Delays sourcing plasterboard and timber have pushed a dozen construction firms to liquidation, as others stay afloat by importing Aussie and Asian products
New Zealand's wealth isn't kept in the basement of the Reserve Bank. It's stacked in tall piles in PlaceMakers Porirua, and a few other warehouses around the country. It's white gold.
Plasterboard is now in such short supply that it's causing building projects nationwide to grind to a halt. Construction firms are going under, citing the difficulty obtaining Gib and other building products to complete their jobs.
Some have taken the initiative of importing overseas plasterboard, despite the expense and carbon footprint and difficulty persuading architects and councils to change the plan specs.
And small-time builders say they look with envy at those with big piles of Gib. The stack at PlaceMakers Porirua isn't for sale - it was pre-purchased last year for the construction of the new 12-storey BNZ building under construction on the corner of Whitmore St, in downtown Wellington.
That project is being managed by the developer Newcrest. Director Lincoln Fraser says the Gib board at PlaceMakers was ordered by a subcontractor in August 2021 to avoid Gib price increases announced after the subcontractor tendered a fixed price for its work at 1 Whitmore Street.
"It became apparent to the subcontractor they would not be able to secure fixed-price supply for those products, which previously would have been possible," he says. "This was a prudent and responsible step by the subcontractor."
He rejects accusations of hoarding. "From the time the subcontractor placed their order for Gib board to when it was delivered in September 2021, neither they nor we had any knowledge of the nationwide shortages that would subsequently arise. Deliveries of the Gib board to site have commenced and the Gib is being incorporated into the works, which are well advanced."
“We know there are two concrete firms which supply 85 percent of the market, three glass wool insulation firms that control likewise about 85 percent of supply, and there is one plasterboard company that controls 94 percent of the market.” – Dr David Clark, Commerce Minister
Despite that, he says, the project is still experiencing Gib shortage that it's working to address.
He'll get little sympathy from smaller operators, such as Porirua-base Refresh Renovations operator Mark Morrison.
"Anyone who is storing large quantities and doesn't need it right now should consider discussions with their supplier or Gib directly, around whether it can be reallocated for immediate use, with a commitment to being replenished when it's actually needed," Morrison says.
"Unfortunately the industry seems to be about 'who you know', and if you know the right people in the supply line I think you can get what you want. The checks and balances are quite weak."
The industry is stressful for smaller business operators. "There's a lot of uncertainty at the moment," he says. "It also is quite stressful for customers that we work with as they hear about all the issues and don't know themselves what it actually means.
"Companies like ours that plan ahead can succeed, but smaller builders without effective management and planning skills are struggling in this environment."
Driven to the wall
In November, Newsroom revealed the liquidation of Christchurch building firm Maxim. A subsequent liquidator's report confirms there had been delays in getting product supplies with long lead times, which had put additional pressure on the solvency of the company. And that was when there were delays on timber and Gib orders - before Winstone Wallboards put a freeze on orders entirely.
Since then, creditors or directors have applied to liquidate firms including No Limits Building Solutions, KB Project Management, Kapiteniuti Building Construction, Ash Construction and Interiors, Skyline Aluminium, New Home Property and Building, Landscape Property, Owhiro Builders, Smith & Co Building, Grow Build NZ, Jonesy Construction, GK Construction and Speedy Construction, Otago Homes, and Armstrong Downes Commercial.
Master Builders chief executive David Kelly says the biggest problem for contractors is the delay in the supply of materials, because when subcontractors can't do their work without critical products, cashflow starts to dry up.
For more recent applications, liquidators are yet to report lists of creditors. But for most of those companies where that list is available, Fletcher, subsidiaries such as PlaceMakers, and other suppliers are among the creditors.
Commerce Minister David Clark has ordered the Commerce Commission to look into competition issues in residential building supplies, which are dominated by Fletcher and the smaller Carter Holt Harvey, both vertically integrated manufacturing, supply and building firms.
"There have been long-standing concerns about potential competition issues, particularly due to the highly concentrated nature of some markets in the supply chain," Clark tells Newsroom.
"We know there are two concrete firms which supply 85 percent of the market, three glass wool insulation firms that control likewise about 85 percent of supply, and there is one plasterboard company that controls 94 percent of the market.
"There are also rebates and loyalty schemes operated by some firms - which I also believe is in the public interest to review.
Clark says the Commerce Commission is considering any factors that may be affecting competition for the supply or acquisition of key building supplies used to build the major components of residential buildings.
