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Building supplies and practices
Entering the property market is no easy feat. With the average New Zealand house price reaching as high as $1.35 million, it is hard to be a first-time buyer. Globally, New Zealand has one of the highest housing prices to income ratios, making it increasingly expensive to own a home.
With this confronting issue present within the property market, the New Zealand government's commerce commission has launched an investigation into the cost of building supplies. The outcomes of this analysis could be impactful in bringing the nation's house prices down.
The investigation proposes the question, are Kiwis paying too much for their homes? While residents may conquer, the answer would be yes; submitters to the inquiry question whether the commerce commission is asking the correct questions. Adversely, these submitters argue that the analysis is too narrow, which could result in no advantageous outcome overall.
So, what factors inflate the price of a home?
Within the New Zealand building sector, strict regulations apply to approving residential construction. Regulations cement a standard of acceptable building supplies and how they are used. These regulations are reinforced by acclaimed building practices that have worked previously, setting a defined standard. However, Submitters argue that this diminishes the possibility of future revolutionary, innovative construction practices. Submitters claim such innovations could significantly reduce the overall costs cementing final housing prices.
Building regulations are altered and reinforced by practices that have failed in the past, resulting in a strict emphasis on current rules. When mass faults occur, construction tends to avoid consequences while hefty taxpayer funds resolve the issue. Such events result in a strict mandate of construction regulations and a rejection of creative freedom by government mandates.
Submitters argue that these mandates diminished possible money-saving modernisation, adhering to a restricted standardisation of building regulations. Such restrictions overall pay no favour to the wallets of Kiwis.
In addition to interference with innovation, this standardisation reduces competition between building supplies. Undiversified product availability offers no need to advertise competitive pricing for consumers. This results in no urgency to lower building and material charges and expenses.
So, according to submitters, why is the investigation too narrow and simplistic?
Submitters outline that the investigation ignores other integral matters to the building process. The analysis excludes building supplies like steel, electrical material, kitchen fittings and decor elements like paint and carpet. Submitters conclude that the scope of the study fails to consider matters that are proven to affect housing prices, so how can we conclude that the investigation's findings would be reliable?
Therefore, what would be efficient in reducing New Zealand's housing prices?
The easing of formal regulation constraints could be a practical approach to reducing New Zealand's housing costs. Allowing professionals to be innovative and creative might not only modernise future living conditions but could prove to create more cost-effective housing. While such innovations are not impossible, they are challenging to pursue due to government constraints. What ideas may be optional or in development would have to be substantially advanced compared to what is already available, making it hard to be innovative.
Could making the importation of overseas building materials solve expensive housing costs? The issue stands; there is a significant lack of competition and competitiveness between material distributors due to undiverse product availability. Chief Initiative economist Eric Crampton suggests that importing cheaper foreign materials used overseas could create competitive pricing for building materials. Crampton means that these foreign materials could suffice for future building projects in New Zealand.
Retail distributors, including Mitre 10 and Bunnings Warehouse, argue that the high pricing of materials stems from local regulations. Retailers say that undiversified product availability diminishes offers of cheaper products, keeping housing prices as high as they are presently.
In contrast, Fletcher building argues that the study is too narrow to make a meaningful difference in housing prices no matter the outcome. Fletcher argues that issues of land prices, labour, consent and tax affairs cause such high prices within the housing market, not product. Fletcher claims that building material costs only factor in around 20% of the final price. This leaves the question, where should the government direct taxpayer money?