Govt targets council charges

Property

Govt looks to change how local councils charge development contributions for new sections after 360% rise in 10 years

11th Feb 13, 10:05am by Gareth Vaughan

The Government is mulling changes to the way local governments charge for new sections and other developments, citing a 360% increase in such costs over a decade.

Minister of Housing Nick Smith and Minister for Local Government Chris Tremain have released a paper entitled the Development Contributions Review Discussion Paper as part of the Government's work on housing affordability and local government reform.

“Section prices have more than doubled in the past decade. A significant factor has been the sharp rise in the development contributions charged by councils. The average charge nationally has increased from $3,000 per section to $14,000 per section over the past decade, an increase of 360%, and can be as high as $64,000 per section," Smith and Tremain say.

"These costs need to be contained if more kiwi families are going to be able to afford their own home."

They note that although development contributions are needed to enable councils to provide infrastructure needed to support new developments, such costs ought to be fair and well justified.

"There are pockets of excellence in local government in the way infrastructure is financed and we want to build on this to achieve greater consistency and certainty. The current system has been in place since 2002 and this review, as part of the Better Local Government programme, is timely and needed."

The discussion paper includes options for reform of the 2002 Local Government Act to cap the charges, tighten the criteria, reinstate appeals, provide discounts for types of housing, change the timing of charging, enable alternate provision of infrastructure and abolish the charges.

Smith and Tremain say the paper builds on Productivity Commission recommendations from its inquiry into housing affordability, which was released last year, and of the Urban Design Technical Advisory Group that raised concerns about development contributions.

“We welcome feedback on these proposals from builders, councils, developers and the wider community. Our reform objective is a fairer system that will support development and growth, and make home ownership more affordable while supporting Councils efforts to improve New Zealand’s infrastructure,” Smith and Tremain say.

Submissions are due with the Department of Internal Affairs by March 15.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

41 Comments

by KH | 11th Feb 13, 11:00am 1360533651

Additionally: Why should councils charge consent fees at all. They should be free. As a regulatory function that should be paid for by rates.

by bob | 11th Feb 13, 11:25am 1360535158

When it comes to inspecting buildings Council don't charge enough to do the job properly - but take full responsbility based on brief inspections done. Hence ratepayers ending up with the repair bills. A council building inspector turning up 5 times to a building site is not remotley enough to ensure something is built to code.

What other Western countries do is have something like an 'architect of record' (US) who takes full responsibilty for the building being inspected properly. The Councils don't do building inspections, don't charge for them and don't get landed with the liability. The CCC regime is flawed.

by JimboJones | 11th Feb 13, 11:39am 1360535999

It would be better for the private sector to do the inspections and guarantee the work. Basically a compulsary 50 year insurance policy on a new home, maybe with say a $5000 excess to stop silly little things being claimed. The private sector would be better at assessing risk - a weatherboard house with eaves would cost much less to insure than a paperboard house without eaves - a registered experienced builder with a good track record would get cheaper insurance than one with a history of building rubbish.

by steven | 11th Feb 13, 1:03pm 1360541013

Hmm, my "worry" would be what if the private insurer goes bust? or if the policy fund is empty? In terms of private being better ther eis no evidence that this is the case, eg US healthcare system v public system, the public system wins. Not an ideal example I will admit but I'd like to see some evidence otherwise that private is the best way.

regards

by JimboJones | 11th Feb 13, 1:58pm 1360544323

I guess there would need to be some good controls preventing them from going bust like adequate reinsurance. Just like any other insurance, there need to be controls to ensure the money is there when it is needed. Something big like the leaky building problem could send insurance companies bust, but then again its not as if the current system has helped leaky building owners either.

I'm not normally big on private ownership, the old right wing theory that the efficiency gains will outstrip the profit taking seems pretty flawed now that most government departments are run reasonably well. But I think the councils run building consents so badly that private could only work better.

by steven | 12th Feb 13, 12:52pm 1360626776

Take AMI as an example, their controls were supposedly good enough yet if they had gone bankrupt the re-insurers wouldnt have had to pay out....ug. Or the current round of hedge funds who are betting on CDS's owned by banks not being called up because they simply do not have the collateral to pay up if it ever came to it. Or how Llyods of London moved the asbestos claims to a standalone company to ring fence the payouts, when in fact the liability was supposed to be limitless.

