Fletcher-commissioned Deloitte report shows building material costs are low

Friday 17th May 2019

The cost of building materials in New Zealand account for between 16-24 percent of the cost of residential housing development costs, depending on the type of building and location, according to a study by accounting firm Deloitte.

If the development was done using only products sourced from Fletcher Building wherever possible, the potential cost contribution would be between 6-11 percent of the cost, again depending on location and type of building, Deloitte’s 128-page study says. Fletcher commissioned the report.

Accusations that building material costs in New Zealand are unreasonably high are perennial and surface regularly.

That’s not surprising, given that Deloitte’s study shows how dominant a position Fletcher has.

It accounts for 94 percent of the plasterboard market with its GIB brand, Fletcher and Holcim account for 85 percent of the cement market and Fletcher is the only domestic manufacturer of insulation, competing against four importers.

The steel roofing market is more fragmented with five key players and 35 providers altogether while there are more than 18 providers of timber framing across New Zealand.

In June last year, Housing Minister Phil Twyford was quoted as saying that he was so concerned about the costs of building materials that he had promised an investigation, although no such investigation has occurred yet.

“The Productivity Commission has estimated we pay between 20-30 percent more for building materials in New Zealand than they do in Australia,” Twyford said then.

He has only just received the Deloitte report and will read it.

He “appreciates the contribution it makes to the wider picture on New Zealand’s residential construction sector,” the minister says in a statement.

A 2014 study by the Productivity Commission generally found construction costs in this country tended to be relatively expensive – more than two times world prices and about 1.2 time Australia’s.

Fletcher chief executive Ross Taylor says in a statement that the Deloitte report was a response to the "lack of fact-based research on what is driving costs in New Zealand. We believe it provides valuable information to help move the discussion forward and work on solutions to address housing affordability.”

Deloitte’s report shows that the cost of a two-storey house in a greenfield residential development costs a developer $1.16 million in the Auckland suburb of Flatbush in Manukau with construction materials accounting for $210,692.

In the Wellington suburb of Churton Park, that same house would cost a developer $845,740 with building materials accounting for $198,968, while in Christchurch’s Halswell it would cost $875,268 with the materials costing $198,836.

On a like-for-like basis, that same house in the Kellyville suburb of Sydney, which is 36 kilometres North-West of the CBD, the same two-storey house would cost $1.51 million with the materials costing $199,317.

In Melbourne’s Wollert suburb, which is 26 kilometres north of the CBD, the house would cost $854,109 with the materials contributing $186,208.

Building Industry Federation of New Zealand chief executive Julien Leys says the report highlights that building construction costs are a smaller overall part of the cost of a house and that the costs in New Zealand are very similar and, in some cases, cheaper than in Australia.

“The Deloitte report unequivocally shows that key building materials such as timber, steel and plasterboard actually contribute very little to the total cost of a house – these materials are approximately 1-4 percent each of the total cost of a house,” Leys says.

“This is pleasing to see because it validates what many in the industry have been saying for some time.”

The report shows land and infrastructure costs are the single largest costs, contributing between 15 percent for a concrete high-rise apartment in Christchurch and 35 percent for a two-storey house in Auckland.

In the two Australian cities, land and infrastructure costs range from 22 percent for a concrete high-rise apartment in Melbourne to 58 percent for a low-rise dwelling in Sydney.

It shows New Zealand’s house price index rose 57 percent between December 2009 and June 2018 while labour costs have risen 17 percent. The prices paid for plasterboard, cement and concrete products rose 13 percent, marginally below the 14 percent inflation rate over that period.

Levy says the report identified that the level of competition in New Zealand “is working very effectively.

“Clearly, the rapid rise in imported building products since the Christchurch earthquake has acted as a brake on prices with many New Zealand building materials manufacturers and suppliers absorbing increases in input costs such as raw materials, which tends to get forgotten in the debate,” Levy says.

“This is proof that competitive pressure driven by imports has kept prices low and again this has benefitted homeowners and consumers who expect to receive building products that meet New Zealand standards and conditions.”

(BusinessDesk)

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