By Steve Mooney
Speaking to an audience of Mayors and Chief Executives from around New Zealand in early March, Minister of Housing Chris Bishop revealed a new toolkit approach to the funding and financing challenges to accelerating housing growth.
The Government is proposing to replace development contributions with a development levy system.
This will provide councils with more flexibility to charge developers for the overall cost of growth infrastructure across an urban area – and ensure that ‘growth pays for growth’.
Bishop said that councils will still be required to use identified infrastructure projects to calculate levies, however, they will be able to adapt plans to respond to growth and use levy revenue to build the infrastructure needed to support housing and urban development.
In addition, the Government has also announced changes that will enable councils to set targeted rates to be applied only to new developments, when a new rating unit is created at the subdivision stage. These targeted rates can be used alongside development levies but may be particularly attractive to smaller councils in lieu of managing a development levy system.
As a package these changes will provide councils, developers and other infrastructure providers with a flexible funding and financing toolkit to respond to growth pressures and deliver infrastructure to land zoned for housing development. This is expected to reduce the current cross-subsidisation by ratepayers.
Councils will continue to have discretion about which tools they use in certain circumstances, but regulatory oversight will ensure councils are setting appropriate charges in line with a ‘growth pays for growth’ approach.
LGNZ President Sam Broughton summed it up by saying, “while rates will always be the primary source of income for councils, LGNZ has been advocating for more tools in the toolbox to reduce pressure on ratepayers.”
“Councils play key roles in enabling economic growth, but we rarely get any share of the economic benefit generated by new housing,” Broughton said.
“This means that growth is a cost for councils, not a benefit.
“While many details are yet to be worked through, we welcome the Government addressing the structural challenges that prevent councils from recovering the cost of growth.”
Work on these changes are already underway, with legislation expected to be introduced in September 2025 and enacted by mid-2026.
Councils and other infrastructure providers will be keen to move to a more certain, and less contestable, development levy model as soon as it is available, and providing for an easy transition to this model will be welcomed by many stakeholders in these sectors.
In my view, these new and improved funding tools are a good start as they should reduce pressure on ratepayers and assist councils to recover the costs from unplanned growth.
