Commerce Commission building materials probe: Watchdog didn't bite hard

Some sighs of relief from industry players greeted what could have been a hard-hitting probe into the competitiveness of our market for house-building materials.

Industry reaction to the draft Commerce Commission report on residential building material competition has so far been approval rather than criticism, fear or loathing.

That's great for business, perhaps not so good for consumers - a point made by National construction spokesman Andrew Bayly who reckons recommendations are too meek.

Grant Swanepoel, Jarden's equity research director, said the probe would have little effect on dominant business Fletcher Building.

"Our view is that the report's findings and recommendations are very benign, with the commission making general recommendations that could improve access to markets over time, more driven by regulatory changes than by forced short-term changes," Swanepoel said.

Jarden's Grant Swanapoel released research headed "little impact from review". Photo / supplied

Julien Leys, Building Industry Federation chief executive, also expressed relief.

"My initial impressions of the interim report are very favourable," he said.

Establishing a national building products register to improve decision-making was something the federation had been calling for over several years, Leys said.

The recommendations to also improve the efficient functioning of the regulatory system was also sound "and we fully support competition being promoted as a key objective in the Built environment as positive.

"We support the recommendation to remove impediments for product substitution as long as this does not allow products that may not perform as part of a specific design for an approved building system, such as a wall with associated fire, moisture, bracing, or acoustic characteristics," Leys said.

New residential construction in Auckland. Photo / Jason Oxenham

It is now too slow and expensive to get new products certified and appraised, he said.

"Any move to improve this process will benefit the entry of a wider range of products into the New Zealand building market," Leys said.

Swanepoel cited the watchdog's ponderings on volume rebates.

"While rebates are considered potentially anti-competitive, these will be left to the merchants to decide if the intent is anti-competitive or not, with no new regulation to be applied," he said.

Nor are break-ups of vertically integrated businesses recommended. That "gets a pass mark. This should be positive for Fletcher," Swanepoel added, saying Jarden was retaining a buy rating on the shares.

"We consider the commission's world view positive in understanding why New Zealand's costs are sometimes justifiably ahead of other country costs," he said.

He cited the watchdog saying some of these impediments are beyond the reach of this study.

New Zealand's small market makes it challenging for domestic manufacturers to reach efficient scale, the commission noted.

Swanepoel did cite the potential non-compliant enforcement case cited by commission chairwoman Anna Rawlings in her briefing today. But he noted that business was not named.

"From what we can deduce, it does not appear to be related to Fletcher Building. The commission also refers to the potential negative use of restrictive land covenants, also likely limited if any Fletcher Building impact," he said.

One industry leader was more cynical: "So things are all working well, are they? That's good then," he said.

Fletcher Building was entirely non-committal.

"Fletcher Building acknowledges the release of the Commerce Commission's interim market study into residential building supplies. The report is comprehensive and requires a thorough review. We will take our time to consider the points made by the Commerce Commission and continue to participate in the process accordingly," a spokesperson said today.

David Kelly, Master Builders' chief executive, welcomed the centre for excellence but called for faster, more deliberate action from the watchdog.

"While we agree with the commission that the regulatory system can facilitate more products coming into market, these ideas need to be translated into real action, and should be taken further," Kelly said.

The commission is recommending competition be an objective to be promoted in the building regulatory system.

It wants a Māori perspective reflected, to open pathways for a broader range of key building supplies, an examination to be made into removing impediments to substitution and variations and an investigation into whether barriers to certifying new products can be reduced.

A new register has been announced to share information about building products and consenting. This will help centralise information and allow people to share knowledge.

Rawlings referred to the plasterboard sector in particular and said there were some initiatives being employed already that were good examples of what's possible to better enable competing products to come here.

But the commission has stopped short of recommending 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.

Proceedings were planned to be brought this year against one business to enforce the law, Rawlings said.