"While building supplies are only one part of the cost, they are a significant portion of developing new residential housing. Any improvements that can be achieved could have a significant impact for New Zealanders."
When NZ Made doesn’t deliver
Now, Mark Morrison and other small players are giving up on getting Gib. There were six-month delays on orders placed in February, and at that point Winstone Wallboards put a freeze on any more orders. Winstone, like PlaceMakers, is owned by Fletcher, prompting many angry (and unproven) accusations that the company is feathering its own bed at the expense of others.
At building supply store ITM Seaview, in the Hutt Valley, Phil Gratton took matters into his own hands. He has brought in seven container-loads of plasterboard from USG Boral in Australia - a company that, ironically, was driven out of New Zealand by its inability to compete with Winstone Wallboards.
"We basically found an importer who has been able to get hold of some board from Australia," Gratton says. "It pretty much goes out the door as soon as it comes in."
The seven containers of USG Boral plasterboard is 5,600 sheets at 3m x 1.2m each, which is enough to pave two rugby fields. But in truth, that's not even a patch on the building industry's demand.
Why isn't this happening more, then? Why are most builders still waiting interminably for Gib, when they could order in a container-load of high-spec plasterboard from China or Thailand?
There are several reasons. Gib is pre-filled into many building code certification forms; it's appraised and certified by Branz, the main building product appraiser. Council inspectors are loath to deviate from what they know. Architects, out of habit more than anything, specify Gib on their plans as if it's a generic name for plasterboard.
"Architects are a lot to blame for it, because they always just use the calculations from Winstone Wallboard," Gratton says. "So whenever they are designing a house, they just use all that information which is from Winstone Wallboards, so that's classified on the actual specs. As soon as the builder gets that, they're screwed."
“You used to be able to order up until one o'clock in the afternoon, then you could pick it up the next day. But we've had no stock since February. We had to do something.” – Phil Gratton, ITM Seaview
He believes regulators need to intervene. "They need to do something. I hear stories of transport companies that are chock-a-block with Winstone Wallboards, for projects that aren't even site-ready. And Winstone's warehouses are full. You pull up there, you look in and it's all chock-a-block, like nothing's changed - but it's all pre-sold."
"You used to be able to order up until one o'clock in the afternoon, then you could pick it up the next day. But we've had no stock since February. We had to do something.
"We have builders coming in all the time, saying, 'I'm here because I can't get jobs finished so I can't get paid'."
There's another reason project managers haven't been importing their own container-loads, until now. It's a big call for a builder to tell a customer they want to substitute a generic Asian plasterboard for a well-known New Zealand brand.
And for some builders this is an uncomfortable conversation, in a week when the Government has just announced the importance of reducing the carbon footprint of building construction, its big 30-year emissions reduction plan.
It's got to the point now, though, where they feel they have little choice. Morrison says: "I would love to say I always want to do the best for the environment, but currently wouldn’t you rather just get the job done?"
Fletcher pleads for industry support
For anyone who thinks Winstone is supplying other Fletcher companies by preference, it's worth noting that even PlaceMakers is now importing overseas plasterboard to supplement its Gib supply.
And indeed, Fletcher says it is already taking some of the steps that Gratton and others in the sector are calling for, such as prioritising delivery to sites that are ready to go.
Hamish McBeath is chief executive of Building Products at Fletcher Building. "We believe in a free-market and support any initiatives to supply plasterboard to the industry to meet the high levels of demand New Zealand is currently experiencing," he tells Newsroom.
“We acknowledge that current industry demand is above our existing manufacturing capacity and understand the frustration this is causing busy builders.” – Hamish McBeath, Fletcher Building
Winstone Wallboards is continuing to do as much as possible to supply the market with plasterboard, he says. But demand remains high, and with building consents up 40 percent to more than 50,000 for the year ended March 2022, there will be continued pressure on supply in the short term.
Winstone Wallboards' new allocation model is underway, under which merchants are assigned a quota each month to sell. The company has begun taking plasterboard orders for July.
"Both our Auckland and Christchurch plants continue to operate 24/7, and between them, they are dispatching enough plasterboard for installation in 1000 new average-sized New Zealand homes per week," McBeath says. "We are continuously fine-tuning production to ensure the plants are operating at capacity."
This included rigid standards relating to Covid management to ensure there were no shutdowns during the outbreak.
But current industry demand is simply overwhelming the company's existing manufacturing capacity. McBeath says he understands the frustration this is causing busy builders.
To ensure maximum amounts of plasterboard get to building sites when it is needed, he is asking the industry to support the company by only placing one order with a distributer and (as Gratton asked) making sure their sites are ready for installation when plasterboard is delivered.
