Minister for Housing and Infrastructure Chris Bishop plans to replace the way councils charge for new infrastructure developments to a new levy system.
Bishop appeared at Local Government New Zealand’s (LGNZ) metro, rural and provincial sectors meeting on Friday to announce new changes to infrastructure funding settings.
The changes are part of an update on the Government’s ‘Going for Housing Growth’ policy which Bishop announced last year and are made up on the following pillars:
- Pillar 1: freeing up land for development and removing unnecessary planning barriers
- Pillar 2: improving infrastructure funding and financing to support urban growth
- Pillar 3: providing incentives for communities and councils to support growth
Bishop said on Friday that “good progress” had been made on the first pillar but he had heard from local Government and housing experts that freeing up urban land wasn’t enough on its own and a “timely provision” of infrastructure was also needed.
Housing came as a package with land, water, transport, and other community infrastructure, but councils and developers were facing significant challenges to fund and finance enabling infrastructure for housing, he said.
Bishop doesn’t believe existing tools like development contributions (DCs), and the Infrastructure Funding and Financing (IFF) Act are fit for purpose and announced the following changes to NZ’s infrastructure funding settings:
- Replace DCs with a development levy system
- Establish regulatory oversight of development levies to ensure charges are fair and appropriate
- Increase the flexibility of targeted rates
- Improve the Infrastructure Funding and Financing Act
- Broaden existing tools to support value capture
Development contributions are fees councils charge for new developments that developers have to pay to councils.
Bishop said under the status quo, councils can only recover infrastructure costs for planned, costed, and in-sequence developments.
“In effect, this means councils can only recover costs if they have certainty about when, where, and what development occurs,” he said.
“Under the new development levy system, councils and other infrastructure providers will be able to charge developers for their share of aggregate infrastructure growth costs across an urban area over the long-term.”
Bishop said the new levy system will restrict local authority discretion as councils can have “monopolistic pricing power” when they are the sole provider of certain infrastructure.
“But it is important that prices are fair and appropriate, so we will also establish regulatory oversight of development levies, which will be integrated with the regulatory oversight of water services and rates,” he said.
Bishop acknowledged that some councils, especially smaller ones, will be reluctant to use the new levy system so the Government was also making changes to targeted rates in order to support urban growth.
“We will allow councils to set targeted rates that apply when a rating unit is created at the subdivision stage. This will enable councils to set targeted rates that only apply to new developments. And, for small councils, this could be used as a good alternative to development levies,” he said.
Infrastructure Funding and Financing (IFF) Act changes will also include levies being charged for major transport projects.
“As a general principle, those who benefit from publicly funded infrastructure should help contribute to the cost of it,” Bishop said.
Act MP and Infrastructure Under-Secretary Simon Court who made a separate announcement on Friday about changes to the IFF Act said levy deferrals would be enabled. This means if affordability is an issue for some property owners, there will be options to defer levy payments until a later date.
Property Council New Zealand CEO Leonie Freeman welcomed Bishop’s announcement and said the DC changes would support the construction of more homes and pave the way for “greater commercial viability”.
“With housing affordability becoming an increasingly pressing issue, this reform could go a long way in ensuring that development is not unnecessarily hindered,” she said.
More from Bishop’s announcement can be read here and Court’s full announcement can be read here.
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