Yesterday the Government announced its latest policy on addressing the housing crisis in Auckland and increasingly in other centres, a $1 billion infrastructure fund to pay for the bulk infrastructure needed to support *some* of the new houses needed in greenfield areas.
The Prime Minister today announced a new $1 billion Housing Infrastructure Fund to accelerate the supply of new housing where it’s needed most, Finance Minister Bill English and Building and Housing Minister Dr Nick Smith say.
The contestable fund will be open to applications from councils in the highest growth areas – currently Christchurch, Queenstown, Tauranga, Hamilton and Auckland.
Mr English says the Housing Infrastructure Fund will help bring forward the new roads and water infrastructure needed for new housing where financing is a constraint.
“The Government will invest up front to ensure the infrastructure is in place. But councils will have to repay the investment or buy back the assets once houses have been built and development contributions paid.”
As we know Auckland is growing at rate faster than any other region in the country – there are a few districts growing faster, such as Selwyn following the Earthquakes but they are also off a much lower base. The Q&A suggests that the high growth areas are defined as the areas expected to see a 10% growth in the 10 years to 2023. In that time frame, Stats NZ predictions suggest that Auckland will see 58% of the country’s population growth. That figure is even higher if just comparing the five areas listed with Auckland taking around 70% of that growth. As such we can expect the lion’s share of that $1 billion to be used in Auckland. Auckland’s growth over the following years doesn’t slow down either and in the 30 years to 2043 over 60% of all growth in NZ is expected in Auckland.
One big issue right from the start is that for those other cities, a share of $1 billion would go a long way. But in Auckland with its infrastructure needs on another scale, it would be gulped down so fast it would barely touch the sides. The recent work that AT and the NZTA have been doing on Transport for Future Urban Growth suggests that over 30 years around $10 billion is needed in the greenfield just for transport infrastructure. On top of more funding is needed for other physical and social infrastructure that will be required to ensure these new developments have the level of amenity that will be expected/required such as parks, community facilities and much more.
There is of course a lot more infrastructure that’s needed in Auckland but seems that only the greenfield stuff counts for this funding.
Dr Smith says the fund will be available only for substantial new infrastructure investments that support more new housing, not to replace existing infrastructure.
“To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available. Ideally, they will have agreements with developers on these issues.
“Funding may also have other conditions attached, such as faster processing of resource consents. All of this will require close collaboration between central and local government.”
Mr English says infrastructure, and its financing in particular, is one of the three key constraints to building more houses – alongside land supply and consenting requirements.
“Councils have strict debt limits which means some lack the headroom to invest in infrastructure now and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions.”
Depending on the number and timing of applications, it will require the Government to temporarily borrow up to $1 billion, which will increase net debt until it is repaid.
Only funding new infrastructure is kind of understandable but it does raise some questions, such as just what constitutes new infrastructure. In many cases building new roads or pipes also requires upgrading existing infrastructure to cope with the demands of new areas. We know we can’t just build tens of thousands of dwellings on the edge of town and expect the motorways to work. We also know that there are plenty of areas within the existing urban area for which replacing existing infrastructure is likely to be needed to enable new development. One such example would be the NW Busway which enables growth in existing urban areas such as Te Atatu but also will be critical in enabling growth in the entire North West.
I guess that if councils can assume this fund will pay for some of the greenfield growth they would have otherwise needed to build, it enables them to re-prioritise budgets to focus their normal funding on improving existing infrastructure.
One aspect I do like is the idea of linking funding to developments, the last thing we want is the council or government spending precious funds building infrastructure to an area only for a developer not to build anything and then profit off the increased land value. That of course also raises the question of why the government doesn’t just build a heap of homes themselves.
Perhaps the biggest issue with this announcement is that it’s not going to have any real short term impact. Even if the funding tap was turned on tomorrow – and it seems the details are yet to be worked out – the types of infrastructure projects that this fund will help deliver are not quick things to enable. They normally take years of planning, consenting and construction before any house can be built and so it will be many years before any housing this fund enables will have any impact on our current crisis.
Overall the fund seems useful but not quite as useful as the government’s headline suggest. A lot of it is going to end up coming down to the details and rules put in place and those have yet to be worked out. Ultimately the whole thing just seems like a way of loaning money to councils in a way that sits on their books differently. It will also be critical to see just what projects get built with this funding. If it just results in trying to quickly build a pile of auto-dependant sprawl that would be a terrible outcome but if it also is focuses on good quality outcomes such as decent walking, cycling and PT facilities it could be quite useful.
In addition to the infrastructure fund, the government have also said they’re looking at setting up urban development authorities.
Dr Smith says the Government is also considering establishing Urban Development Authorities (UDAs) to help further speed up the supply of new housing.
UDAs have streamlined powers to override barriers to large-scale development, including potentially taking responsibility for planning and consenting and other powers.
In some form or another we already have a few of these with the likes of Panuku Development Auckland, the Tamaki Redevelopment Company and the Hobsonville Land Company. How will a government UDA be different from these, with the possible exception of having the power to compulsory acquire land. If they did allow for compulsory acquisition it would be interesting to see if they also extended that to at least Panuku.