Winstone Wallboards' new $400m state-of-the art manufacturing site in Tauranga is on track to be operational by June 2023, McBeath says. "This will significantly increase production output and will have the capacity to meet the demand levels we are seeing today."
Though some may argue about how Fletcher came to have 94 percent market share in the first place, or whether it was too slow to increase capacity, most would agree that at the simplest level, the crisis is simply about supply and demand.
“If you drive along any streets in Auckland, you will find so many new construction sites anywhere.” – Dr Bill Wang, AUT
Dr Bill Wang, a supply chain expert at AUT University, describes this as an imbalance. On the upstream side, plasterboard supply may be constrained by Covid, shortages of raw materials or skilled workers, combined with supply chain bottle necks at the border. Meanwhile, the accumulated property shortage drives more demand, and new development policies from government and local councils encourage more and more developers into the property market.
"If you drive along any streets in Auckland, you will find so many new construction sites anywhere," he says.
Gareth Kiernan, chief forecaster at the economic consultancy Infometrics, agrees with Wang.
He says the average number of new dwelling consents over the past 20 years is about 27,300 a year, peaking at 33,251 in 2004 yet now, the annual consent total is up 50,858 new dwellings. "On that basis, it’s unsurprising that domestic manufacturing is unable to keep up with demand," he says.
He acknowledges that it's difficult for a plasterboard manufacturer to justify investment in increasing production capacity to meet current demand unless there’s an expectation that consents will stay at this level for an extended period, which seems unlikely to be the case.
“The virtual monopoly that Gib has on the plasterboard market in New Zealand is something that the Commerce Commission will be looking at closely in their current review of the building materials market.” – Gareth Kiernan, Infometrics
"The natural response to these constraints would be to import more product," Kiernan says. "At the moment, even that response would probably be more difficult than usual given the disruptions to international supply chains and very high costs for shipping and freight. Nevertheless, it is likely that access to some supply from overseas would still be an improvement on the complete lack of supply of plasterboard that is occurring at the moment."
To what extent is this construction crisis slowing the economy as a whole, or driving up prices? There are a lot of other materials shortages and capacity constraints that are also affecting the industry at the moment, he says. "The Gib shortage might be the most critical of these issues, but the shortage of workers across the industry more broadly suggests that the delays in getting work done might not get reduced by much even if Gib was more readily available.
"Nevertheless, the virtual monopoly that Gib has on the plasterboard market in New Zealand is something that the Commerce Commission will be looking at closely in their current review of the building materials market.
"The accreditation process and consent and design requirements seem to make it unduly difficult or costly for new products or building techniques to become established in New Zealand. There’s been a lot of talk from MBIE over the years about simplifying and improving these processes, but seemingly very little progress made.
"The history of New Zealand’s substandard building techniques and lack of oversight during the 1990s and early 2000s means that the government and local councils are very risk averse when it comes making changes around building standards and inspections.
"As a result, there’s a significant amount of red tape and regulatory restrictions that feed through into higher building costs and, in this case, effectively limitations on the industry’s ability to meet demand."
Light at the end of the tunnel?
In December 2020, Fletcher Building subsidiary Winstone Wallboards held a dawn blessing ceremony with manawhenua Ngai Tamarawaho and Ngāti Hangarau, at the site of its new Gib plasterboard facility at Tauriko, in Tauranga.
“Building a new plant means we will be able to significantly reduce our carbon emissions, recycle waste plasterboard as well as ensure continuity of supply in New Zealand for the long term," said general manager David Thomas. Eighteen months later, it's hard to fault his priorities. With Winstone yet to deliver on either goal, it's at the crux of two of NZ's biggest economic problems: soaring inflation and stubbornly high carbon emissions. Winstone controls 94 percent of NZ's plasterboard market so when it suddenly placed a four-month freeze on orders, the country's building projects stalled.
“The Government will also explore providing independent specialist advice to households and supporting product information about low-emissions building products, which could also support households to take meaningful action.” – Emissions Reduction Plan
Gib may not appear in the consumers price index basket of household goods, but it seems inarguable that the shortage of this single product contributes more to the cost of living crisis than any other.
Then this week, "embodied carbon emissions" hit the headlines. These are from the manufacture and use of the materials and products in buildings across their lifespan, from construction to deconstruction.
The Government's new emissions reduction plan says buildings are responsible for 15 percent of New Zealand's long-lived greenhouse gas emissions, and a third of those are from their materials. The biggest problems are steel, timber, concrete and plasterboard - all markets in which Fletcher is dominant.
