Bernard is an economics columnist for the NZ Herald

Bernard Hickey: The great Auckland spend-up

For every new housing development in Auckland there needs to be matching infrastructure, and someone has to pay. Photo / Nick Reed
For every new housing development in Auckland there needs to be matching infrastructure, and someone has to pay. Photo / Nick Reed

A quick look at this week's new population projections should give new Auckland mayor Phil Goff and his council a sobering reminder of the massive task ahead of them.

Not that any more urgency should be needed.

Somehow, Auckland and Wellington must reconfigure the way they finance the massive infrastructure spending needed to house and transport at least 2.2 million people in Auckland by the early 2040s because business as usual won't cut it.

Assuming the new mayor sticks to his promise of increasing rates by an average of 2.5 per cent per year, the council will have to work with the central government and its ratepayers to find new ways to pay for the roads, railways and pipes to service that new population growth and catch up on the existing shortages.

A whole new set of tough conversations will be needed to find ways to raise and spend tens of billions of dollars over the decade or two to come.

That's because many underestimate the enormity of the problem.

Statistics New Zealand published a fresh set of national population forecasts after recording the fastest population growth rate since the early 1960s over the last year.

Record high net migration of 69,100 and natural population growth of 27,900 increased New Zealand's population by 2.1 per cent to 4.7 million in the year to June 30, with the bulk of that growth in Auckland.

The statisticians projected that New Zealand's population could rise to 5.5 million within 12 years if net migration was double the long term average of 15,000 per year.

The risk is that net migration is even higher than that, given the structurally higher demand for international education and tourism from hundreds of millions of new middle class families in China and India, which is currently driving the temporary work and student visas pushing up migration.

And then there's the increasing rush of net migration over the next decade as expat Kiwis return home from an increasingly migrant-averse Australia and Britain, and more importantly, fewer New Zealanders here are able or want to leave to work there.

The council and the Government should actually be planning for structurally higher level of population growth, and be working much more aggressively to deal with the shortfalls that have built up over the last decade.

MBIE estimated earlier this year that housing supply was currently falling short of demand by around 8000 a year and the shortage built up since 2009 was already over 30,000.

All those extra houses and the roads and public transport needed to service them will cost money that is currently not being raised through traditional rates and can't be raised through new debt issues.

One option is to levy targeted rates on new growth areas, which mean new residents in those areas pay a "premium" of sorts on top of their regular rates.

The council is close to its limits that would allow it to keep its AA credit rating and can't easily accept a lower credit rating without increasing rates for Aucklanders and for ratepayers everywhere else in New Zealand.

That's because a credit rating downgrade for Auckland would most likely cascade on through with lower ratings for other councils.

It might even endanger New Zealand's AA+ sovereign credit rating, which would mean higher borrowing costs for taxpayers and mortgage borrowers in general.

So that brings us all back to those tough conversations.

One option that will be considered by council is to levy targeted rates on new growth areas, which mean the new residents in those areas pay a 'premium' of sorts on top of their regular rates.

This would help pay for the new infrastructure needed under and to those houses, and provide an extra incentive for land bankers to become land developers.

It would reduce the political pain of ratepayers in established areas having to all pay higher rates for developments in other parts of the city.

It would also reduce the big upfront costs of development contributions that often stymie or delay developments, and are pumped into the purchase price of new homes immediately.

Then there's the thorny issue of asset sales.

Goff has ruled out selling the council's 22.4 per cent stake in the airport or the Port of Auckland. But what if the council could retain the land under the port for future development and instead sell the Port Operating Company with a 50 year lease, which would allow Aucklanders to control how that land was developed and redeveloped?

The other player who should come to the party is the Government.

It should allow Auckland to move ahead with congestion charging much faster than the current talk of a decade-long talk fest on the never never.

It should also significantly increase the $1 billion Housing Infrastructure Fund.

A doubling or trebling each year for the new few years would start to touch the sides.

Wellington should also look at using the very ample National Land Transport Fund, which is collected from fuel taxes, to help pay for the extra roads and public transport desperately needed to keep Auckland moving and repair some of those seams that are bursting.

Auckland and Wellington have a massive funding juggling act ahead of them to deliver the concrete and tarmac and pipes needed for those 2.2 million plus residents within 20 years or so.

Now is the time to grab a few new funding tools and put them up in the air to see which ones work because business as usual is not working.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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