Published 14 October 2009
Auckland City Council expects revenue from development contributions will fall short of planned spending by $2.8 million in the June 2010 financial year, and by $3.7 million in 2011.
The answer of its city development committee last week was to “amend the development contributions policy” – raising levies, but not beyond the council’s rate of inflation.
Proposals on new levies will be brought back to the appropriate committees (city development and finance & strategy) for consideration in November & December.
In a paper presented to the city development committee on 8 October, development contributions policy manager Andrew Pickering said any changes could only be done as amendments to the 10-year plan through a special consultative procedure.
The problem, he said, was that development levels – approved dwellings in particular – had reached historic lows while population growth still appeared to be tracking consistent with the council’s long-term planning basis.
The options he suggested were to:
lengthen recovery periods (but that would increase financing costs)defer capex for growth (which might be only a partial solution)reset the policy model (which may mean higher per-unit charges), rebalancing expected revenue & planned spending.
The third option is the one used previously.
The contributions policy under the Local Government Act has brought the council $51 million in cash revenue plus $7 million of land since it was introduced in 2005. Another $20 million came in the first 2 years from the financial contributions policy under the Resource Management Act, which has been phased out.
The long-term population projection for the city is for an average increase of 6300 people/year & average 2700 new households/year.
Mr Pickering said consents for new homes had dropped sharply in the past year to about half the level of 2 years ago.
“It is expected that new dwelling levels will recover towards at least the average over 2006-08 of around 2000 dwellings/year, as housing demand from population increases, and recessionary conditions give way to renewed economic growth.
“In particular, annual net immigration is running at around 14,500 (national total), up from 5200 a year earlier. Recent surveys have indicated increasing optimism, and improvements have been noted in the housing market generally.
“The recovery generally is, however, still regarded as fragile and, for the construction sector, likely to be subject to capacity constraints over the next 1-2 years. On this basis, the level of development activity across Auckland City is expected to recover only slowly & partially over the next few years.
“In addition, we expect to see the development recovery start with an upswing of resource consents. As a large fraction of development contributions revenue is recovered on building consents – typically 6 months-1 year after the resource consent – we would not expect to see any significant increase in development contributions until mid-2010.”
Mr Pickering said one policy possibility was to revise the measure of standard dwelling. Another was to fund some growth costs from rates until the market picked up – but that would require a big hit for ratepayers in election year, a harder call to make than raising the costs to developers beyond the council’s internal inflation rate.
“A rates increase approaching 1% would be required for the 2010 financial year to address the projected shortfall, with a further similar rise in the year following.
“This option would be appropriate if the council considers it is inappropriate to continue to seek the full identified cost of growth from the growth community. This approach could be used as a short-term measure, and this decision revisited as development levels increase again.”
Labour councillor Leila Boyle tried to have the inflation cap removed from the committee recommendation, but that was voted down.
Committee chairman Aaron Bhatnagar said the council majority was “very mindful that the financial climate is such that significant changes to the development contributions policy could hurt development at a time that it is tough going out there.”
However, Cllr Richard Northey said Cllr Bhatnagar’s proposed caqp could put the council at some risk: “The laws around development contribution-setting are very carefully phrased so the charge we make on developers is no greater than the objective costs that development generates. If they see a development charge greater than that cost, even if less than inflation, it would be struck down in the courts. If they are generating a cost which is greater than the rate of inflation, we are effectively giving the ordinary ratepayer a cost which is a user charge…. We could be getting the general ratepayer to subsidise others by that particular option, and that’s very unwise.”
Cllr Glenda Fryer added what is probably political reality for an election year: “I think we have to be very cautious about being seen as the friend of the developer, which would make us the foe of the general ratepayer. Funds are used for infrastructure, like water & parks. In 1990, policy was (introduced) for the cbd not to pay for parks, but that stayed in until 2000. If we put this cap in place, I can see it staying in a long time. Remember, we’re a friend of the ratepayer here and not the developer.”
Cllr Bhatnagar retorted: “I do find it a bit rich that Cllr Fryer & others say they’re the friend of the ratepayer, because the evidence 2004-07 (rate rises) suggests otherwise.”
Bringing the debate back to ground level, city development general manager John Duthie told the councillors: “You’ve got to relate your levies to the rate of growth, and that to your rate of expenditure.”
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Attribution: Council committee meeting & agenda, story written by Bob Dey for the Bob Dey Property Report.