Government to shake up construction sector in bid to cut building material costs

The government is set to shake up the construction sector in a bid to bring down the cost of building materials, which it says are "too high", unveiling a raft of proposals such as rejigging compliance settings, tweaking import anti-dumping duties, and using its heft to influence the market.

Housing Minister Nick Smith and Commerce Minister Craig Foss are seeking submissions on an options paper which aims to cut building material costs, which are 30 percent higher than across the Tasman.

The Ministry of Business, Innovation and Employment paper found barriers in the market perpetuated the use of 'tried and true' brands, products, methods and systems which have impeded new entrants into the market and sapped firms' appetite to innovate.

"Our market study has flushed out some very real issues in the building materials industry," Smith said in a statement. "The industry needs a shake-up through increased competition and greater transparency to ensure kiwi families can get access to more fairly priced building materials and homes."

The steps are part of the broader response to making housing more affordable, which has been hindered by a lack of supply in the country's two biggest cities, Auckland and Christchurch, and comes amid an 'all of government' procurement for building materials as it seeks to cut its annual spend over the coming years.

The MBIE paper found players in the industry were overly risk-averse in response to concerns over liability associated with the leaky-buildings saga, and that "the residential construction sector is not as competitive or productive as it could (or should) be."

That risk averse stance by industry players "may have gone beyond what is economically rational, or may have negative effects on the industry overall." As a response, the paper put up a proposal to recognise manufacturers' warranties, meaning those firms would face quantifiable risks which are more easily mitigated.

Options put forward to improve the regulatory framework included greater specification of lower-level product, encourage more transparency from certification providers, prevent designers from preventing the use of substitute products, and lift the use of risk-based consenting.

The paper also put forward reforming the governance of Building Research Association New Zealand by imposing a greater role for government to allay fears of the entity being captured by industry.

To address unsubstantiated accusations of strategic practices hindering competition, the paper proposes requiring greater disclosure and the use of government procurement as best practice and to influence market conduct by its sheer size.

As a means to foster competition from imported products, the paper put forward ways to limit the restrictions on building materials subject to anti-dumping duties, and consider tariff concessions on key construction materials.

The government paper found the fragmented industry created challenges to adopting new innovations. It proposes tweaking what funds from the BRANZ levy can be spent on, and building on an existing partnership between government and industry to improve innovation and productivity.

Submissions close on Dec. 18.

(BusinessDesk)