Commission Signals Approach For Next Stage Of Study Into Residential Building Supplies

The Commerce Commission has today released a paper providing more detail about its approach and the next steps for its market study into competition in the residential building supplies sector.

In November 2021, the Government asked the Commission to take an independent look at whether competition is working well and, if not, what could be done to improve it.

"This study will look at the factors affecting competition for a range of building materials that contribute to the cost of house construction in New Zealand,” says Ms Rawlings. “Competition can also affect the quality and range of products available to New Zealanders.”

“The factors we will consider across the range of key building supplies include industry structure and the nature of competition. We will also look at conditions of entry and expansion, such as whether regulatory and standards systems create any impediments to competition and innovation.”

The initial phase of consultation on the study has underlined that the residential building supplies sector is facing challenging conditions, globally and domestically, due to disruptions in supply chains.

“The supply chain is affected by international influences such as worldwide shipping, global manufacturing, and the COVID-19 pandemic, which highlights that some of the current challenges may sit beyond the scope of this study,” Ms Rawlings says.

“The study has a longer-term focus to ensure competition for key building supplies delivers enduring benefits to New Zealanders who are seeking to build new or renovate existing housing. It is possible that this focus could enable greater resilience to international supply chain issues.”

As well as looking at factors affecting competition across the range of key building supplies, the Commission has identified three key building supplies which it will consider in more detail. They are concrete (including cement), plasterboard and structural timber.

“These three key building supplies have been selected primarily as a consequence of the relatively high proportion of the cost of residential building that they represent compared with other supplies, the relatively high concentration of suppliers for these materials, and information gathered to date that suggests these supplies have limited alternative suppliers.

Alongside our study of all key building supplies included in the scope of the study, these three detailed analyses will assist us to more closely consider the factors affecting competition through particular examples,” says Ms Rawlings.

Between now and July, the Commission will continue to engage directly with a range of stakeholders to gather information relevant to our identification of factors affecting competition for key building supplies which are within the scope of the study. In addition:

• Submissions specifically relating to regulatory barriers to entry or expansion in the supply of key building supplies are sought by 13 May 2022 and can be emailed to buildingsuppliesmarketstudy@comcom.govt.nz
• The Commission will undertake a series of three online surveys directed to suppliers of key residential building supplies, builders and specifiers, and a wider group of stakeholders.
• The Commission will host a hui in early May seeking te ao Māori perspectives in relation to the study’s focus areas.

The Additional Paper providing more detail about the Commission’s approach and the next steps for the residential building supplies market study can be accessed

here

. Public versions of submissions and cross-submissions received on the Preliminary Issues paper for this study are also available on our

webpage

.

The Commission’s draft report is due to be released in July 2022, and the final report is scheduled to be published on 6 December 2022.

Background

This study, into residential building supplies, will be the Commission’s third market study after completing a first market study, into retail fuel, in December 2019 and a second market study into the retail grocery sector, which was completed earlier this month.

The cost of the key building materials falling within the scope of the study is one of a number of factors that influence the cost of building new houses alongside land, infrastructure, and labour.

A process paper and guidelines that describe the purpose of a market study and the Commission’s approach to market studies are available on the residential building supplies study webpage.

What is a market study?

A market study, referred to as a ‘competition study’ in Part 3A of the Commerce Act, is a study into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it could be improved.

By gathering and analysing information on an industry, we can identify whether there are features preventing competition from working well, as well as considering how things might be improved for the long-term benefit of New Zealand consumers.

Outcomes of our work may range from a ‘clean bill of health’ for the sector to recommendations for changes to enhance market performance. The Commission’s recommendations are non-binding, but the Government must respond to any recommendations within a reasonable period.

Why is competition important?

When markets work well, businesses compete by providing consumers with products and services at prices and quality levels they hope will be more attractive than their rivals. In a competitive market, businesses are incentivised to innovate, and new competitors may be attracted to enter the market and expand within reasonable timeframes, putting pressure on incumbents.

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