Arguments over the cost of building new homes started in earnest with competition lawyer Tex Edwards telling the Commerce Commission in a brief that massive savings are possible.
The watchdog is carrying out market research into the building materials industry after expressing concern over a narrow choice of suppliers, some of whom may be using ‘loyalty payments and rebates’ to restrict competition for some key products.
Edwards said in a Monopoly Watch submission that his research indicated the cost of building “entry-level social housing” was around $3,800 per square meter in New Zealand, but was expected to be around $1200/square meter according to international best practices.
Monopoly Watch’s submission said that “well-capitalized, scalable, international-scale institutional embedded builders,” which could be wholly or partially state-owned, could reduce costs.
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A “scalable big player” established to build around 3,000 to 5,000 properties a year could roll back the “margin-on-margin culture and solve the ‘death by a thousand cuts’ conundrum” plaguing small builders, a said Edwards.
The construction industry’s ability to provide affordable housing collapsed in the late 1980s and early 1990s, when builders moved to “bespoke, high-end construction”, a- he declared.
“New Zealand has the best craftsmen in the world, but we’re not using them properly.”
Edwards, who is best known for founding 2degrees and breaking the duopoly of Spark and Vodafone in the mobile market, promised to back up his case with evidence from an unnamed industry insider.
The communication from Monopoly Watch said that “an expert witness from a recently deceased large multinational building materials company” wanted to testify before the commission on issues and solutions.
“A series of international associates” could share data and deliver the best solutions in the world, he said.
The price of new homes, excluding the land they were built on, jumped 16% last year, according to Stats NZ.
This was partly due to product and labor shortages during construction, and CoreLogic predicted that construction costs could increase by 10% this year.
But building materials suppliers’ submissions to the commission’s market survey, which have also been published online, suggest a narrow focus on the products themselves would be largely a waste of time.
Construction giant Fletcher Building said it believes building materials markets are competitive and competition “generally works well for consumers”.
New Zealanders’ “preference for bespoke homes”, the fragmented nature of the construction and renovation industry and an “understandable risk-averse approach” to building product approvals affected all construction costs, he said.
“The commission should carefully consider whether the regulatory environment is as efficient and effective as it could be for a country of the size and demographics of New Zealand.”
Fletcher Building argued that the commission’s proposal to focus on a limited selection of materials such as flooring and roofing products, wall panels, insulation and windows meant that less than 8% of the cost construction of a new house would fall within the scope of the review.
“In our view, that’s too narrow to make a meaningful difference to the cost of housing,” he said.
Carter Holt Harvey told the commission that the price of structural lumber had risen 20% since 2008, while the consumer price index had risen 30% during that period and total construction costs , excluding land, had increased by 90%.
The Master Builders Association told the commission that about 70% of all building products were either imported or required “some components of imported products.”
It showed the construction industry’s heavy reliance on overseas markets which were “outside New Zealand’s jurisdiction and influence”, he said.
Edwards said Fletchers and Carter Holt Harvey made good points in their submissions.
“We need international benchmarking on every part of the value chain,” he said.
But the main impact of a lack of competition in building materials has been lower levels of innovation and productivity in the industry, which went well beyond price, he said.
Edwards said Monopoly Watch’s submission was intended to expose industry issues and opportunities.
He also made a separate joint submission under the names “Mike and Tex”, and a third submitted under the name “Kiwi Infrastructure”, which he said aimed to detail the solutions.
The commission should recommend that makers of building products, including wallboard, not also own the companies that distribute them, Edwards said.
It should also focus on the factors that have impacted the cost of providing affordable social housing and avoid getting distracted by a ‘blame game’ over land prices, he said. .
Kiwi Infrastructure may have an interest in building large-scale social housing, he said.
It appears similar in nature to the “Northelia” business in which Edwards is involved, which has expressed interest in establishing a third supermarket chain in New Zealand, based on market research results from the commission on the grocery industry.
Edwards played a key but largely facilitating role in the gestation of 2 Degrees and was never considered to be in a position to personally finance a major grocery or construction company.
He did not confirm whether Kiwi Infrastructure, like Northelia and 2degrees before it, included Maori support, but said he was proud to be consistent with the investors he worked with and to respect “long-standing relationships “.