Phil Twyford: Bonds could break Auckland's infrastructure logjam

At present, infrastructure costs pump up the purchase price of an Auckland home by about $35,000 to $40,000. Photo / Brett Phibbs
At present, infrastructure costs pump up the purchase price of an Auckland home by about $35,000 to $40,000. Photo / Brett Phibbs

Phil Twyford is the MP for Te Atatu and Labour's spokesman on housing and Auckland issues. Here he comments on infrastructure issues in the region.

Infrastructure bonds paid back by a targeted rate could save homeowners' money and be the solution that breaks Auckland's infrastructure logjam.

Almost everyone can agree Auckland needs to make room for a lot more people.

What's harder to get agreement on is who is going to stump up with the $20 billion to pay for the infrastructure for the 120,000 new homes Auckland Council is planning on its rural fringes.

It is increasingly clear one of the biggest blockages to desperately needed new housing is the lack of money for roads, electricity, stormwater, sewerage and water to the tap and all the other services new developments need.

It's a conundrum. The world is awash with cheap money and as a result many developed countries are considering issuing 50-year and 100-year bonds (as Canada and France already have) at historically low interest rates. Yet a fast-growing city like Auckland can't seem to finance the infrastructure to support its own growth.

The council is up against its debt ceiling and last week put the brakes on large-scale housing projects in Kumeu, Huapai and Riverhead until more progress is made on roads, stormwater and the like.

Developers under current rules have to finance infrastructure within a subdivision and are levied by the council for a share of the cost of connecting to the wider roading and water systems as well as parks.

Many developers struggle with the sums of money involved and it adds cost and delay to projects.

The Government is generally unwilling to invest in the kind of infrastructure needed to support urban growth, seeing it as the responsibility of local councils and developers.

Cue the National Government's $1b line of credit to councils. It got a headline but it is hardly a solution. Councils in the high growth areas are already maxed out on debt. The Government's offer of a loan just adds to that debt so it is little wonder the offer has been under-subscribed.

What's needed is not more debt for councils but a whole new approach.

Labour's plan is for infrastructure within a development, as well as the connections to the wider networks, to be financed by 50-year bonds. It could work just as well in either greenfields or regeneration projects in the city.

The Government's Productivity Commission backs the policy but curiously Environment Minister Nick Smith rubbished the idea, calling it "creative accounting".

Instead of the developer picking up these costs and loading them on to the price tag of a new home, the bonds could be issued by a government agency - perhaps a specialist infrastructure unit within the Treasury.

The agency would need to be assured the developer's infrastructure plans were fit for purpose, decent quality, and the council would need to make sure the development was consistent with the city's spatial plan.

Bonds issued in this way would be the cheapest finance available, taking advantage of the Government's ability to borrow more cheaply than anyone else.

The bonds would be paid back over the lifetime of the asset by targeted rates on the properties in a new development. That is important because the infrastructure costs should rightly be paid by the owners of those new properties rather than by the ratepayer or taxpayer so developments are not being subsidised in areas where it might be uneconomic.

Spreading the repayment over 50 years is fairer. People getting the benefit of the infrastructure in 30 years' time will pay their fair share.

A young couple buying a home in a new subdivision would know up front how much the infrastructure rate would be so they could factor it into their household budget. The couple would get the equivalent of a 1 per cent mortgage that sits with the house instead of the homeowner, and it means they would get a much cheaper house in the first place.

Currently infrastructure costs pump up the purchase price of a home by about $35,000 to $40,000, and this has a multiplier effect on house prices being capitalised into the values of homes right across the market.

Reduce the infrastructure component of the price of a new home, and you'll reduce not only new house prices but eventually prices across the whole market.

This approach relieves developers of the burden of financing what can often amount to tens or even hundreds of millions of dollars, reducing the risks and speeding up the pipeline of new projects.

It would let the ratepayer off the hook for new developments, except of course where as a matter of policy the council wants to invest in trunk infrastructure to promote development in a particular area.

It is true that central Government would end up with more debt on its balance sheet but the debt would be serviced by revenue from the targeted rates - these could even be sold as a bond with a specific revenue stream.

The Government and councils will still need to spend on infrastructure.

They will need to lead planned high-quality development and can do that by investing in roads and public transport as well as parks and all the other amenities communities need. It is a mystery why the current Government has not already built a rapid transit busway on SH16 to service Auckland's northwest corridor, or fast electric commuter rail to and from Pukekohe.

There will also always be investments needed to service urban growth that cannot easily be billed to new property owners, such as Watercare's $1b central interceptor pipeline that is needed to support expected intensification on the isthmus.

Fixing the housing crisis and managing Auckland's growth needs sustained reform on many fronts. Labour will build 100,000 affordable homes, tax speculators, and set minimum standards to make rentals warm and dry. We will free up the planning rules by relaxing height and density rules around town centres and on transport routes, as well as replacing the urban growth boundary with more intensive spatial planning.

But unless we break the infrastructure logjam the city will never get the 400,000 additional homes it needs in the next 30 years.

- NZ Herald

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