Realistically you have to put a limit on the liability in order to price it...both sides have to accept that...as long as its fair and above board.

PPPs have never worked and have been dumped...I cant see any evidence that they even claim close to the claims for them.

"Run better", yes I suspect the consents can be done better and building consents should or could be outsourced. For instance when I did my last house extension I had to get a consent, $1k upfront had to be paid. Then on top of that the inspectors started to insist all my work was a) checked by a structural engineer after they had actually passed it themselves and then b) the work had to be passed by structural engineers before they would come and inspect it hemselves, result a $185 an hour bill for 2 pairs of eyes when one was enough. And at the the Council's inspectors insisted I get completion documents done by the structural engineers who charged me $400 that effectively put them at no risk. So the Q is why did I have to have 2 sets of inspections? As an example a $15k extension cost me over $2.5k in "fees" thats a huge chunk and its got a lot worse by all accounts.

So if we are going to have this multiple costs farce, and no risk and liablity by councils then drop the council inspections and just have private sign offs and the council "inspectors" just collect the paper and file it....(and probably lose it).

regards

by steven | 11th Feb 13, 11:27am 1360535263

Uh no, why should existing rate payers some of them on limited incomes pay for new work via rates? Just why cant someone who wants something pay for it?

regards

by KH | 11th Feb 13, 11:34am 1360535668

Oh and rates need to come down too. That puts the councils in a sqeeze where they will have to manage like the rest of us. Welcome to the real world for councils.

by steven | 11th Feb 13, 12:59pm 1360540787

In terms of manage, well I guess if you get no potable water, sewerage or road maintenance thats OK by you?

There will of course at some stage be triaging, the Q is whats logical to go first v what will go first.

regards

by KH | 11th Feb 13, 2:40pm 1360546810

It's not a given that with reduced costs, there must be reduced outputs and quality. The swing factor between the two ends is a myth. One of the marvels of the modern world is that one can reduce costs, and increase productivity and quality at the same time. Car manufacturers have done well with that. And continue to do so..

It's just that councils haven't had the energy, brains and sense of responsibility to do so. They need to get with the modern world.

by steven | 11th Feb 13, 2:51pm 1360547499

There is a huge difference between production line optimisation where the costs of changes are spread over 10s or thousands of units if not 100s, v 1 offs.

Frankly I think you are highly un-realistic.

regards

by KH | 11th Feb 13, 3:40pm 1360550446

So your view is that optimisation of process is at it's limits within Council. Costs already at the lowest possible, and productivity and quality of work at the highest imaginable. mmmmh. Well it's a view.

by steven | 11th Feb 13, 10:39pm 1360575572

uh.....if you want to take such things to extremes carry on.

At a more reasonable level can things be improved? I very hard Q when a lot of the problems stems from the politics ie councilors, ie stadiums and such crap. Can councils be made more efficient in a cost effective way? ie it often costs $s to get a better result, so there needs to be a payback.

Are the councils simply processes? I'd suggest not, while Im sure its similar lots of detail changes...it isnt and can never be a production line.

regards

by notaneconomist | 11th Feb 13, 12:01pm 1360537318

Steven - In answer to your question "Why should existing ratepayer some of them on limited incomes.........etc? The value of existing properties ends up rising to the value of the new properties without the expenditure outlays of the new properties.

by steven | 11th Feb 13, 12:56pm 1360540571

Just becuse someone lives in a property which "appreciates" does not mean they can afford to pay more rates.

So you are saying some individuals should in fact be asked to pay more irrespective of their ability to pay to let others who can afford to pay more, pay less.

Yes, very strange.

regards

by JimboJones | 11th Feb 13, 2:02pm 1360544526

The problem with user pays is that there is no reason for the council to be efficient. If the money was coming from council instead of the building owner, maybe they wouldn't be so picky

by steven | 11th Feb 13, 2:41pm 1360546881

I see your point ie no guarantee of efficiency, but really whats the saving? 10%? 20%? 2%? ie Im not aware we see any benchmarks that says council bad.

