Competition for supply of key building supplies ‘not working as well as it could’ – ComCom

Competition for the supply of key building products is not working well as it could, says the Commerce Commission.

The watchdog has released its draft report into the factors affecting competition in the residential building supplies market.

“Our preliminary view is that competition for the supply of key building supplies is not working as well as it could, and would be improved if it was easier for building products to be introduced and for competing suppliers to expand their business,” Commerce Commission chair Anna Rawlings said.

The study found that “tried and tested” products had become embedded in the country’s building practices and that this was compounded by rebates paid to merchants by some suppliers.

“These rebate structures reward merchants for purchasing greater volumes through a single supplier and can deter merchants from stocking competing products in their stores,” Rawlings said.

“This appears to be reinforcing challenges to distributing new, innovative or competing products in some product markets.”

Rawlings said that the regulatory system also had a number of features that prevented competition from working well, as it was often too slow and too costly to get new, competing products accepted for use.

There was also uncertainty if they would get approved, she said.

The study concentrated on three key building supplies – concrete, plasterboard and structural timber.

“These case studies – selected primarily as a consequence of the relatively high proportion of the cost of residential building that they represent compared with other supplies and the relatively high concentration of suppliers for these materials – demonstrate how the factors affecting competition apply to a greater or lesser extent in relation to different key building supplies,” Rawlings said.

The competition regulator recommended introducing more compliance pathways and making it easier for new or competing supplies to be introduced.

It also recommended a broader investigation into the effects restrictive land covenants were having on competition throughout the economy and determine if a multi-sector solution was required.

Draft Recommendations

Enhance the regulatory system

The commission’s draft recommendations include introducing competition as an objective to be promoted in the building regulatory system, creating more compliance pathways for a broader range of key building supplies, and making it easier for designers and market participants to use and adopt new or competing building supplies.

It also considers that better engagement with Māori is key to achieving their aspirations and ensuring that Māori perspectives are better reflected in the building regulatory system.

Support sound decision-making

In addition, the commission makes draft recommendations directed at the decision-making behaviours of designers, builders and building consent authorities involved in the implementation and application of the regulatory system. This includes identifying and developing methods to centralise information sharing about key building supplies.

The current MBIE-led review of the building consent system may provide a pathway for further policy development in relation to draft recommendations relating to the regulatory system.

Address strategic business conduct

Other recommendations were directed at the strategic business conduct that the commission has identified as affecting competition in markets for key building supplies. This includes recommendations relating to quantity-forcing supplier-to-merchant rebates and use of restrictive land covenants and exclusive lease arrangements.

These initiatives aim to discourage conduct that may harm competition and ensure the rules about misuse of market power and other conduct are understood, and are appropriately addressed.