Draft report on building supplies finds competition lacking

The country’s competition watchdog says competition for the supply of key building supplies is not working as well as it could.

The Commerce Commission said competition would be improved if it was easier for building products to be introduced and for competing suppliers to expand their businesses.

However, the commission has not recommended breaking up any businesses in the sector, saying “vertical integration” of businesses in the industry did not appear to be a factor affecting competition over the longer term.

Chairperson Anna Rawlings said its investigations had shown “tried and tested” products had become embedded in home-building practices in New Zealand and the building regulatory system should include competition as a “deliberate objective”.

“Despite flexibility to use new products being available in the system, it is too slow, costly and uncertain to get them accepted for general use,” she said.

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“In some circumstances, some types of rebates paid by established suppliers to merchants appear to be reinforcing difficulties faced by competing products.”

The commission found some rebates paid by building supplies firms to merchants were adding to competition problems.

Those rebates rewarded merchants for purchasing greater volumes through a single supplier and could deter merchants from stocking competing products in their stores, Rawlings said.

“When quantity-forcing rebates are used by a supplier with a large share of a market, they can harm competition by reducing the ability of smaller competitors or new entrants to compete.”

Gib-branded plasterboard was one of the products commonly specified in building plans and that had made it difficult for builders to substitute it for competing products, she said.

Aside from recommending competition should be specified as an objective in building regulations, the commission recommended developing systems to centralise information-sharing about building supplies and action on the use of certain rebates.

The commission did not recommend new laws to restrict the use of rebates, but Rawlings said in some cases they could breach the Commerce Act, and that they were more likely to do so once already-legislated changes to the act came into effect next year.

Rawlings appeared to indicate that businesses that misrepresented the true cost of building supplies in their invoices to customers to disguise the impact of discounts they had received could be breaching the Fair Trading Act.

”We would expect if customers were being told the price paid for a product, that should be the price,” she said.

In a Cabinet paper seeking approval for the market study last year, Commerce Minister David Clark estimated that two companies controlled about 85% of the supply of concrete and three companies controlled about 85% of the supply of glass wool insulation.

He also noted that Fletcher Building subsidiary Winstone Wallboards supplied about 94% of the country’s plasterboard.

Builders have been hampered by a severe shortage of Gib board during the building boom this year, prompting direct action by the Government to import alternative supplies.