Also there is no reason that the council wont simply charge higher rates, either way there is no incentive to be efficient. What does worry me is that the council is over-charging the developer to expand existing plant which hides the cost to existing ratepayers....that isnt fair.

A way around that is to allow outsourcing. So for instance the power company puts in its own cables to a new house. So extend that, if a developer is building 100 homes (or even 10) the developer gets to install the services and employs a professional engineer(s) to oversea and sign off who holds professional indemnity.

regards

by Andrew R | 11th Feb 13, 7:59pm 1360565993

Why should I subsidize you?

by Austrian | 11th Feb 13, 11:18am 1360534697

A problem for councils and the government is how to get more money from the public without attracting attention. In the 80s when "user pays" became fashionable it provided a wonderful opportunity to increase tax and rates revenue. It sounds so reasonable, "let the user of the services pay for the services they receive". You would think that "user pays" would mean that rates and taxes on non-users would decrease as the tax burden shifted to the users. However we now see that the rates have continued to increase and the contributions from "users" like developers have also increased. We are all being slowly cooked like frogs, and finally people are starting to wonder what is the cause of the increasing heat.

by steven | 11th Feb 13, 11:30am 1360535408

The cause is energy cost, complexity and scale. "Wonder" no not really but more like wonder who to blame...

Have a nice day.

regards

by KH | 11th Feb 13, 2:43pm 1360546980

"Cooked like frogs" Great analogy. Thats exactly the experience of the New Zealander whether as an individual consumer or as a business.

by Boatman | 11th Feb 13, 11:22am 1360534971

I have been banging on about this for years. Its about bloody time something was done about this rort. We need to revert to the 2003 charges and then escalate them by the CPI or PPI INDEX to arrive at whats fair and reasonable in todays money

by steven | 11th Feb 13, 11:31am 1360535513

Except that simply wont work, ie you assume a constant line growth when in fact we have expotential, which wont work either btw.

Rort, no, simply the system we live in.

regards

by auckguy | 11th Feb 13, 12:34pm 1360539292

We need the local charges to be increased exponentially...not cutting them down..it is part of the ponzi world we live in..dont do that!

oh no...If the charges are to be cut down, the local council will need to shed overpaid staff..

by waymad | 11th Feb 13, 1:17pm 1360541844

I think that the point of the article is twofold:

1 - to induce readers to go to the source document and - er - Read it

2 - to allow common taters to try out their submissions and have the rough edges taken off them (the potential submissions) before seeing them on public display.

Seems like we haven't gotten to #1 as yet, chaps and chapesses (and yes, I've read the source doc...)

by Wolly | 11th Feb 13, 2:06pm 1360544765

Just be grateful you don't own a boatshed in the Marlborough Sounds....them what do are Council cash cows...$5000 just to renew the right to stay for 10 more years...Council BS claims this is the cost of the process...guess who established the process...guess why it's a costly process...

Ditto if you were silly enough to own a swinging mooring...$$...inspection costs don't you know..$$...hence the switch to trailers...

Best option is a dinghy and launch off the beach....expect that too will mean $$ pretty soon.

by steven | 11th Feb 13, 2:55pm 1360547709

Strange that the costs cannot be challenged in court.

Mind you $500 a year for the right of water access?

Swinging mooring as in need a diver inspection every few years?

regards

by waymad | 11th Feb 13, 3:07pm 1360548426

Definition of a Racket, Woll:

Establishment of a Threat (nice little Mooring ya have there, m8. Pity if'n anything were ter Happen to it...)
Offer of Mitigation. (Why, pay us this 'ere Inspection Fee, and we'll make sure it's All OK. Until the anniversary date, when who knows, Anything could Happen).

