Fletcher Building, Carter Holt Harvey challenge Commerce Commission probe

The cost of building materials has been a talking point, even before the latest bout of inflation. Photo / Jason Oxenham

"Us? You've got to be kidding."

That was the tone of building duopoly giants Fletcher Building and Carter Holt Harvey's challenge to the Commerce Commission's house cost probe.

The cost of building materials has been a talking point, even before the latest bout of inflation.

The Productivity Commission estimated people in New Zealand pay between 20 and 30 per cent more for building materials than those in Australia and 28 per cent product price rises are being clocked lately.

An Ebos survey out in December showed 16 per cent rises in the latter three months of last year.

But participants forecast a further 12 per cent rise in the next half-year, resulting in a compound 28 per cent.

The Auckland-headquartered companies sent defensive submissions to Wellington.

Ross Taylor, Fletcher's chief executive, told the commission materials were but a small portion of overall house price costs and it wasn't looking in the right direction if it wanted to uncover why house prices were high.

Carter Holt said there were "numerous other competitors" in the sector. Rebates or loyalty payments by its Carter's national retail chain to trade customers didn't affect their buying decisions.

Taylor said: "Building materials in total comprise only approximately 19 per cent of the residential development cost of a typical double-storey house in Auckland, which is one of the most common build types in that region.

"Land, labour, the cost of obtaining consent and taxes are all material contributors. In our view, these factors – land and taxes in particular – are much greater drivers of housing affordability than building supplies," Taylor wrote.

Ross Taylor of Fletcher. Photo / Jason Oxenham

In November, the commission started a year-long study into whether residential building supply competition was working and what could be done to improve it.

The building sector manufacturing duopoly of Fletcher Building and Carter Holt Harvey is under the spotlight.

The Government told the commission to find out whether we're being ripped off after the Productivity Commission estimated we pay between 20 and 30 per cent more for building materials than Australians.

Commerce Minister David Clark said the Government wanted to look at "how we can lay the foundations for a more competitive building sector".

Taylor complained about the way the commission was investigating his sector.

Four Fletcher products were on its preliminary building supply list to be probed: steel roofing, particleboard, plasterboard and insulation, he noted.

"But other higher-value products such as plumbing, electrical materials, paint and carpet are excluded. These excluded products contribute significantly more to the materials cost of a residential building," he complained.

Paint accounts for nearly twice the relative cost of plasterboard, which is only around 0.5 per cent of the cost of a house and only 2.5 per cent of the total materials cost, Taylor said.

Electrical materials are 2.3 times the cost of insulation and carpet is a larger contributor to the cost of a house than each of plasterboard and insulation, he said.

Graeme Hart's Rank owns Carter Holt. Photo / Martin Sykes

Carter Holt Harvey, owned by the richest New Zealander Graeme Hart's Rank Group, told the commission all the markets that it operates in here were vigorously competitive and are delivering competitive outcomes for New Zealand consumers.

The business had the national 49-shop Carters retail outlets and was the leading manufacturer of structural framing, plywood and laminated veneer lumber.

Vertical integration - being a timber merchant and selling that timber in its shops - was a benefit to New Zealand, Carter Holt argued.

"Carter Holt considers that its vertically integrated model delivers significant benefits for New Zealand consumers including by enabling CHH Woodproducts to expand its structural framing capacity as demand has increased in recent years to reflect the significant increases in New Zealand house and townhouse development," it said.

It cited how in the last five years CHH Woodproducts had invested more than $100m into expanding its framing timber capacity at its Kawerau and Nelson sawmills.

"CHH's vertical integration with Carters has enabled CHH Woodproducts to make those investments, both in manufacturing assets and innovation, by providing CHH Woodproducts confidence that it will have the required customers to justify that increased capacity," it told the commission.

Carters was not the only retail chain supplying the trade either: "There are a range of different building supplies merchants that offer a range of different building supplies to customers."

Mitre 10 said it agreed that the commission's study should focus on key building supplies that represent a significant proportion of the overall cost of the building envelope: interior linings, framing timber and wall cladding.

It supported the investigation into products where there are barriers to entry.

Regulatory and standards systems made it difficult for new and innovative building supplies to enter here. The Building Code and product requirements are overly restrictive, particularly for our small size, it said.