Building material rebates dumped just ahead of Comcom report

Just ahead of the Commerce Commission’s release of its final market study report on residential building supplies, Fletcher Building’s plasterboard arm Winstone Wallboards announced it was ending rebates to building supplies retailers.

Winstone Wallboards, the manufacturer of GIB, says it will move to a tailored, flat pricing model based on volume.
The discontinued rebates paid to retailers by building companies, such as Fletcher’s, for selling its products is one of two main factors the Commerce Commission says is hampering competition in the building supplies industry.

Another problem identified in the report was that of restrictive land covenants and exclusive leases - a problem which was also found in the supermarket study.

The rebates rewarded merchants for purchasing greater volumes through a single supplier, by offering higher percentage rebates that apply across all of that merchant’s purchases with that supplier.

The commission says while these rebate structures do not always lessen competition, they can deter merchants from stocking competing products, which makes it more difficult for new or smaller suppliers to access distribution networks and become established in the market.

Commission chairman John Small says it could not ignore the fact changes were needed in the industry. “There is a ‘self-reinforcing cycle’ in the market that mitigated against competition that the commission wants to break.”

Commenting on the report, Building and Construction Minister Megan Woods and Consumer Affairs Minister Dr David Clark say the industry needs more competition and the solution lies in improving the conditions for entry and expansion which, in turn, will improve competition for key building supplies.

Incentives that favour familiar building products in the building regulatory system and quantity-forcing rebates negatively impact competition in this crucial sector,” they say.

This means it’s harder for alternative products that offer consumers a choice, to get into or expand in the market.
Clark says In the coming weeks and months, the Government will talk to stakeholders, with a response expected in March next year.

“Building supplies make up a sizeable chunk of the costs of new residential housing so we already have building sector reforms underway, including a review of the building consent system. The Commerce Commission recommendations dovetail into

MBIE’s current review of the consent system,” Woods says.

Key recommendations include:

  • explore ways to remove impediments to product substitution and variations;
  • explore ways to reduce specification by brand;
  • create more clear compliance pathways for a broader range of key building supplies;
  • establish a national system to share information about building products and consenting;
  • establish an education and mentoring function for building consent authorities;
  • develop and implement an all-of-government strategy to coordinate and boost offsite manufacturing;
  • Promote compliance with the Commerce Act, including by discouraging the use of quantity- forcing supplier-to-merchant rebates that may harm competition.
  • expand the range of product certification schemes that can issue product certificates deemed compliant with the Building Code;
  • investigate reducing further barriers to certification and appraisal; and
  • develop guidance for key building supplies that identifies the appropriate Building Code clauses and possible means of proving compliance.

Woods says system changes take time because they are important to get right. “We continually look for opportunities to improve the way the current building consent system works while more significant reforms are developed. The Ministry of Business, Innovation and Employment (MBIE) has released updated guidance on the building consent process and a new standardised checklist for residential building consent applications. This will help lift the quality and consistency of building consent applications.

“Recommendations in the report align with moves we made to help resolve the national plasterboard shortage. The Commerce Commission notes this success, saying that MBIE initiatives and the Ministerial Plasterboard Taskforce illustrate what can be done to improve greater competition.

The recently announced Critical Materials Taskforce springboards off that work to prevent further acute building supply shortages.

“But we know there is still more to be done to ensure consumers get a better deal and builders have the materials they need to do their jobs.”

“These market studies are maturing, and with that we can see recurring themes starting to emerge. The use of land covenants and exclusive leases is a good example of this. The Commerce Commission has now recommended Government looks into the scale and use of land covenants, exclusive leases and contractual provisions with similar effect across the economy – which we will do.”

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