Tell me, Oh Wise Commentariat, the difference between a Protection Racket and some a dese LG Charges.....

by iconoclast | 11th Feb 13, 4:00pm 1360551636

Waymad: asks : the difference between a Protection Racket and some a dese LG Charges

An attempt to meet your challenge below .. dere'ya'go

by iconoclast | 11th Feb 13, 3:59pm 1360551566

You ingrates.

You should be thankful for small mercies

You should be thankful the monies actually go to LG and are accounted for and used to maintain low un-employment.. You should be complaining "not enough"

I have been busy for the past month following the unfolding story at ICAC about the "man who owned the government" It is a jaw-dropper. Sensational. Shows you what you could have as an alternative when the "sharpest shooter" arrives in town

ICAC is for NSW "Independent Commission against Corruption"

New Zealand doesnt have a "commission against corruption"

It's all about an immigrant who arrives in Sydney in 1972 with a wife and 5 sons. By 1980 he has a wife and 9 sons. A recipe for staying in the poor house. In 1990 he is driving a taxi. By 2010 he is a member of the NSW upper-house and worth $200 million. It's all stashed away in a family trust. His wife owes the trust $2 million and doesnt even know it. All 9 sons work for the family trust. All own $2-3 million houses and cant explain how they the houses were paid for.

Google search on "ICAC Obeid" ICAC Obeid

and follow on twitter

https://twitter.com/Kate_McClymont of the SMH

https://twitter.com/NeilChenoweth of the AFR

The man Who Owned a Government

http://www.afr.com/p/national/obeid_the_man_who_owned_government_mmXOF1jJX1Cn8yyLaTBxoM

by Gareth Vaughan | 11th Feb 13, 4:00pm 1360551634

This just out from Gerry Brownlee:

Crown and Christchurch City Council agree to special three year plan

Canterbury Earthquake Recovery Minister Gerry Brownlee and Christchurch Mayor Bob Parker have announced a joint accord deferring the Christchurch City Council’s Long Term Plan until 2015 to allow an earthquake recovery cost-sharing method to be mutually agreed.

Instead the Council will undertake a new plan, to be called the Christchurch City Three Year Plan.

Mr Brownlee says this new planning process will give surety to Christchurch rate payers, the people of Christchurch, the New Zealand tax payer, the financial markets and development partners.

Under the Local Government Act the Council is required to begin consultation on its Long Term Plan in March however, councillors agreed at a special meeting this morning to adopt the Christchurch City Three Year Plan and commence consultation in March as planned.

“Under normal circumstances a Long Term Plan outlines a council’s rating and spending expectations for the next decade but at this stage in the Christchurch rebuild we need a more appropriate planning mechanism that takes into account more immediate goals,” Mr Brownlee says.

“Banks, bond markets and ratings agencies, along with businesses and households take significant guidance from councils’ Long Term Plans.”

“The key benefits for the city resulting from this agreement are certainty around cost sharing arrangements and decision-making processes relating to the central city key rebuild projects, and cost sharing arrangements relating to all other Council costs such as horizontal infrastructure,” Mayor Parker says.

“The Minister has confirmed these agreements will be in place by the end of April 2013. Like any business the city council needs to plan ahead and give its people certainty, this three year plan will do that.

“This accord will ensure the Christchurch City Council adopts a sound prudent plan that is fully costed and establishes a solid financial footing for the city’s future,” Mayor Parker says.

CERA’s powers will be invoked to allow the Long Term Plan process to be deferred until 2015, by which time a cost-sharing method will be worked through between the Crown and the Council.

“City councillors, along with the Crown, are committed to presenting the most realistic and achievable process to shoulder the financial burden caused by this series of catastrophic earthquakes, with a joint aim of rebuilding the city to be the very best it can be,” Mr Brownlee says.

To read the resolution passed at today’s special Christchurch City Council meeting go to http://resources.ccc.govt.nz/files/TheCouncil/Proposednewplanningmechanism.pdf

by Roger Witherspoon | 11th Feb 13, 4:32pm 1360553557

A New Three Year Plan! Hurray

A New Five Year Plan! Well Done.

A New Ten Year Plan! Excellent Work Comrades.

Please, please, please no Great Leap Forward.

