cost of new builds.
Market study chances muddy
Faafoi has the power to instruct the Commerce Commission to perform a market study, but has said he will wait for the regulator to finish its current probe into fuel prices before making a decision about any further studies.
When asked repeatedly over the past week Faafoi has refused to do anything other than acknowledge he has received Woods’ letter.
Despite Faafoi’s reluctance to go on the record, Woods was more than willing to amp up the pressure. “One of the things I’ve heard consistently from builders and developers since I’ve been talking to them over the last few weeks is that they have some concerns about it,” she said.
“This is exactly why we amended the Commerce Act, so that we could conduct these market studies and look into these issues.”
Even the Prime Minister joined in. While defending KiwiBuild during her post-Cabinet press conference on Monday, she said that it struggled with affordability because “it is not a subsidised programme. … It does experience some of those costs that actually warrant us considering whether or not they’re fair, like the cost of building materials.”
But Julien Leys, chief executive of the Building Industry Federation, says Ardern is taking aim at the wrong culprit. He said he doesn’t want to see a market study into building material prices.
Market still competitive
“When I first heard that [possibility] mentioned last week, toward the end of [Woods’] announcement on KiwiBuild, I was amazed,” he said. “I say that because we, as an industry, believe that there’s a very healthy level of competition in the market.”
“The New Zealand marketplace is probably one of the most open in the world in terms of allowing the importation of products. We believe there’s great competition here and that’s driven down pricing. We’ve seen prices being held or even dropping down over time because of that competition.”
David Kelly, chief executive of Registered Master Builders, agreed that the market was competitive. “If you think about the maker-merchants,” he said, “We’ve got Carter’s, we’ve got Placemakers, we’ve got ITM, we’ve got Bunnings, we’ve got Mitre 10 to a lesser degree, that’s quite a lot of competition in terms of the maker-merchants. So I don’t think it’s a lack of competition.”
However, Kelly diverges from Leys on the possibility of a market study. “I’d be very pleased to see it,” he said. “I’d love to see what the Commerce Commission finds. Apart from anything else, I think it’s really important for consumer confidence that an independent group like the Commerce Commission has a look.”
Are building materials the problem?
Fletcher Building CEO Ross Taylor also came out strong against a market study. “We believe there are more pressing priorities for the Government to focus on in addressing housing affordability, and creating a climate of uncertainty for industry will only serve to discourage local investment in manufacturing and housing innovation, which is desperately needed in New Zealand,” he said.
Whether or not building materials are the problem is the wrong question, said AUT Professor John Tookey. “They’re a reason construction is expensive, they’re not the reason,” he said.
The data appears to bear this out. According to the study commissioned by Fletcher, the price of land is the single largest cost in building a house – and this gulf is widening. Over a ten year period between December 2009 and June 2018, the price of land across New Zealand increased by nearly 50 percent.
That dwarfs the price rises seen in the costs of labour and plasterboard, cement, and concrete products, which broadly aligned with the 14 percent inflation rate. Even wood and timber only increased 28 percent over the same time period.
Other major price tags include infrastructure costs in greenfield developments and GST, which adds between 8 and 13 percent to the total cost of a build.
Deloitte Partner Linda Meade, who spearheaded the study, told Newsroom in May that, “If you stripped out GST from our analysis, you would find that all types of building in New Zealand were cheaper than they were in Australia”.