Editorial: A big KiwiBuild contract could get materials more cheaply

Housing Minister Phil Twyford and new KiwiBuild home owners Derryn Jayne and Fletcher Ross stand with PM Jacinda Ardern outside their Papakura Home in October 2018. Photo / Greg Bowker

Editorial

EDITORIAL

Everyone who sees the logs stacked at Mt Maunganui for shipping overseas asks the question. Why are we exporting so much wood in raw commodity form? And when we read that the price of building timber here is about four times the price in California and nearly a third higher than its cost in Australia — and is contributing significantly to our unaffordable housing prices — the question becomes, Why, in a climate where trees grow so easily, do we not have a thriving industry of finished timber products here?

The answer usually given to both questions is one of distance and scale. Distance makes it expensive to export finished building products and the small New Zealand market means the prices would have to be high to provide a return on the investment in an industry here. Those prices would be as high as, or higher, than imported products. If New Zealand could produce them cheaper, somebody here would be doing so.

Yet the suspicion persists that something is wrong with the supply in New Zealand, something is making materials more expensive than they should be. The Government has asked the Commerce Commission to investigate the suppliers, much as the Productivity Commission did for the previous Government. It found the scale of local building companies to be one of the problems.

Today we are reporting the view of at least one industry participant who KiwiBuild has the scale to make a difference if the bulk of the programme is awarded to one big overseas contract.

Tony Sewell, former chief executive of Ngai Tahu Property, the largest property company in the South Island, and now a director of Generation Homes, thinks the Government should offer a contract large enough to make it worthwhile for the winner to set up its own supply line. "The problem is there is no one outfit (here) who wants to build enough houses to consider an alternative supply line, " he told Phil Taylor. "The Government is the only outfit that could do that."

Housing Minister Phil Twyford said the Government is "very open to international companies which are used to working at scale" but said he also wants the domestic industry to grow. It has received 105 expressions of interest in KiwiBuild from foreign and domestic builders, of which 44 have been invited to present more detailed proposals over the next few months. The number will be further whittled down after July and Twyford expects the majority of contracts to be let by the year's end.

It does not sound like one big supplier will get the bulk of the order for 100,000 houses over 10 years. The Government's economic advisers would naturally be worried that a single supplier of that scale could dominate the industry to an unhealthy degree, crowding out existing supply lines in a short time, supplying KiwiBuild projects with cheaper materials but charging other builders as much as the market will bear.

House builders here have become accustomed to bearing very high prices by international standards. But that is not the only reason house construction is costly here. Kiwis also want "bespoke" houses, not standard designs, which makes less use of cheaper methods such as off-site fabrication. But we need to get building costs down and one way or another KiwiBuild could be used to do it.