Winstone Wallboards, previously cleared of predatory pricing, is back in the crosshairs of a big new Commerce Commission study of competitive behaviour in building supplies.
The Commerce Commission will investigate whether the big construction players are blocking new green building supplies or novel prefabricated products from building sites.
Commerce Minister David Clark identified the dominance of some of New Zealand’s biggest manufacturers. Two concrete companies commanded about 85 percent of the market, he said in a Cabinet paper, three glass wool manufacturers made up 85 percent of that market – and one plasterboard manufacturer controlled about 94 percent of the product sold.
Big players like Winstone Wallboards work closely with regulators, the Commission has previously heard; Clark said new building products struggled to get building compliance issued – especially green building products and prefabricated products.
“Those things align with stepping up housing building for consumers, but also with decarbonising the building sector.”
The minister said there were vertical integration issues: “Some of the people that supply the materials are the same ones that wholesale them and then retail them as well.
“And then we’ve heard stories about the way in which discounting schemes or loyalty schemes affect the industry as a whole. We’re interested in knowing whether prices can easily be compared, whether that beats transparency and presents barriers to the market for competition.”
This is not the first time the big construction manufacturers and suppliers have come under Commerce Commission scrutiny. In 2014 the Commission investigated allegations that Winstone Wallboards, a Fletcher subsidiary, acted anti-competitively to maintain its market dominance in the manufacture and supply of plasterboard.
“While plasterboard only accounts for between 1 and 3 percent of the cost of building a new home in New Zealand, excluding land, the construction industry is a very important part of the New Zealand economy,” said Dr Mark Berry, the chair of the commission at the time.
The Commission looked into Winstone’s alleged exclusive agreements with merchants, the rebates it paid to merchants, and its alleged practice of undercutting other suppliers on jobs, but found no breach of the Commerce Act. It found only one major merchant had an agreement with Winstone to exclusively stock its Gib product.
“We acknowledge that Winstone’s market share is very high and has been for many years. This does not, however, appear to be driven by exclusive agreements with merchants, rebates offered to merchants or builders, or an anti-competitive predatory strategy,” the Commission found.
“Rather, as well as entrants not making sufficiently attractive offers to merchants to induce them to stock their product or for builders to request supply, it appears that Building Code compliance, combined with the preferences of those involved in designing, consenting and building houses, contribute to Winstone’s continued high market share. “
Winstone Wallboards has factories in Auckland, Wellington and Christchurch, and is building a new plasterboard factory in Tauranga’s Tauriko Industrial Park.
Tex Edwards, the 2 Degrees founder who now fronts lobby group MonopolyWatch, said the Commerce Commission study was the start of a long journey towards lower housing costs for consumers. It would also lead to higher wages for builders and related trades people, and more realistic levels of profitability for distributors and manufacturers of building products.
“It must take a firm position on abuses of market power. That said, the investigation needs to be fair, even to the monopolists and dominant businesses, whose employees often work damned hard to deliver.”
MonopolyWatch would present the commission with analysis of 32 markets that, Edwards said, would show the cost of building a healthy home in New Zealand was three times higher than in the US or Canada, and the added cost was in the land and in the higher prices for manufactured products.
This was a good opportunity to draw a line in the sand defining and quantifying green homes and healthy homes.
“I’ve spent millions of bucks travelling around the world looking at building supplies,” he said.
“Construction is death by a thousand costs – there is no single smoking gun. The reason why MonopolyWatch is so interested in construction costs is it is so complex. If you’re an economics, law or finance student this is really great stuff to watch. Nobody is watching these monopolies.
“The problem is not the price difference, it’s that there’s no standard unit of value to declare, nobody’s comparing apples with apples. We need international benchmarking, that’s desperately important. Everybody knows there’s a big difference between what it costs here and what it costs overseas.”
David Clark said the study would include the nature of competition for these key building supplies, including any industry pricing practices or acquisition requirements that impacted on competition.
He confirmed details of the election pledge in front of a property in the Wellington suburb of Brooklyn, where an ageing three-bedroom cottage has been bulldozed and is being replaced with townhouses.
It comes as residential building consents have more than tripled over the past 10 years, and with demand for renovations and extensions to existing homes at its highest level in 15 years.
The Commerce Commission already has one competition study underway, into the dominance of the two big supermarket chains, Foodstuffs and Woolworths. The Commerce Commission is to report back on that study in March next year, and then the building supplies study by Christmas 2022.
Clark said the study was intended to ensure Kiwi had access to fairly priced building materials.
“It’s clear a significant portion of the costs associated with building residential housing is tied to building supplies,” he said. “There have been longstanding concerns about potential competition issues, particularly due to the highly concentrated nature of some markets in the supply chain,” Clark said.
This year, Climate Change Minister James Shaw said embodied emissions in building materials were “significant”
“Right now, our homes and buildings are currently responsible for around 20 per cent of New Zealand’s carbon footprint,” he told the NZ Herald. “Emissions from the construction sector have increased by two-thirds over the past decade. If we continue on this path and don’t change the way we build, the risk is that we lock in higher emissions for decades to come. That will only make it harder to meet our emission reduction targets and take us further away from fulfilling our commitment to future generations that we will pass on a cleaner, more stable, and less polluted planet.
“So what we need to be doing is rethinking the way we design, build and use our homes and workplaces so they have a positive impact on our climate and natural environment.”
The first market study into the retail fuel sector was completed in December 2019, and found motorists were paying higher petrol prices due to a lack of competition. That led to the Fuel Industry Act.