The Government has announced that it intends to enact legislation to increase competition in the building materials market by the end of the year. In short, the purpose of the new regime is to reduce ‘red tape’ in the sector, enabling the use of building materials from trusted overseas jurisdictions (with an initial focus on Australia), without the need for new products to be certified domestically. The Government expects that these changes will ultimately increase the availability of building products and contribute to lowering the cost of building in New Zealand.
Background
Inflation in the building materials sector has been rampant in the past few years (peaking at 10.4% in late 2022), though it has eased somewhat in recent months [1].The extent of inflation has largely been attributed to the well documented lack of market competition in the residential construction supplies industry [2]. This has inevitably had negative effects on the construction sector in New Zealand, creating significant cost-pressures and delays for both contractors and principals alike.
The ongoing lack of market competition has inevitably had significant effects on the broader industry:
- Construction in New Zealand has become relatively expensive, creating cost-pressures for contractors and principals alike – Prime Minister Christopher Luxon stated that it was “about 50% more expensive to build a stand-alone house”, compared to Australia.
- Construction projects are relatively more exposed to risks of delays arising from material shortages and supply chain disruptions. The GIB shortage experienced in 2022 was a notable example of this.
To date, the existing regulatory framework has made it difficult for developers and contractors to avoid these issues by relying on alternative or new products. This issue was flagged by the Commerce Commission (the Commission) in its 2023 review of the residential building supplies sector, finding that the building regulatory system “continues to incentivise designers, builders and building consent authorities to favour familiar building products over new or competing products” [3]. The Commission found that it was “too slow, costly, and uncertain” to get new and innovative products accepted for use by the relevant consenting authorities.
The proposed changes
The Building (Product Certification) Amendment Bill will:
- Recognise building product standards from trusted overseas jurisdictions removing the need for designers or builders to verify standards.
- Require Building Consent Authorities to accept the use of products that comply with specific overseas standards that are equivalent to or higher than those in New Zealand.
- Approving the use of building products certified through reputable certification schemes overseas. The Government’s press release noted that the approval of one Australian scheme, WaterMark, would immediately provide Kiwis with access to 200,000 products.
These changes were signposted in the Government’s recently released 36-point action plan, which promised the release of a draft plan to ease restrictions on building materials from overseas for public consultation. At this stage it is not clear whether a separate plan will be released for consultation, or whether this announcement is the plan (meaning that consultation will presumably take place during the Select Committee process once the Bill is introduced) – we presume the latter will be the case.
The Government is also championing the changes as giving effect to recommendations made by the Commission in its 2023 review, namely creating more clear compliance pathways for a broader range of key building supplies and exploring ways to remove impediments to product substitution and variations.
Our view
It is clear that the building products market in New Zealand requires policy intervention – the current market (and regulatory system) is creating time and cost inefficiencies across the sector, and the proposed changes are likely to go some way to addressing these concerns. However, it is important to remember the context in which the existing regime was developed – particularly, the ongoing leaky homes crisis arising largely from construction undertaken in the 1990s and early 2000s.
Any manufacturers and/or distributors of building products that ultimately take advantage of this proposed regime will also need to separately ensure that their products are suitable for use in the New Zealand conditions and climate.
The Government has the unenviable task of striking the appropriate balance between enabling greater market competition and ensuring that the objectives of the Building Act 2004 (specifically to ensure buildings contribute appropriately to the health of users) are appropriately provided for. We will follow further developments (and the publication of the draft bill) with great interest.
Finally, we note that any new products introduced to the New Zealand market will likely need to comply with the newly introduced Building (Product information Requirements) Regulations 2022, which came into force in December of last year (more information is available here).
Footnotes
[1] Construction enters subdued period as annual cost growth drops to 3.4%
[2] Market study into residential building supplies
[3] Residential Building Supplies Market Study: Summary of key findings
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