The success of Hamilton's application to the Government's Housing Infrastructure Fund (HIF) has been welcomed by one of Hamilton's long-term developers, while city councillor Rob Pascoe has renewed his warning about the impact on city debt levels.

The proposal to develop Hamilton's Peacocke growth area has been successful in attracting $272 million from the Government's $1 billion Housing Infrastructure Fund. The fund is a response to soaring housing prices, a phenomenon partly attributed to the need to open up more land to build more housing.

High-growth centres including Auckland, Tauranga and Hamilton were identified as needing the 10-year interest-free loans. The net debt to Hamilton is $180 million after allowing for State roading authority NZTA subsidies towards roading and a new bridge that will be needed to access the Peacocke area from Hillcrest.

Veteran Hamilton property developer Ian Patton welcomed the move but warned more housing may not be synonymous with more affordable housing.

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"I think this is great. Peacocke couldn't be developed without a decent road into it and this is the catalyst to make it happen. Council has done a great job in making the submission and convincing Government to make a slice of the $1 million cake available.''

Patton said Peacocke was easier to build on due to better soil type than the rival Rotokauri growth area and being adjacent to the river would provide an opportunity for different styles of homes and diverse values that make a community.

"With a new bridge to Cobham Drive this will really create a new suburb close to Hamilton East and I think the development will rejuvenate the whole of south Hamilton and go a long way to easing traffic congestion around the hospital and Kahikatea drive."

However, how affordable housing would be would depend on the level of amenity and the level of Development Contributions set by council and paid by developers, and the standard of infrastructure council controls through its development manual.

"Suburban roads are getting wider and include bike lanes, bus stops, the latest technology in lighting and infrastructure. This is not a big win for developers. These days the land is the cheap part when developing a section.

"If you could buy a $500k house and section package nearly $100,000 of that is GST and development contributions. The term affordable housing is being cliché rather than a reality."

Hamilton city councillor and accountant Rob Pascoe renewed his warning around the impact of the large loan on the city's financial position - and its potential impact on ratepayers. The Government money, while interest-free for 10 years, is a loan and has to be paid back.

The amount rockets Hamilton over its self-imposed debt limit and could lead to a downgrade in the city's credit rating. This could result in a significant increase in interest - which is funded from rates.

Hamilton is already carrying $348 million in debt which costs $20 million in interest annually or about 10 per cent of council expenditure.

Pascoe has asked how the debt will look on the council's balance sheet if it needs to raise money for other purposes.

"The $180 million is going to be a blot on our balance sheet even if we're not having to fund it. I'm worried what will happen in 10 years. It's going to rest on how the Development Contributions come in. It is important to calculate and mitigate the risks.

"On the positive side it opens up a new area. It will provide about 8000 new sections. There is already elements of commercial activity and industry in that area. It will co-ordinate with the Southern Links roading systems and another bridge to link with the Cambridge expressway," he said.