Saturday, 9 June 2018

Building materials costs

When Twyford revealed the investigation he said the industry was rife with rorts and anti-competitive practices.

“That is because we effectively have a duopoly in New Zealand. Add to that rebates and junkets given to builders to use certain products. The industry is far too uncompetitive.”

The rorts are one of Edwards’ main complaints about building materials prices, which further hinders competition.

“There isn’t corruption in brown paper bags,” he says. “But there are rebates, which aren’t allowed in other parts of the world. If I am building a house or five houses in a year and I spend $50,000 on Gib, I get rebates from my supplier.”

This and the junkets add to the overall cost of the materials.

However, Tookey says even though it’s almost inevitable that other competitors are being kept out through the use of these types of rebates, it’s natural for companies to protect their interests.

“If you didn’t do it in that way, there would be substantially more competition,” he says.

Twyford says the enquiry can’t happen until the Commerce Amendment Bill currently

before Parliament gives the Commerce Commission stronger powers to conduct market studies and take action against anti-competitive behaviour.

The Bill would enable studies into market competition and give the Commerce Commission new enforcement tools.

“Once Energy Minister Megan Woods has conducted her market study into the fuel industry, I’d like to ask the commission to examine building costs,” says Twyford.
I have no special knowledge about what's going on in building material costs. They're stupidly expensive here compared to Canada, but a lot of stuff is stupidly expensive here because we're a small market at the far end of the world. Sorting out whether it's small-and-distant problem or anti-competitive practice isn't simple.

But I know one thing. When electronics seem stupidly expensive, anybody can go online and order direct from Singapore or Hong Kong. When that started being easy to do, there were a lot of potential savings there. Price dispersion on PriceSpy between the direct importers and the normal retailers was pretty wide. Since then, it's become a bit harder to find really big savings once you factor in shipping costs and tax and exchange. Hopefully, the government doesn't wreck the pro-competitive effects of direct-to-consumer imports with what it winds up doing on GST at the border.

Regardless of the merits of a market study by ComCom, mightn't it just make sense to instruct MBIE to fix building materials regulation to make it easier to import building materials? If there are problems in competitiveness, letting people route around them can solve. If there aren't, that would be revealed as well.

We'd just need two things.

First, we'd need to deem any building material approved for use in a comparable jurisdiction to also be approved for use in New Zealand. I would start with Seattle, Vancouver, and Tokyo. Seattle and Vancouver are wet and shaky. Vancouver's gone through its own leaky homes thing in the 90s and has updated since then. And it is ... basically insane ... to think that materials fit for use in Tokyo are not good enough for New Zealand. I'm sure there are other places that would be great to include as well.

Second, we'd likely need an NPS or something comparable to it instructing Councils on how to deal with consent applications involving materials with which they are not familiar - and likely a coupling of that with a removal of Council from joint-and-several liability for failures. Council liability as last-man-standing drives risk-averse, cost-inflating practice around building permits. Maintain joint-and-several among construction companies if you want, but limit Council's liability to its proportion of the overall problem. So if a court winds up finding that 10% of some future problem is Council's fault, it gets only 10% of the cost - not 100% as the only remaining entity.

If I were Twyford, I'd be telling MBIE that we'd be implementing this starting 1 July unless they could provide excellent and convincing reasons why not before then.

Oh - and get rid of any remaining anti-dumping tariffs on building materials. If people want to sell us building materials at very low cost, during a giant construction push, we should probably say thank you. If we care about construction costs and housing affordability.

Previously:

  • Construction payola? (2015): Why shouldn't Ngai Tahu be able to just start importing in bulk from abroad, and launching Treaty complaints if blocked from doing so? Ngai Tahu Construction should be able to build as they like on Ngai Tahu land. 
  • Construction costs (2013): In which I note that one part of central government was all mad about construction costs (ProdComm), but other parts of government put tariffs on wire nails and plasterboard in the middle of the darned Christchurch earthquake rebuild.
  • And, from this year, if we're going to make cartel activity criminal, then the regulators whose regulations create a cartel should be thrown in jail. Regulatory cartels are particularly bad because every player in a private cartel has incentive to chisel and defect; regulations can prevent defection and block entry. If the government's rules around material imports have acted as a cartel mechanism, then government should be investigating and prosecuting itself. 

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