Market study into residential building supplies

Government response to the Commerce Commission’s market study

On 17 May 2023, the Government announced its response to the Commerce Commission’s market study into residential building supplies.

The Government agrees, or agrees-in-principle, with 8 of the 9 recommendations made by the Commerce Commission to improve competition for key building supplies for the benefit of businesses and consumers.

The Government noted one recommendation that the Commission will address themselves (recommendation 8 – discourage the use of quantity-forcing supplier-to-merchant rebates that may harm competition).

Key actions will include:

• monitoring and publishing prices of key building supplies
• doing more work on guidance to support builders and councils make good decisions on alternative equivalent products
• drive the uptake of offsite manufacturing by Government agencies by a minimum of 10% year on year, to improve productivity and competition. 

Significant progress has already been made to address issues identified in the Commission’s report, including:

• reviewing the building consent system to address issues identified by the Commission
• establishing a Critical Materials Taskforce to proactively explore supply-constrained building materials (for example, plasterboard), as well as market imbalances
• implementing a Construction Sector Accord Plan to tackle the sector’s challenges with a greater focus on growing innovation, resilience, the Māori construction economy, and sustainability.

Broader to building supplies, the Government will soon consult on an economy-wide review into the use of land covenants and exclusive leases (recommendation 9), to identify the effect they may be having on competition.

Read the press release: Government taking action to improve building supply competition(external link)  — Beehive.govt.nz

Commerce Commission's final report

On 6 December 2022, the Commerce Commission published its final report on its market study into residential building supplies.

The Commission found that competition for the supply and acquisition of key building supplies is not working as well as it could. It identified two main factors that make it difficult for new or competing products to be introduced and for suppliers to expand their business:

• The building regulatory system continues to incentivise designers, builders and building consent authorities to favour familiar building products over new or competing products.
• Quantity-forcing rebates paid by established suppliers to building supplies merchants appear, under certain conditions, to be reinforcing regulatory factors impacting entry and expansion, making it difficult for suppliers of new or competing products to access merchant distribution channels and increase sales.

Additionally, the Commission found that the use of land covenants, exclusive lease terms and contractual provisions with similar effect have the potential to affect competition between building supplies merchants.

The Commission made 9 recommendations that aim to provide tangible improvements to competition for key building supplies. These fall within three broad areas:

• enhancing the regulatory system (recommendations 1–3)
• supporting sound decision making (recommendations 4–7)
• addressing strategic business conduct (recommendations 8–9).

Read the final residential building supplies market study report(external link) — Commerce Commission

Read the press release: Government backs greater competition in building supplies(external link) — Beehive.govt.nz

Commerce Commission's draft report

On 4 August 2022, the Commerce Commission published its draft report setting out the preliminary findings and recommendations from its competition study for residential building supplies in New Zealand.

The Commission invited people to provide written submissions on its draft report by 1 September 2022.

Read the draft residential building supplies market study report [PDF, 416 MB](external link)  — Commerce Commission

Read the press release: Government determined to get a better deal for consumers(external link)  —Beehive.govt.nz

Background

On 21 November 2021, the Government asked the Commerce Commission to carry out a market study into any factors that may affect competition for the supply or acquisition of key building supplies used to build the major components of residential buildings and to make its final report for the study publicly available by 6 December 2022.

For the purposes of the market study, the major components of residential buildings are those used in the foundation, flooring, roof, walls (structural and non-structural interior and exterior) and insulation.

This topic was chosen because of the importance of affordable housing to the wellbeing of New Zealanders. Residential building supplies are a significant component of residential housing and there are indications of potential competition concerns in the sector. Any improvements that can be achieved could have a significant impact for New Zealanders.

The Commerce Commission published its final report on 6 December 2022.