Prime Minister John Key announced a new $1 billion housing infrastructure fund today “to accelerate the supply of new housing where it’s needed most”.
The one-off contestable fund will be open to applications from councils in the highest growth areas – currently Christchurch, Queenstown, Tauranga, Hamilton & Auckland.
Mr Key & his ministers said in background to the fund: “Why a one-off fund? Longer-term, councils need to find new ways of funding infrastructure through existing funding tools or potentially coming up with new ones.”
The fund announcement comes 3 days after Auckland Council approved a $770 million increase in its annual budget to $8.77 billion, which right-wing critics of the council say is already too big.
The budget includes $705 million of capex for growth, numerous water & wastewater projects aimed at expansion in existing areas and for greenfield growth, and provision for the council development manager, Panuku Development Auckland, to work on transformation of about 18 centres & suburbs, including regeneration & new development.
English at odds with prudent policy
Finance Minister Bill English said the new fund “will help bring forward the new roads & water infrastructure needed for new housing where financing is a constraint. The Government will invest up front to ensure the infrastructure is in place. But councils will have to repay the investment or buy back the assets once houses have been built & development contributions paid.”
That’s to say, the Government is offering councils a programme forcing them to incur extra debt beyond long-term plan provision, on a timetable they can’t control, when, in Auckland’s case, the council is struggling to maintain its debt at a prudent level.
It’s a determined continuation of the Government’s intention, in Auckland, to dismantle the urban boundary and enable more greenfield development – 3 weeks before the panel which has spent 18 months hearing & working through submissions on Auckland’s first unitary plan delivers its considered recommendations to the council, including recommendations on that urban boundary.
Property Institute chief executive Ashley Church was quick to applaud the Government for its fund: “The move will go a long way toward overcoming Auckland Council’s major objections to opening up residential land on the fringes of the city.
“It follows a recent directive from Housing Minister Nick Smith, which required councils to open up enough land to cater for the growth in our fastest growing centres. The 2 measures have stripped Auckland Council of most of its excuses for inaction.”
Fairgray spelt out growth reasons which government could control
Mr Church’s view – and the Government’s intent – are at odds with research by the economist who led much of the council’s research on growth capacity & urban boundaries for the unitary plan hearings, Doug Fairgray.
Dr Fairgray said in a column run on this website on 24 June: “So what is driving this latest upsurge [in house prices]? Simply, the conditions which underpinned the price boom through the pre-GFC period have returned, but with greater effect. The principal drivers again include the ease of securing finance to purchase dwellings, stimulated by the strong competition among banks & financial institutions to increase their loan books, together with historically low interest rates making loans more affordable, and in particular the record levels of population growth in Auckland driven by record in-migration.”
The Government was able to address all those factors. It could also have addressed the heightened investor demand for houses throughout the 5 years since the market hit the global financial crisis bottom in mid-2011.
And, if Dr Fairgray is right in saying land supply is not the central problem, the Government’s move to hasten greenfield residential development will exacerbate long-term costs for commuters and council costs for the provision of community infrastructure.
Smith stretches Government talk to power grab on planning & consents
Building & Housing Minister Nick Smith said: “The fund will be available only for substantial new infrastructure investments that support more new housing, not to replace existing infrastructure.
“To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available. Ideally, they will have agreements with developers on these issues.
“Funding may also have other conditions attached, such as faster processing of resource consents. All of this will require close collaboration between central & local government.”
Mr English said: “Infrastructure, and its financing in particular, is one of the 3 key constraints to building more houses – alongside land supply & consenting requirements.
“Councils have strict debt limits, which means some lack the headroom to invest in infrastructure now, and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions.”
Depending on the number & timing of applications, it will require the Government to temporarily borrow up to $1 billion, which will increase net debt until it is repaid.
Dr Smith repeated Mr Key’s recent statement that the Government was also considering establishing urban development authorities to help further speed up the supply of new housing: “Urban development authorities have streamlined powers to override barriers to largescale development, including potentially taking responsibility for planning & consenting & other powers.
“These changes are just the latest steps in the Government’s ongoing, comprehensive programme to increase the supply & affordability of housing.
“They will complement the work of the housing accords & special housing areas, our social housing build, our emergency housing programme, the expanded HomeStart scheme for first-homebuyers, the development of surplus Crown land, the national policy statement [on urban development], Resource Management Act reform and the extra tax measures we took last year.
“We are making good progress in facilitating increased investment in housing with a record $11.4 billion of residential building work underway this year. This initiative to support councils with infrastructure provision is the next logical step in this programme.”
The council budget & infrastructure projects
Auckland Council’s budget for the year that started on Friday includes a rise in debt from $8 billion to $8.77 billion, but with interest costs held below 12% of revenue (11.3% for the last year, 11.5% for the next year).
Capex for 2016-17, up from $1.8 billion for the year just finished to a budgeted $1.95 billion, includes $1.375 billion for new assets, ranging from multi-year projects such as the city rail link & Ameti (the Auckland-Manukau eastern transport initiative) to a spread of local projects.
For just under $2 billion of capex & other outgoings, including $705 million for growth, the council budget includes $835 million to come from borrowings, $644 million from an operating cash surplus, $163 million in development contributions, $87 million from asset sales & $240 million from subsidies.
Key projects include $81 million on expanding the water collection system, $71 million on expanding wastewater treatment, and a number of other expansions & replacements of infrastructure.
The new Hunua 4 watermain will run 32km from the Redoubt North reservoir at Manukau Heights to the reservoir on Khyber Pass Rd, Grafton, costing $23 million this year.
Design will continue on the central interceptor for wastewater to support growth, replace aging assets and reduce overflows into the Waitemata Harbour.
The Waikato water treatment plant expansion will be completed and preliminary work, including getting consents, will be done for the North Harbour 2 watermain.
The budget includes $4.5 million on the start of the northern interceptor wastewater pipe, which will support northern & western growth and free up capacity at the Mangere wastewater treatment plant, supporting central & southern growth.
Upgrades to the regional water network include 2 new reservoirs at Pukekohe East, the first to start in 2017 and take 2 years to complete, and the second to follow depending on population growth.
The council’s development management arm, Panuku Development Auckland, had 2 transformation projects approved last December for Manukau Central & Onehunga, 8 other transformation projects to work on and another 8 to support, including development at Pukekohe, intensification at Avondale & New Lynn and redevelopment at Otahuhu.
Institute wants initiatives to encourage builders
The Property Institute’s Ashley Church said neither the Government nor the council should build the volume of houses required to address the shortage. He said the next step for the Government should be announcement of a series of initiatives designed to encourage the private sector to start building.
“Such measures could include a return of the ability to claim depreciation on dwellings constructed from now, removal of all loan:value restrictions on the construction of new dwellings, and an exemption from the ‘bright line’ test where the seller had built a home, rather than purchased an existing home.
“Moves such as these would very quickly create private & investor activity in new home construction and would lead to a focus on the construction end of the market – which has got to be preferable to the current situation where 42% of all purchases in Auckland are made by investors selling existing homes to each other.”
Mr Church acknowledged that the high cost of land, particularly in Auckland, meant these measures wouldn’t lead to a reduction in housing prices – but said they would “very definitely” contribute to slowing the growth in those prices.
1 July 2016: New house consents hit 9-year high but other sectors quiet
24 June 2016: Fairgray works through the question: Who’s really the house price villain?
6 December 2015: How Panuku proposes to lead transformation of Auckland
Attribution: Ministerial & Property Institute releases, council annual plan.