The GIB shortage earlier this year highlighted a range of systemic issues in our residential building materials market which left the sector vulnerable to international disruption. The Commerce Commission’s residential building supplies market study seeks to assess and recommend improvements across the full residential building supplies market to minimise its vulnerability and increase sector competition.
The commission’s draft report, published in August, charts how competition in the sector could be improved if barriers to entry were diminished and competing suppliers were better able to expand their businesses.
It describes how the regulatory system continues to incentivise the use of ‘tried and tested’ building products over innovation or openness to the use of new entrants, and how quantity-forcing rebates appear, under certain conditions, to reinforce barriers for new and competing products.
Key among the recommendations is the creation of more compliance pathways for a broader range of building supplies. This would include enabling international bodies to certify products as compliant with New Zealand’s and other countries’ performance-based building codes. The commission also recommends work to identify ways to remove impediments for product substitutions and minor variations. This may include additional flexibility in the MultiProof scheme, a reduction in specification by brand name and a streamlining of existing product compliance pathways.
These were among the key issues this year as Building Consent Authorities (BCAs) struggled to align on their approaches to minor variations to consents and contractors were unable to use internationally certified alternatives to GIB amidst significant supply chain disruption.
The commission recommends the establishment of a BCA ‘centre for excellence’ that prioritises lesson learning and information sharing across BCAs. During the worst of the GIB shortage, the Construction Sector Accord and the Ministry of Business Innovation and Employment (MBIE) played key roles to facilitate direct government-to-sector engagement and provide plasterboard substitution guidance respectively. The need to act collaboratively and respond in a timely manner by breaking down barriers to knowledge sharing was critical. The commission’s recommendation of the creation of a national key building product register would further support this joined-up approach.
The commission also discourages the use of quantity forcing rebates. These shut out smaller suppliers by encouraging merchants to purchase greater volumes through a single supplier by offering rebates that apply across all of a merchant’s purchases with that supplier. ‘Tiered retroactive rebates’ and ‘share of wallet rebates’ are cited as having a particularly harmful effect in the plasterboard market, as merchants who switch suppliers risk missing out on significant rebates.
Interestingly, outside of the GIB issue, the report identifies that vertical integration does not appear to be a factor affecting competition between merchants over the long term. Since the publication of the draft report, Independent Timber Merchants (ITM) has submitted that vertical integration among suppliers is a threat to supply – particularly in the structural timber market. This is a live issue that the commission’s final report will have to contend with.
The commission’s full suite of recommendations will sit alongside other government initiatives already underway. These include the Building for Climate Change work programme and the end-to-end review of the building consent system – both out of MBIE, further work by the commission on rebates and changes to Section 36 of the Commerce Act 1986, set to come into effect in April 2023.
INZ is encouraged by the breadth of recommendations laid out in the draft report and the focus on collaboration and policy transfer across BCAs. As noted in our initial submission on the commission’s preliminary issues paper, a two way dialogue with key players in the industry will be critical to the success and usefulness of the study.
Final submissions, including cross submissions, on the draft market study close on 13 October. We encourage members to engage with the Commerce Commission in order to ensure the final report provides a robust and accurate evidence base as regulatory settings are re-considered alongside other important work streams in this space.