Are we paying too much for building materials in New Zealand?

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The cost of building materials in New Zealand compared to other parts of the world has long been a hot topic of discussion within our industry.
There is, on average, a split of about 40% for materials costs to 60% for all labour costs on the average new home build.

The percentage varies with complexity for non-residential buildings, but must be somewhat similar. Therefore, any savings on building material costs obviously have a positive impact on overall building affordability.

However, these cost issues aren’t confined to the building industry alone. My son recently moved to Vancouver where he purchased a new 32” flat-screen television for under $200. Mind you, the minimum wage there is only $10 per hour!
We have a long history of New Zealand manufacturers suppling the bulk of products to our construction industry, with the rest having to be transported a fairly long way here for our population of 4.5 million people.

The $40 billion Christchurch rebuild, combined with the expected growth in Auckland, has shone the spotlight on our industry supply chain like never before.
Minister of Housing Nick Smith announced a couple of months ago that he was launching a government inquiry into the cost of building materials in New Zealand.

He said: “We need in a very thorough way — not on the basis of rumour or speculation, but on the basis of really good analysis and information — to have a hard look at how the building materials market is working, and to ensure there are the competitive pressures that are there.

“In terms of tariffs and those things, you know, New Zealand has a pretty liberal regime for bringing products in, but are there other barriers?”
Mr Smith said his inquiry was going to look at what regulatory tools the Government had at its fingertips that could try and make building material costs more reasonable for the industry.
“I want to be satisfied that New Zealand builders are able to get access to a fair price,” he said.

The Minister’s inquiry could well be in response to calls from Christchurch developers about sourcing products offshore at cheaper rates than locally-supplied items.
Tony Sewell, head of Ngai Tahu Property, the real estate arm of the largest land owner in New Zealand, and president of the New Zealand Building Council, said overpriced materials and outdated buying markets were to blame for increasing costs in Christchurch.

Mr Sewell’s comments follow complaints from Christchurch CBD developers that price increases are pricing rents out of the market.

Cheaper across the Tasman
Productivity Commission figures show cheaper costs across the Tasman. A commission report to the Government last year identified Australian building costs were 15% to 25% cheaper than in New Zealand.
Items such as plasterboard, insulation, pre-nailed framing and internal doors were a third dearer here.

“I don’t think it’s a labour issue — tradesmen are not been paid exorbitantly at all,” Mr Sewell said.
“It’s the system we’ve got for supplying labour and materials. Items sourced in bulk from Chinese factories could be a fraction of the price of those bought here. If we want to have a great city, we are going to have to address these things.”
It’s not hard to agree with these sentiments, and we look forward to any learning and improvements to our supply chain that may come out of the Government’s inquiry.

Balanced look
However, there needs to be a balanced look at this issue, not one based solely on bottom price cost alone.
Imported products have to be fit for purpose and meet New Zealand standards, and they need to have quality back-up systems and meaningful warranties that can be enforced.
I know of a New Zealand volume builder who used to import many products directly from Asian factories only to return to buying from local merchants because of quality issues.

Other considerations such as the amount of time, money and effort our local manufacturers and merchants put into supporting the industry in training, H&S, event sponsorship and general industry support are non-financial factors that a majority of importers competing solely on price simply don’t do.

Builders need to have confidence that the products they use will not let them down, will be priced fairly, and will have supplier back-up if there is a problem.

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