How can New Zealand builders become more productive

Geoff Hardy                 Housing affordability is a hot topic in New Zealand at the moment, and it has been bothering the Government for some time. There are a number of things the Government can do about it, and one of them is reducing the cost of construction by increasing productivity. They are confident this can be achieved, because studies have shown that productivity in the construction sector is relatively poor compared to other parts of the economy, and labour productivity growth in this sector in New Zealand is about half of that in Australia.

 

To identify the reasons for this, the Government referred the issue to the Productivity Commission in March 2011. They released their final report in April 2012 which identified the most likely causes for the high cost of housing in this country, and made a number of recommendations. The Government then instructed the Ministry of Business, Innovation & Employment (“MBIE”) to conduct a study on competition and productivity within the residential construction sector. MBIE released an Issues Paper in May 2013 and followed up with a 61-page Options Paper in November of the same year.

One of the problems is that New Zealand homeowners, designers, Councils, tradesmen and suppliers don’t embrace change very readily. We tend to stick with the old tried and true products and methods, even though there might be cheaper and/or better alternatives available that aren’t as well known.

With homeowners, that is probably due to lack of knowledge, and the herd instinct. With everyone else, it is probably due to the fact that it is difficult and expensive to demonstrate that new products and processes comply with the Building Code, and they are all very gun-shy of the potential liability of departing from the straight and narrow. There are also a number of industry players with a vested interest in ensuring the status quo is maintained. So it is essential that we clear away the roadblocks that prevent us from investigating new ways of doing things.

The Options Paper gave a number of hints about how MBIE proposes to do that, and the resulting changes would have a significant impact on the way residential builders go about their business. MBIE is toying with the following options (among others):

  • Providing much more education on, and assistance with, the various ways to demonstrate Building Code compliance, so it becomes less daunting.
  • Putting a couple of Government appointees on the Board of BRANZ (the leading New Zealand researcher of building products and processes) so there is more Government influence over what they spend the building levy on, and less control by the private sector.
  • Prohibiting the current trend of designers to specify products by brand name rather than performance characteristics, and outlawing their insistence on “no substitutes”.
  • Reducing the potential liability faced by designers, Councils, builders and suppliers so that they are more inclined to innovate. Personally I think that is a case of shutting the door after the horse has bolted, given that the whole thrust of the last decade of reforms has been to make those parties more accountable for leaky buildings and (in the case of residential builders) to increase their liability overall. That is probably why this particular proposal is so half-hearted. It simply speculates that the Law Commission might possibly recommend a departure away from joint and several liability, and there is a vague suggestion that greater reliance should be placed on product warranties issued by manufacturers and less on Building Consent Authority and builder liability.
  • MBIE advocates spending taxpayer funds (as distinct from the building levy paid by builders or their clients) specifically on developing and bringing innovative construction systems to
    the market.
  • To simplify the building consent process, the Government recently introduced the concept of national multi-use building consents, and it passed the Building Amendment Act 2012 which provides for less involvement by Building Consent Authorities in simple residential projects. The Options Paper proposes to continue this trend by offering shorter, simpler consent processes and fewer inspections for larger residential builders who can demonstrate adequate quality control.
  • The Paper expresses concern about the possibility of supplier-contractor rebates or loyalty schemes preventing competition and driving up prices, by locking the contractor into one particular supplier and preventing him from shopping around. It suggests that these arrangements should be disclosed by the contractor to his client to increase the prospects of the contractor passing on these benefits to his client. They have the same concerns about manufacturer-merchant loyalty schemes.
  • The practice of “cover pricing” in construction tenders (contractors appearing to compete for tenders whereas in fact they are deciding who will put in the lowest bid on each occasion) obviously drives up prices. However this is more the domain of the Commerce Commission, and MBIE makes no specific proposals about it.
  • Anti-dumping duties and tariffs insulate local manufacturers from competition from overseas suppliers – both unfair competition (in the case of anti-dumping duties) and fair competition (in the case of tariffs). Clearly these limit the potential for price competition in the construction sector, and the Paper questions whether they should be re-examined. However that is probably a little unrealistic given that there are only three building products currently subject to anti-dumping duties, tariffs are already being phased out, and international trade reform has far wider ramifications than simply concern about productivity in the New Zealand construction sector.
  • To overcome our reluctance to embrace new technologies, it is proposed to use state housing as a form of “show home” to demonstrate what can be done. MBIE is also talking about creating a special agency to encourage and support the industry to try out new products and processes, and it is contemplating directing BRANZ to concentrate on new rather than existing technologies.
  • Further education is also a popular theme throughout the Paper. This would include various forms of training not only in the available alternatives to conventional approaches, but also improved project management skills for builders.

These are all simply proposals at the moment, and it remains to be seen how many of them will eventually be adopted.

Geoff is the proprietor and senior lawyer at Madison Hardy, and a former partner at Simpson Grierson. He was an ADLS Councillor from 2006-11 and Vice-President from 2009-10, and has been the Convenor of ADLS’s CPD Committee since 2010.

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