Fletcher Building hit by price threat

Feedback on the high price of house-building is being sought by December 18. Photo / APN

Govt worried about limited industry competition looks for ways to cut product costs

Fletcher Building shares dropped yesterday after the Government announced options to cut prices for building products, castigating the sector for charging up to 30 per cent more than in Australia.

The firm's stock fell 23c to $9.50.

Housing Minister Nick Smith and Commerce Minister Craig Foss released an options paper, seeking feedback to changes that could be made to the sector to help resolve the housing affordability crisis.

Smith is worried that high duties on some imported building products, and limited competition, was allowing excessive margins by building product manufacturers.

Foss said the barriers appeared to lead to a bias towards the continued use of tried and true brands, products, methods, and systems. This impedes the ability of new firms to enter the market and of existing firms to innovate, he said.

The boss of Deacon Holdings, New Zealand's biggest home builder, backed the Government concerns and called for more competition in the building sector, but said Fletcher Building was not to blame.

Grant Porteous, managing director of Deacon Holdings - the master franchise holder for the 27 GJ Gardner building franchises - said the sector lacked competition because of New Zealand's small size, high distribution costs and huge barriers to entry to new house building manufacturers and distributors.

"I don't blame Fletchers. We're fortunate to have such good manufacturers as Fletchers in New Zealand but any company's position can be strengthened by good, open, healthy competition," said Porteous whose franchisees will build more than 950 houses in the March year.

The Ministry of Business, Innovation and Employment is seeking feedback on the high price of house-building by December 18.

Rick Osborne, Fletcher corporate affairs general manager, said his firm would have input into that process.

"The Government's options paper presents a suite of potential options which Fletcher Building will respond to as part of the submission process."

He added that prices had dropped in the last few years.

"It is worth noting in this context that Fletcher Building has experienced real price declines since 2006 in a number of its New Zealand manufactured building materials businesses, reflecting lower building activity levels, a higher dollar and increased import competition," Osborne said. Porteous said new house costs were high here compared with Australia for reasons other than dominant market positions held by companies such as Fletcher.

"First, there's the red tape here, the resource consent costs, council inspections and fees. Second, Australian houses are so much more open than ours." However, he also acknowledged dominant positions had contributed to high prices.

The Productivity Commission's report on housing affordability said New Zealand's small size and the small scale of material manufacturers affected costs.