Embodied emissions are 5% of long-lasting greenhouse gases
Building Minister Poto Williams says the sector can cut emissions 0.9 to 1.7 Mt CO2-e over three years. And part of that is providing independent specialist advice about low-emissions building products, to support households to "take meaningful action".
That's loaded language. As if a Commerce Commission inquiry into competition in the building sector isn't a clear enough indication of the Government's unhappiness with building supply firms, it's now telling households to vote with their feet.
The emissions plan says the building and construction sector was responsible for 7.4 Mt CO2-e of emissions in 2018. In addition, it was responsible for 2.9 Mt CO2-e of emissions that occurred outside Aotearoa, largely from the production of imported construction materials and products. These are not included in domestic emissions budgets for New Zealand but are a significant proportion of the sector’s total emissions.
This highlights one of the problems in importing overseas plasterboard, steel and more. Imported products not only cause emissions overseas, in their manufacture, but are also responsible for further transport emissions when they are shipped to New Zealand.
The Government is looking to use a climate innovation platform to enable the rapid development and adoption of innovative low-emissions building materials and approaches, the emissions plan says.
This will involve policy and regulatory changes, international cooperation and supply agreements, and developing capability. "These tools have the potential to lift competitiveness and increase access to innovation and affordability."
“There are opportunities for more ‘green’ products to be used in the built environment. However, the main barrier to this is the final customer’s/consumer’s willingness to pay a premium for these products.” – Ross Taylor, Fletcher Building
Fletcher says it is working to reduce emissions from producing Gib. In a submission to the Productivity Commission, chief executive Ross Taylor acknowledged the climate impact of products manufactured by its companies Golden Bay Cement, Fletcher Insulation, Firth, Fletcher Steel, and Winstone Wallboards.
"We understand the need to improve the carbon emissions performance of built environments, as part of the broader strategy to move towards a lower-carbon economy," he said. "The embodied emissions of products used in buildings are as important as the operating emissions of the building itself."
Taylor said there were opportunities for more ‘"green" products to be used in the built environment. "However, the main barrier to this is the final customer’s/consumer’s willingness to pay a premium for these products."
He suggested the New Zealand Building Code could be used to reference green-rating tools as a means of compliance and working towards zero carbon buildings. Likewise, government could change procurement standards for infrastructure or KiwiBuild projects, to encourage further uptake of rating tools such as Green Star, Home Star, the Infrastructure Sustainability rating or Greenroads.
‘Sustainability in mind’
Already, Fletcher and Winstone have achieved Greentag ratings for several Gib products. That's disclosed in the environmental product declaration for Gib plasterboard.
The declaration describes an intensive life cycle for the product's manufacture. First, the gypsum is mined in Australia, and the paper produced in Australia. It's transported by rail to the port, shipped in bulk carriers to Auckland and Lyttelton, then trucked to the factories in Penrose and Christchurch.
Plasterboard is manufactured by heating gypsum in a plaster mill (known as calcination) to remove moisture and produce plaster of paris. The dry plaster powder is then mixed with water and additives (produced in New Zealand) to give each board its desired properties.
The mixture is rolled out to a uniform thickness and paper is added to the top and bottom faces. The board is then dried, converting the plaster back to gypsum, and cut to size ready for distribution to the customer.
The plasterboard's manufacture uses electricity and thermal energy from natural gas and LPG. Winstone sends the manufacturing waste to composting and recycling facilities, and to landfill. That's not all. At the end of the product's life, when a wall or building is demolished, the waste plasterboard is transported to landfill.
All this means Fletcher has a lot of work to do to reduce emissions from its Gib. The company claims its new manufacture and distribution plant at Tauriko is "designed with sustainability in mind". It promises it will reduce carbon emissions by up to 10 percent, providing a strong base for Fletcher Building to achieve the company's target of 30 percent reduction in scope 1 and 2 emissions by 2030.
Site plans include extensive recycling capabilities for water and plasterboard waste, with new Gib plasterboard being able to contain some recycled content.
Fletcher and Winstone clearly appreciate that they need to reduce their product's carbon footprint. It's not an imperative that is clearly embraced by comparable Asian products.
It shows the difficult decision to be made: New Zealand can address the housing and construction crisis by importing plasterboard from overseas, at the price of higher embodied emissions.
Or New Zealanders can keep waiting for Fletcher Building to deliver on its promise of less carbon-intensive Gib board when it opens its new factory in Tauranga next year - while builders go bust and families struggle to put a roof over their heads.
