It costs double the amount to build a house here than it does in Australia, despite Australia having higher labour costs than New Zealand.
Roy Thompson, managing director of New Ground Capital which build long term rental properties and is involved in the pre-fabrication sector, says part of the problem is the New Zealand construction sector lacks transparency.
Construction site. Photo: 123rf.com
“There is undoubtedly a problem with what we pay for materials in New Zealand," he told Jesse Mulligan.
“We can look at homes built by our biggest builders against comparable homes in Australia, we can see in Australia they’re building for $1000 per square metre you’d be lucky to get here in New Zealand $2000 per square metre.
“And that’s despite the fact that a lot of labour in Australia is unionised and a lot of people would say that labour rates in Australia are about 30 percent higher than New Zealand.”
And it might be double the cost here, but were not getting a better quality product, he says.
“I’ve been through a few of these homes in Melbourne and Sydney, doing our own investigations, what I’m seeing are higher specified homes in Australia than what would be typical here in New Zealand.”
He believes a big part of the problem is what he calls “secret commissions” paid by wholesalers to builders and trades people.
“The rebate schemes that the wholesalers run with the sparkies and the plumbers and the builders tie those people into a single wholesale supplier, which means as a customer when you’re building a house for yourself, or you’re building a whole heap of houses, you never really know why the products getting supplied to you are getting supplied to you.
“Is it because they actually are the best product at the best price or is it because the person who is supplying them to you is getting rebates? Kickbacks is another word.”
He says it’s an activity that is outlawed in other sectors.
“These types of behaviours are illegal now in banking, they’re illegal in insurance, they’re illegal in real estate and yet they are rife throughout the construction sector.
“And it’s an area where the government really needs to be looking closely and the Commerce Commission should really be getting involved.”
The market lacks transparency, he says.
“If you don’t even know that these kinds of commissions are being paid, and that they’re potentially influencing behaviour then you can’t do anything about it.”
Construction costs are far outstripping the background inflation rate, he says.
“Prices [have] gone up to the point where a lot of commercial apartment construction is just not feasible, so a lot of projects aren’t getting off the ground.”
He believes the market would benefit from far greater competition, but Australian suppliers are wary.
“I think there are a lot of suppliers from Australia that would like to come in but they’re nervous because of these tied relationships that are in place.”
He says builders can be offered some pretty attractive inducements by some wholesalers.
“I know about the trips to Thailand that they get and the odd jet ski, these are pretty well-known arrangements and a lot of the wholesalers will deem them as being legitimate.
“My question would be if they’re not legitimate arrangements in banking, insurance and real estate, why should they be legitimate in the construction industry? It doesn’t make sense.”
He says innovation is another area that the government could help to foster. BRANZ, the organisation which appraises products before they can enter the market here, is entirely self-funded relying on fees which makes it expensive to bring new products to market.
“If the government wants to foster more innovation and competition in the sector, one of the things they could do is make that [appraisal] process a little bit more affordable for start-up companies or young companies with innovative products.
“At the moment it is really prohibitively expensive for innovators but is a great form of protection for larger companies in the market.”
