Auckland Council plan to raise housing developers' costs slammed

Proposals will see the Development Contribution - the amount a developer pays to help fund infrastructure - rise from an average of $21,000 per dwelling to $27,000. Picture / Getty Images

Auckland Council has announced a plan for developers to fund the additional $800 million over 10 years needed to pay for extra infrastructure to support its housing targets. But some in the construction industry worry that putting additional costs onto developers will just push up the cost of houses.

Proposals announced yesterday, alongside the regional fuel tax, would see the Development Contribution - the amount a developer pays to help fund infrastructure such as roads and parks - rise from an average of $21,000 per dwelling to $27,000 - a hike of almost 30 per cent.

In areas where a lot of infrastructure is needed - Albany, for example - the DC price could be closer to $33,800, the council says. That's 60 per cent more than now.

And a separate proposal could see developers on future greenfields sites paying as much as $70,000 per dwelling.

The council argues hiking the levy on developers will see the construction sector rather than Auckland ratepayers meet the full cost of the extra infrastructure needed to resolve the housing crisis.

But Faalepo Taei, regional service manager for Master Builders, said homes will get even more expensive at a time when government and councils are trying to build affordable housing.

"Developers will pass those costs onto the people who buy the houses and it will push prices up. This makes no sense."

Auckland Council's manager financial policy Andrew Duncan doesn't agree. He said the market isn't able to absorb further increases.

House prices aren't rising much at the moment, so developers will factor the increased contributions into their cost structures when they buy land for building on. Land prices will go down, rather than house prices going up, Duncan says.

The council estimates it will need to fund $3.4 billion of what it calls "growth infrastructure" - new roads, parks and other community facilities - to support the construction of the 120,000 dwellings Auckland needs.

This is $1.4b more than it expected when it put together its last long-term plan in 2015 - $1b more for transport and $322 million more for community infrastructure and parks.

Hence the hike in the development contribution.

The draft proposal warns that without additional revenue from increased developer contributions, "the council would need to reduce its proposed capital expenditure by between $1 billion and $3 billion depending on which projects were prioritised".

"To maintain the proposed level of investment without increasing development contributions would require an increase in rates funding of between $50 million and $150 million per annum. This is equivalent to an additional general rates increase of between 3 and 10 per cent."

Duncan said the proposed $27,000 average doesn't cover future greenfield developments, where the costs could be significantly higher.

"At the edge of city, the costs of servicing greenfields developments are going to be high over 30 years."

Auckland Council estimates each new dwelling on a greenfields site could need $150,000 of additional infrastructure - $70,000 of which would fall to council (or more likely developers) to provide.

Public consultation on the draft Contributions Policy 2018 will be held from May 1-14, in line with consultation on the more high profile Regional Land Transport Plan and Regional Fuel Tax.

There will be a "Have Your Say" face-to-face event targeted to developers on May 7 and councillors will make a decision on May 31. The new policy will take effect from July 1.

Work on costing greenfields development contributions is still going on, Duncan said, and should be ready in September.