Think tank the NZ Initiative is proposing the taxpayer - rather than developers and home buyers - pay councils for providing water and sewerage services to new houses as part of a suite of measures to improve home affordability.
In its third report on the issue of housing costs, the think tank also proposes the cost of building new infrastructure be spread over years rather than loaded onto the upfront price of new homes and recommends greater private sector involvement to allow that to happen.
Executive Director Oliver Hartwich said rather than being a market failure, declining home affordability was down to "poor policy which has fostered an anti-development sentiment among local councils".
"For too long, local government has been left to carry the infrastructure costs that come with new housing developments, without a means of sharing in the economic benefits new residents bring.
"Under this framework it is entirely rational for councils to discourage new home construction, but it has serious consequences for the supply of affordable homes."
To tackle that, the think tank proposes replacing the development contributions levied by councils on developers to pay for water, sewerage and roads with a one-off "Housing Encouragement Grant" for every new house built in their area, provided the house meets minimum delivery deadlines from application to completion.
The think tank proposes the grant be benchmarked on the GST levied on the cost of building the house, which would mean a $60,000 grant for $400,000 house.
"This would give councils a revenue stream they could plan for and act as an incentive to get developments through the planning process faster" one of the report's authors Jason Krupp said.
"We'd like to see councils participate in the economic upside that housing brings."
The report also recommends cutting upfront costs by stripping the provision of water from councils and making that responsibility of five specialised council owned companies across the country, including Auckland's WaterCare.
The companies would meet the cost of connecting new homes to their supply through charges for water use, removing the requirement for councils to charge for connections through development contributions.
The think tank's third key proposal is to allow private companies to compete with councils for the provision of infrastructure through a new planning regime.
The think tank proposes legislation allowing the formation of Community Development Districts modelled on Texas's Municipal Utility Districts. Under the regime, any land not specifically earmarked for environmental or even tribal uses could be set up as an area for development where the Resource Management Act would apply only lightly and where private sector interests borrow to construct infrastructure normally provided by councils.
Those private interests would then have the statutory ability to levy taxes on home owners within those areas to recover their costs and make a profit.
"This would serve to pay off the infrastructure costs over the life of a house and not capture it in the upfront price of a new home", Mr Krupp said.
"If councils don't have recoup these costs upfront asking price and have an alternative means of funding it, we think that there's a direct impact on the upfront asking price of that house.
"Each of these proposals we think could make a difference to the cost of a house by improving incentives so that councils are pro-development."