Property Institute CEO Ashley Church on the factors driving New Zealand's housing concerns.
Fletcher Building's 94 per cent share of New Zealand's wallboard market via subsidiary Winstone Wallboards has been cited in an analysis of a state probe into high housing costs.
Jarden analysts Grant Swanepoel and Luan Nguyen reacted to this week's announcement by Commerce Minister David Clark who saidthe Government wanted to look at "how we can lay the foundations for a more competitive building sector".
The Government wants the Commerce Commission to look at whether Kiwis are being ripped off by the cost of building materials.
The cost of building materials has been a longtime concern in New Zealand, 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.
Swanepoel and Nguyen said: "Fletcher's Winstone Wallboards has circa 94 per cent share of plasterboard, fluctuating depending on imports."
However, they said the company's wallboard dominance was likely to be only a minor concern. Fletcher went through a review in 2014 which resulted in no changes to the industry.
Fletcher has 55 per cent of the cement market with the rest imported by Holcim and others, the analysts said.
In glass wool insulation, it has a 40-50 per cent share with import competition from Knauf which has a new plant in Malaysia, as well as CSR (Bradford) and some smaller players.
Fletcher's Placemakers has a 25 per cent share of the small to medium-sized building merchant market but under 5 per cent of the retail market.
Foundation, flooring, roof, structural and non-structural interior and exterior walls and insulation were housing's major components, they wrote.
New $400m Winstone Wallboards plasterboard factory at Tauriko. Photo / George Novak
A 2018 Fletcher Building report said that because land, compliance, engineering and labour were material in the cost breakdown of a house, building materials were only around 19 per cent of the cost of an Auckland home.
Timber was the biggest materials contributor and Fletcher does not manufacture timber, the company said.
Fletcher's share of a total house cost is around 6 per cent 11 per cent, that report said.
"This is a highly sensitive topic and while we have the view that this study may be unlikely lead to any rational change to the industry, there is always the heightened risk until the review is completed," the analysts wrote.
In reaction to the minister's announcement, Fletcher said: "We have noted the announcement made by the Government on the proposed terms of reference for the building products market study. We intend to participate in the market study in line with the Government's expectations."
Swanepoel and Nguyen said the supply of some building supplies is highly concentrated, citing Fletcher and Carters.
"Two companies control about 85 per cent of the supply of concrete, three companies control about 85 per cent of the supply of glass wool insulation, one company controls about 94 per cent of the supply of plasterboard and there are only five major building materials merchants."
They cited difficulties for new building supplies to enter this market, including anecdotal evidence of issues in the building consent process.
Around 45 per cent of products in the cement market and 50 per cent of steed products are imported.
"It is not as simple as competition keeping importers out," they said.
MonopolyWatch NZ welcomed the commission probe as an opportunity for industry reform and lower housing costs.
Reform would also lead to higher wages for builders and related tradespeople, more realistic levels of profitability for distributors and manufacturers of building products and a dramatic improvement in industry productivity.
"Over the last three years, MonopolyWatch has reviewed and analysed international best practice in social house assembly. Our members and associates have travelled to and visited 32 international house-building factories, comparing costs, assessing processes and observing the complex interplay between those processes.
"We will share our analysis in submissions and evidence that we present to the commission and with those interested in higher-quality, lower-cost residential buildings," the group said.
It is worried about the New Zealand building material industry having a high Herfindahl-Hirschman index which is a measure of market concentration.
"We will present evidence on the impact of the industry's rebate culture and question why legislative safeguards around rebates are so weak compared with those of other OECD countries," it said.
"We will also present evidence showing how the current industry structure fails to align, and in fact misaligns, the interests of consumers and those of the house assembly industry," MarketWatch said.
