The Commerce Commission says rebates paid by major suppliers to merchants is making it difficult for new or competing products to grow in the building sector.
In its final report into the residential building supplies industry, the commission said familiar products had become embedded in building homes in New Zealand.
It highlighted quantity-forcing rebates as one of two key concerns, saying they could provide some benefits but appeared in some situations to reward merchants for purchasing large volumes through a single supplier.
This was making it harder for new and competing suppliers, it said, but suggested more research would be needed.
The second main concern was the regulatory system was making the uptake of new and innovative products too slow, costly and uncertain.
The regulator recommended the building regulatory system should include competition as an express objective.
It also recommended better serving Māori through the building regulatory system; creating better compliance pathways for a broader range of building supplies; and exploring ways to remove impediments to product substitution and variations.
Following the report, plasterboard supplier Winstone Wallboards said it would remove its rebates structure.
Winstone Wallboards was the focus of some focus in the commission's market study of the residential building supplies sector.
The company, owned by Fletcher Building, is New Zealand's only domestic manufacturer of plasterboard.
Fletcher Building said it has been advised the commission has opened another investigation into Winstone's use of rebates.
The rebates are a volume incentive, where a customer receives a better rebate if they buy pre-agreed volumes over a period of time.
In a statement, Winstone said the commission had previously investigated it over the rebates and concluded there was no issue.
"We are therefore surprised by the commission's conclusion that it needs a third investigation to collect information about Winstone Wallboards and its rebates. We note the commission has made no adverse comment about Winstone Wallboards - just that it needs more time to collect more information."
Combined Building Supplies Cooperative chair Carl Taylor said the recommendations needed to be implemented.
"From what I've seen in these small recommendations it's not really going to help us in the near future, implementation is key."
The government should also look at changes to building consent authorities, Taylor said.
Master Builders chief executive David Kelly said there was not a lot of new information in the report - and he had not expected anything "dramatic".
When thinking about the cost of building materials, the main things to consider were the size of the market and the barriers builders faced when bringing in products, he said.
But it wouldn't be a quick or simple fix.
Discouraging the use of rebates "in theory" should remove the barrier to competition and bring prices down.
Regulatory barriers were a key issue to work on, he said.
Ministers Megan Woods and Minister David Clark respond to the final report:
Commerce and Consumer Affairs Minister David Clark said Winstone's voluntary changes showed the effect of conducting the market studies.
"When there's a spotlight on the sector, the sector thinks carefully about its behaviour," Clark said.
"In the early findings the commission recommended that everybody look at their rebate systems, decide whether they were fit for purpose then come back to the market. What we've seen here is one player consider whether it's in the right space here."
Building and Construction Minister Megan Woods agreed.
"I think we should think of this as a sign of how effective these market studies can be, that even while the press conference is being held we're seeing major moves and announcements from industry players."
Another problem identified in the report was that of restrictive land covenants and exclusive leases - a problem which was also found in the supermarket study.
Commission chair John Small said these would be the focus of further work, and the commission suggested the government consider a cross-sector approach.
Clark said they would provide a full response to the report in due course but would "certainly be picking up" that aspect.
"We'll do the policy work, we've seen it come up in the fuel study, we've seen it come up in the grocery study and now we've seen it come up in the building supplies study. It is clearly a systematic issue and needs a fuller look," he said.
He also pointed to the government's changes to the Commerce Act coming into force in April which aim to strengthen anti-competitive measures. These include increased penalties for anti-competitive behaviour, and strengthening the Commission.
Fletcher said it would also review the rest of the commission's final report in due course.