New Zealand’s shadow minister for housing, Labor’s Phil Twyford, continues to apply deep pressure to the National Government over housing affordability.
Last year, Twyford called for the elimination of Auckland’s Rural Urban Boundary (RUB), as well as freeing-up density restrictions and creating a new mechanism for financing infrastructure – infrastructure bonds – that will be repaid over the lifetime of the asset through a targeted rate on the properties in a new development. Twyford has also called for a crack-down on foreign and domestic speculators that drive-up the cost of housing.
Last week, Twyford explained in further detail his plan to allow homeowners to pay-off the core housing-related infrastructure over the life of the asset using bond financing. From The NZ Herald:
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.
…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… Councils in the high growth areas are already maxed out on debt…
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… 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…
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.
Twyford’s infrastructure bonds plan has received high praise from the conservative think tank, the New Zealand Institute, which considers it a ‘game changer’ in the affordability debate:
“We’ve been advocating for this policy since 2013. As long as councils are a monopoly provider of water pipes, roads and core infrastructure, the ability of our cities to grow is always going to be held back by their funding constraints,” said Dr Oliver Hartwich, Executive Director at The New Zealand Initiative.
“Given how tight these debt limits are, it is hardly a surprise that core infrastructure expansion is being trickled out. This feeds directly into house prices in fast growing regions, where supply has no hope of keeping up with population growth.”
Hartwich said that these types of arrangements are the bedrock on which major urban expansion has been built in the Southeast of the United States, where house prices have largely remained flat for decades after adjusting for inflation.
“Although the details around where the bond funding comes from are still open to debate, the merits of breaking the infrastructure bottleneck are clear. This is not radical thinking, but a practical and sensible policy if we want to put housing within reach of first home buyers again.”
NZ Labour’s approach of targeting both the demand-side and supply-side factors is sensible, and certainly offers more potential than National’s ‘supply-only’ approach, which appears to be more spin than substance.
It’s a shame neither major party in Australia is offering such wide-ranging and sensible policies.