Does no one else find these phrases creepy?

by Kate | 11th Feb 13, 4:57pm 1360555052

Point is - if they did a 10 year plan which included the cost of this local ratepayer contribution to the central government inspired rebuild - including convention centre, covered stadium and everything else suggested by the promo flyover ... it would potentially collapse the property market as folks wouldn't want to stick around to pay for it. So I'm guessing this gives central government time up their sleeve to convince the local councils to sell assets and transfer infrastucture to PPPs and the like to assist in the local fundraising.

by Stephen Hulme | 11th Feb 13, 5:22pm 1360556566

I would have thought most sensible ratepayers have fled the insanity of ECAN's irrigation subsidy to dairying.

The Government suspended democracy and restricted legal action in Canterbury to protect an agriculture boom potentially worth more than $5 billion to the national economy, documents reveal. Read article

by iconoclast | 11th Feb 13, 5:57pm 1360558647

Have just read the article on ECan

It's a carbon copy of a blueprint that has all the same hallmarks of the issues that led to the "parliamentary corruption" in my post above.

by Stephen L | 11th Feb 13, 8:22pm 1360567378

Interesting link thanks. As it happens if irrigation can be done without significant damage to the environment, then I'm all for it. And I can accept that government, central or local, are probably best placed to build and pay for it. The benefitting farmers most definitely though should pay commercial rates for the water (giving a reasonable ROI on the investment) when they use it.

Why do I suspect that the lack of transparency in this decision means they don't plan such commercial charges; and that its just a subsidy to the Nats' mates?

Do you know if such charges are planned?

by steven | 11th Feb 13, 10:46pm 1360576000

The problem of PPPs is as worse as anything else at least, Ive yet to see a report that they saved money or anything. They will expect a decent profit margin on top of actual costs, so why would rate payers and businesses stay and get screwed over? Whatever they do the costs just keep rising, at best they can hide them for a bit and whammo ppl say 5 years from now and hope if not pray that those who have not already left, dont up and leave...

Kind of interesting to watch, I wouldnt say Chch is in its death throws yet, but healthy it doesnt look....kind of wondering just who is going to live in all those houses Hugh P wants built.....maybe even more ghost towns.

regards

by Dale Smith | 11th Feb 13, 6:52pm 1360561965

Councils are caught like the monkey who puts its hand into the narrow neck jar to grab a fist full of food, only to find that it cannot withdraw its fist, unless it lets go of the food, and there it sits, trapped. Apologises to the monkey for comparing it to council.

The two fears council has is 1. The loss of easy revenue and 2. The fact that you don’t really need council to provide 80% of the services that a new subdivision needs. The developer can do it faster, cheaper, and more environmentally friendly than council can. Council is stuck in a method and an mental ideology that has been superseded with the help of cheaper and more environmentally friendly technology. Their very power base and revenue is dependent on them convincing us that the old ways are still the best (it is for them).

Based on their present position, it is almost impossible for the council to make the necessary changes without a painful financial correction, which should mean a much needed internal shake up. However, rather than tune the badly run council machine, or replace it with a more efficient one, they will just keep filling up the gas guzzler from the huge unlimited natural reserve called the ratepayer.

by steven | 12th Feb 13, 8:03am 1360609414

Home ownership wont be more affordable thats an oxymoron. Given that $3000 in 10 years should be more like $4500 but its $14000 we need to know where the 10k is going. Beyond that it looks like councils are cross subsidising plant replacement. So all that means is if they loose $10k per new house then they have to recover that in rates, ergo houses will be no less affordable it just depends at which end you pay.

regards

by Basel Brush III | 12th Feb 13, 8:12am 1360609977

Reading the above suggests to me that the real profits are made at the point of transition in use, usually from agricultural to higher density. That suggests that a Betterment Levy charged at the time of change of council designating the land be imposed at the first sale.

by waymad | 12th Feb 13, 12:23pm 1360624984

The light dawns....

The Productivity Commish has much to say about this also: the rural-urban LV ratio across a MUL is typically 10 times.

Betterment Levy = Capital Gains Tax.....