Like It Or Loathe It, The Coalition Is Cracking on

Say what you like about the coalition Government – and there are plenty of opinions – but it is clearly a Government determined to change New Zealand in the direction […]
Published on July 10, 2024

Say what you like about the coalition Government – and there are plenty of opinions – but it is clearly a Government determined to change New Zealand in the direction that it campaigned on, and quickly.

The announcement made by Housing and Infrastructure Minister Chris Bishop and first reported in The Post on Thursday, of a huge overhaul in land use, zoning, smaller apartments and built up housing and infrastructure around transport corridors, was pretty well signalled.

But the reality of it will still have taken many by surprise. In particular, the thrusting vision of a market-led housing system where town planning takes a back seat to where people want to build and live.

What is perhaps also surprising is that the politics of this issue are largely settled. The Government parties and the Labour Party more or less agree on most of these measures. Sure, there are disagreements at the margins, but the general thrust of the Bishop speech is reflective of where parties that won almost 80% of the vote at the last election are more or less at.

From the Labour Party’s perspective, the tragedy of its six years in Parliament saw housing – an issue which it had worked on and which helped propel it into power in 2017 – ended up being a huge negative for it.

Sticking to the disaster of Kiwibuild despite being told it wouldn’t work; prevarication, delay and political mismanagement over three waters reforms, and concentrating on a massive state-house building effort instead of tackling building supply and land costs and infrastructure blockages.

The Post has spoken to a number of developers about the Government’s new plan. As a generalisation, they are warm to the ideas and the thrust of the policy, but point out that the biggest hurdle remains infrastructure and how to pay for it.

The big issue remains how to get new pipes and water infrastructure built and who pays. The complaints from the local government sector are that they can’t afford new infrastructure, and from the development sector that it is difficult to get access to water infrastructure in particular.

This is the missing bit of the puzzle – and this was something that Bishop admitted required more work. However, the Government is aiming to get its housing infrastructure and funding policies decided by the end of 2024.

In practical terms that almost certainly means GST sharing or some sort of tax revenue sharing arrangement for newly built houses between central and local government – an ACT Party policy taken to the last election. One way or another, councils will share in the revenue upside of new housing.

On the infrastructure side, there was a line in Bishop’s speech that was largely overlooked – essentially, that greenfields development will be allowed on a massive amount more land, provided the infrastructure is paid for.

The Government is working on a number of potential options for this, but one that could well be on the table is the introduction of “special purpose vehicles” or “municipal utility districts” that have the ability to issue their own debt through selling some sort of local or central government-backed bond.

Municipal utility districts (Muds) are widely used in greenfield development in parts of the United States. In simple terms, a developer stages a development so that once early stages are complete a bond can be issued off the back of the value of that development to pay for all the rest of the infrastructure – water especially. The standards of the water infrastructure are set by the state.

Everyone who lives in that district then pays a fee for use of the utilities, which pays back the bondholders, often over decades.

Often these developments will have a body corporate that manages this – akin to living in an apartment. Once the utility is paid for it often gets subsumed into the local water authority’s infrastructure.

In the New Zealand context, it might be that the Government sets the rules and standards around the new infrastructure, introduces the legislative ability to do it, and then leaves the market and developers to take it on and build it if keen.

One of the ways that it keeps prices down is that all the cost of the infrastructure isn’t capitalised into the sticker price of the house, but paid for by residents who use it (and who may change) over time.

While a New Zealand version of this would differ in some ways, the general thrust could be the same.

It is expected to be announced by the end of the year, as are the exact incentives for councils to receive money for being pro-development.

Sound radical? It shouldn’t because none of this is particularly new. Then housing minister Phil Twyford explicitly said in a 2019 speech that the first Ardern government had identified the same changes and would be introducing a number of the same fixes.

Twyford was a very effective opposition politician but, in common with many Labour ministers, struggled to get the public service working to get his agenda done. And of course there was Covid. As with many other areas under the previous government, the lack of delivery and how to fix it should take up a lot of Labour brain space over the coming two years.

Chris Bishop is not backwards in saying that he views himself as finishing the work that Twyford started or said he would start.

However, Bishop wraps a far more explicit free-market intellectual framework on it all. He is quite clear that what people want should drive what houses get built and where. And he wants the settings to enable that to include building upwards in higher density housing around public amenities, train-lines, motorways and the like; as well as outwards into greenfields development.

Look no further than getting rid of minimum footprints for apartment. Critics say this will mean New Zealanders live in shoeboxes. Bishop says that it is not up to him – or urban designers or town planners – to tell people how to live, but that smaller, cheaper options should be available as part of the mix. If there’s no demand for them, they will not be build.

His view is effectively the same with greenfield development: if people want to live on city fringes in a cheaper, bigger house, with a bigger commute, that’s up them. The Government’s job is make sure that necessary infrastructure gets provisioned for and built.

Indeed, parts of his speech could have been from Milton Friedman’s famous 1980s book, Free to Choose.

Choice is key, and casting away the impediments and bottlenecks to development is the name of the game. Consumers will ultimately decide the rest and developers will reflect those choices.

That’s the theory, anyway. These are big changes that are being proposed. The thrust is in the same direction as the controversial fast-track legislation. The speed with with they are being done reflects the fact that the coalition thinks that Labour mucked around and didn’t get on with things.

But it is also a political imperative. While Labour is firmly on the nose with voters -especially in Auckland – Christopher Luxon is not popular and probably never will be. But he will want to be respected over time for getting stuff done.

And the way he will have to do that is by getting runs on the board – and infrastructure and house building is one area the Government thinks progress can be made by the next election.

That means a lot of changes, and quickly.

Reprinted from the New Zealand newspaper The Post here.


Luke Malpass is the politics, business and economics editor of The Post.

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