Building industry being 'held to ransom' by shortage
Bay builders’ suppliers taking stock as timber shortage worsens
The boss of one of the Bay’s largest building companies says the industry is being “held to ransom” amid a deepening shortage of timber products.
The shortage has sparked panic buying of materials and a warning from a national hardware retailer, Placemakers, that customers should plan well in advance as demand for steel, timber and cladding soars.
In March, the Commerce Commission sought a “please explain” from timber giant Carter Holt Harvey after it abruptly cut supplies to a number of building retail chains, prompting concerns that costs will rise and construction could slow.
The company has stopped selling structural timber to ITM and Mitre 10 but continues to supply to some of the bigger operators.
The commission last month said it was aware of supply issues in the building industry, however, Carter Holt had not specifically advised the commission of its intention to cease supply to some customers.
Classic Builders director Peter Cooney said because it was one of CHH’S largest clients it would not be affected but he felt for smaller companies.
“We’ve sort of been guaranteed supply but what is disappointing is it will push up the rates of timber. This is just another excuse to force prices up which will affect building costs and the homeowner.
“Once again we are being held to ransom by too few suppliers in the building industry. We haven’t got scale in New Zealand and are being monopolised by those who supply products.”
Pukepine general manager Jeff Tanner said there was no question “there is a shortage of wood but panic is not going to help the situation”.
“There is also a shortage of builders, electricians, plumbers and all supplies to the building industry which means demand can’t increase further, so the problem is not getting worse it is just more visible since the CHH announcement.”
Now it was faced with “increased demand from all of our good customers so we have to allocate as fairly as we can to help support their business”.
He said its order file indicated Pukepine could have sold more than double the amount of product in the past three months.
Pukepine had 10 vacancies and Tanner said it was working on productivity improvements rather than a major expansion as that could take up to two years.
“Looking ahead two years in this environment is challenging. With so much money being spent on economic stimulus globally, there is an increased risk that this spike could be followed by a recession.”
Tanner said on average the price of timber would increase 10 per cent this year but from April 1, 2017, through to March 2020 the prices had moved up by only 2 per cent, which did not even keep pace with log increases.
The rises were consistent across the entire supply chain for the home construction industry, he said.
“It is easy for builders to say they are being held to ransom but if you really pull back the curtain there has been significant cost increases and little productivity gain which leads to higher prices.”
Meanwhile, logging crews were working full throttle and have an abundance of timber they can’t get to the processing facilities fast enough.
Red Stag Group chief executive Marty Verry said demand outstripped supply but hopefully it would be met in the next six months.
Its $40 million, large-scale timber processing plant in Rotorua was “tantalisingly close” to completion and would help create upwards of 100 jobs.
Verry said that further expansions could be on the cards.
“Absolutely, particularly with what has happened in the last week. It lays the foundation for further expansion and not only in the sawmill itself but also in the cross-laminated timber factory we’re commissioning now.
“Future stages will create more products and more volume.”
Carrus managing director Scott Adams said some builders were reporting six to nine-month back orders on products like cedar and James Hardie products.
Build prices per square metre had increased steadily every year, he said, and there were also logistics issues.
The building industry buys most of its product from two big merchants.
“This duopoly has a bit of a stranglehold on NZ’S building industry.”
Barrett Homes national sales and marketing manager Lianne Simpkin said it had a variety of suppliers throughout New Zealand but some products may become difficult to source in the Bay of Plenty.
“Our suppliers have recommended alternative products — where required — and we do not perceive that our customers will be unduly affected.”
Venture Developments director Mark Fraser-jones said demand was exceeding the last peak in 2016. The shortage of available land was the largest factor in house prices rising.
Generation Homes regional manager Lyndon Marshall said it was with Placemakers which said there was no issue with supplying the company.
“So that is great news as far as we are concerned. There are price rises but we have seen those for goodness knows how many years.”
A Placemakers spokesperson said there was high demand for some products like steel, timber and cladding, as more Kiwis sought to upgrade and renovate their homes and with record levels of new house builds.
A combination of high demand, supply chain issues, and increases in raw materials and freight costs was putting pressure on prices.
“Whilst this is an issue across the industry, we are minimising any price increases for our customers where we can.”
It recommended customers plan well in advance to try to mitigate availability issues.
Mitre 10 chief of customer solutions Chris Peak confirmed it had received advice from CHH Woodproducts “that it cannot supply us with structural timber for the foreseeable future”.
“This poses an industry-wide issue. As a New Zealand cooperative, we have multiple and long-standing supplier and partner relationships and will be working hard to ensure we can continue to supply our customers with their structural timber needs.”
A Commerce Commission spokesperson said it has been monitoring supply issues in a number of sectors and was aware of supply issues in the building sector.
“However, Carter Holt had not specifically advised the commission of its intention to cease supply to the relevant parties (ITM, Mitre10). The commission is currently making inquiries to understand the nature of the issue and any potential impact on competition.”
Carter Holt Harvey chief executive Prafull Kesha said there had been some short-term industrywide supply issues. Since 2018, CHH has been investing significant capital in capacity expansion.
“The initial stage of this was successfully completed in the first quarter last year on time and ahead of expectations. This has resulted in a 40 per cent lift in the supply of structural timber compared to 2019.
“Further capacity expansion is also well under way. This will deliver another significant lift in structural timber capacity next year. CHH is continuing to meet its contractual obligations. The curtailment of supply relates to around 10 per cent of CHH’S structural timber volume.”
Attempts to contact ITM have been unsuccessful.
"It is easy for builders to say they are being held to ransom but if you really pull back the curtain there has been significant cost increases and little productivity gain which leads to higher prices."
Jeff Tanner, Pukepine general manager