Development contributions are killing Rotorua's economy and driving developers away, say city councillors and business people.
However, the Rotorua District Council will continue charging developers to build in the city and has increased development contributions by another 5.7 per cent.
Changes to the levy were approved this week when the council formally adopted its 10-year plan for 2009-2019.
Initially, council officers proposed increasing the levy by 8 per cent but after submissions during 10-year plan deliberations, it was reduced to 5.7 per cent.
Development contributions, introduced in 2006, require developers to pay a share of capital expenditure for the provision of community and network infrastructure. Those opposed to the levy say it's stifling growth and forcing developers out of Rotorua.
Ryan Holmes, a director of property development company the Holmes Group, said his company recently pulled out of two developments in Rotorua, worth about $30 million, because of development contributions.
"Our main argument was that development contributions would not promote or encourage positive development in Rotorua.
"Why not get the right type of development here and then look at ways of taxing the end users?"
Mr Holmes said his company was now investing in other parts of New Zealand like Nelson, Auckland, Queenstown and Wellington.
Those cities had policies similar to those of Rotorua but they were affluent and driven by sustainable growth and workable policy, he said.
Council's engineering services manager Andy Bell said the levy was set by law under the Local Government Act.
"Council policy is to take the earliest opportunity to charge the levy. It applies to the growth portions of the project only, for example, replacing and upgrading sewers."
Mr Bell agreed there was low growth in Rotorua but said the levy was calculated over 25 years and there were more houses.
"There are less people in those homes but there is more demand on
services," he said.
At this week's meeting to adopt the council's 10-year plan five councillors voted against the development contributions policy - Maggie Bentley, Bob Martin, Julie Calnan, Mike McVicker and Geoff Kenny.
Mr Kenny said development contributions were stifling economic growth in Rotorua.
"Everyone thinks developers make a killing but there is often a fine line between making money or not."
Mr Kenny said the levy should apply to subdivisions but not new businesses or industries which created jobs, added wealth and beautified the city.
Rotorua Chamber of Commerce chief executive Roger Gordon said the contributions were pointless given the lack of population growth.
"When you consider past growth in Rotorua during the last five or six years is just .38 of a per cent. Really, that's just stagnation."
He said businesses already paid comparatively high rates and adding development contributions for the privilege of building in the city made no sense.
Councillor Bob Martin said the Central Otago District Council decided to defer any development contributions payable by developers until sections were sold. In Rotorua those payments were due up front.
"The developer is carrying the burden for the council ... 10 sections at $150,000 - you have to be dreaming" he said.
Charges are 'driving developers away'
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