Council funding woes perpetuating the housing crisis, thinktank says

Tuesday, 21 January 2020

Co-operation between local and central government can happen, such as the Milldale subdivision north of Auckland, being built in partnership with a private developer.

House prices are high because councils are not sufficiently funded enough to release the land needed for extra housing, an infrastructure group claims.

The latest housing affordability report by thinktank Demographia shows that New Zealand scored internationally high on the unaffordable housing front.

Tauranga now the fifth most expensive housing market among more than 300 cities in eight countries, and Auckland close behind.

With housing nationally costing 7 times the median household income, Demographia co-author Hugh Pavletich said cities needed to release more land, so the housing supply increased and prices stopped rising.

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But he said councils were afraid to go into debt to fund the roading, water and sewage needed for that extra land.

However, infrastructure thinktank Infrastructure New Zealand lays the blame with the way councils are funded.

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'The challenge of building enough homes is an enormous problem, and it's primarily because councils are unable to pay for the infrastructure needed to bring down land prices,' chief executive Paul Blair said.

He said councils were responsible for local planning, but found it difficult to respond to their local needs.

Local councils built and maintained almost 40 per cent of the country's infrastructure, about the same amount as the central government looked after but on one-tenth of the income.

They were required by law to provide the necessary infrastructure – 'Water plus transport equals housing' – but legally, they were unable to recover anything but their costs, and politically, they had stay in line with inflation.

So in fast-growing cities, the benefits went to central government

David Seymour of ACT wants to see certain planning powers taken away from councils in large cities.

'If the economy grows 2.5 per cent, as it did last year … nine out of 10 dollars in tax revenue flows to [the Government]. So they have a massive incentive to grow the economy.'

Blair said other countries gave their local authorities much more financial muscle.

'What we have here is because we don't have alignment of the financial model and who's paying the costs and who's getting the benefits, we end up with really poor outcomes.'

However, the ACT Party said it had a different solution to the regional housing shortage. While it agreed land restrictions were driving house prices up, it called for local councils of large cities to lose much of their planning power.

'ACT would remove large cities from the Resource Management Act, and create separate urban development legislation, prioritising land supply and reducing red tape on developers,' party leader David Seymour said.

'We would incentivise councils to consent more land for development and build more infrastructure, by sharing a portion of GST levied on construction.'

Freeing up land supply is still high on the agenda for the Government which has introduced two bills, one to create an urban development authority to progress state housing, and another to develop new forms of infrastructure funding.

The Infrastructure Funding and Financing Bill, introduced in December, builds on the proposed National Policy Statement on Urban Development which was released in August for public consultation.

The NPS would direct councils in six high growth centres to free up their planning rules.

In the meantime, some examples of local and central government co-operation are underway, such as the 4000-dwelling Milldale housing project 40km north of Auckland.

The $91 million project is being built by a 'special purpose vehicle,' headed by Auckland Council, Crown Infrastructure Partners and Fulton Hogan Land Development.

Its funding will be repaid partly by Fulton Hogan Land Development and partly by section owners, who will pay an 'infrastructure payment' along with council rates.