Concerns that rebates stifle competition in sector
The Commerce Commission wants building suppliers to be “discouraged” from offering merchants rebates for selling lots of their products if it harms competition.
It wants the Government to look at how land covenants, exclusive leases and other contractual provisions are used “economy-wide” to stop competing businesses setting up shop near each other.
And the competition watchdog suggests the Government make it easier for suppliers of different building products to get products on the market.
These are a few of the recommendations that conclude the Commerce Commission’s year-long market study into residential building supplies.
The Government will consider the recommendations, talk to stakeholders, and outline its response to the study (which it asked the commission to do) in March.
The commission acknowledged “competition for the supply and acquisition of key building supplies is not working as well as it could if it was easier for building products to be introduced and for competing supplies to expand their businesses”.
A key issue was the regulatory system “continued “to incentivise designers, builders and building consent authorities (BCAs) to favour familiar building products over new or competing products”.
It also said rebates suppliers offer merchants can make it difficult for new or competing products to access distribution channels and increase sales.
But the commission stopped short of suggesting the Government ban rebate arrangements, saying rebates didn’t always lessen competition.
They’re also used across a range of sectors, so banning them in relation to building supplies would call into question whether they should be banned more broadly.
The commission suggested suppliers review rebate structures to ensure compliance with the Commerce Act. In April 2023, a provision in the Act, which prohibits firms from engaging in anticompetitive conduct, will be strengthened.
The watchdog said: “Based on information collected in this study, we have opened an investigation and are continuing to consider Winstone Wallboards’ rebates.”
Fletcher Building’s Winstone Wallboards, at the same time the commission released its report, announced it would axe plasterboard rebates for customers buying its products.
As for the land covenant issue, the commission said it would undertake a programme in early 2023 to “promote broader compliance” with the Commerce Act.
It went a step further, saying: “We recommend an economy-wide review of the use of land covenants and exclusive leases (including other contractual provisions with similar effect), to assess whether a wider multi-sector solution is needed to address their impacts on competition more generally.”
Commerce and Consumer Affairs Minister David Clark said he would look into this, noting the Government recently moved to prevent supermarkets from using covenants to stymie competition.
Another key commission recommendation was for competition to be included as an express objective of the building regulatory system, which was now focused on safety, health, and durability.
Separately, it suggested a national information-sharing system be set up for collecting and storing product and consenting information, accessible to designers, builders, BCAs and consumers.
The commission recommended the Government develop and implement a strategy to co-ordinate and boost the use of offsite manufacturing across its departments and agencies.
Addressing the impact of big vertically integrated firms, such as PlaceMakers and Carters, it said this structure “potentially creates opportunities for certain conduct that can reduce competition”.
“However, it does not appear that this industry structure normally has a material adverse effect on competition for key building supplies at either the supplier level or the merchant level.”
Building and Construction Minister Megan Woods noted the report complemented a Ministry of Business, Innovation and Employment (MBIE) review of the consent system.
She said updated guidance on the building consent process and a new standardised checklist for residential building consent applications, released yesterday, would help lift the quality and consistency of building consent applications.
National’s building and construction spokesman Andrew Bayly supported the commission’s recommendations.