The Commerce Commission has commenced a market study to look into any factors that may affect competition for the supply or acquisition of key building supplies used to build the major components of residential buildings.

The major components of residential buildings are, for the purposes of this study, the foundation, flooring, roof, walls (structural and non-structural, interior and exterior) and insulation.

The study commences following publication of terms of reference for this study by the Minister of Commerce and Consumer Affairs in the Gazette. 

“Residential building is an important part of New Zealand’s building and construction industry, and vital to ensuring housing supply can meet demand,” says Commission Chair Anna Rawlings.

“Various reports on the industry have raised concerns at rising building costs, and this study allows us to consider the industry’s approach to key building supplies and how effectively competition is working within the industry, and where it may be able to be improved.

“The broad terms of reference invite us to look up and down the supply chain and across product lines, at the industry structure and nature of competition for key building supplies, at pricing practices or acquisition requirements that may impact on competition, and anything that may be impeding new or innovative building supplies, such as ‘green’ building supplies or novel prefabricated products.”

“We will be inviting views on the areas of focus for this study, in terms of both the ‘key building supplies’ to focus on and the issues to explore,” says Ms Rawlings. 

The Commission will engage with and send general information requests to a range of stakeholders shortly. It will release a preliminary issues paper in December and consult on that. It will undertake further information gathering and engagement with stakeholders commencing early next year. The Commission expects to release a draft report for consultation around July 2022 and its final report in December 2022.

A process paper and guidelines that describe the purpose of a market study and the Commission’s approach to market studies are available on this study’s dedicated webpage.

Background

This study, into residential building supplies, will be the Commission’s third market study after completing a first market study, into retail fuels, in December 2019 and a second, currently ongoing, market study into the retail grocery sector.

The Minister of Commerce and Consumer Affairs may, by notice in the Gazette, require the Commission to carry out a market study if the Minister considers it in the public interest to do so. The Minister must publish terms of reference that specify the goods or services, or both, to which the study relates and describe the scope of the study.

The Minister of Commerce and Consumer Affairs announced on 22 November the initiation of a market study into “any factors that may affect competition for the supply or acquisition of key building supplies used to build the major components of residential buildings” and a notice has been published in the Gazette formally requiring the Commission to carry out this study. The Commission has now opened this study. 

What is a market study?
A market study, referred to as a ‘competition study’ in Part 3A of the Commerce Act, is a study into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it could be improved.

By gathering and analysing information on an industry, we can identify whether there are features preventing competition from working well, as well as considering how things might be improved for the long-term benefit of New Zealand consumers.

Outcomes of our work may range from a ‘clean bill of health’ for the sector to recommendations for changes to enhance market performance. The Commission’s recommendations are non-binding, but the Government must respond to any recommendations within a reasonable period.

Why is competition important?
When markets work well, businesses compete by providing consumers with products and services at prices and quality levels they hope will be more attractive than their rivals. In a competitive market, businesses are incentivised to innovate, and new competitors may be attracted to enter the market and expand within reasonable timeframes, putting pressure on incumbents.