The Government wants the Commerce Commission to look at whether Kiwis are being ripped off by the cost of building materials.
The cost of building materials has been a longtime concern in New Zealand, even before the latest bout of inflation.
The Productivity Commission estimated people in New Zealand pay between 20 and 30 per cent more for building materials than those in Australia.
Commerce Minister David Clark said the Government wanted to look at "how we can lay the foundations for a more competitive building sector".
"Understanding any market barriers could play a key role in supporting New Zealanders achieve home ownership, so I'm pleased the Commerce Commission will be getting this work under way," Clark said.
Clark said materials were a significant factor in the high cost of building and renovation.
"It's clear a significant portion of the costs associated with building residential housing is tied to building supplies.
"As New Zealand's population has increased over the last decade, residential building consents have more than tripled. Alongside that, current demand for renovations and extensions to existing homes is at the highest it's been in 15 years," Clark said.
"There have been long-standing concerns about potential competition issues, particularly due to the highly concentrated nature of some markets in the supply chain," he said.
The Commission will be allowed to investigate any factors that may affect competition for the supply or acquisition of key building supplies including the cost of foundations, flooring, roof, walls and insulation.
In 2018, the Commerce Commission was given market study powers, meaning it could conduct wide-ranging inquiries into sectors where it suspected the economy was not delivering good outcomes for consumers.
The Commission can then recommend changes to the Government to help those sectors run more efficiently.
So far, the Commission has conducted inquiries into the cost of fuel and groceries.
Labour made an election pledge to inquire into the cost of building materials during the 2020 campaign.
"We are delivering this manifesto commitment because good housing underpins a range of social, economic and health outcomes. Therefore, it's critical Kiwis have access to fairly priced building supplies," Clark said.
The final report will be delivered to ministers in December 2022.