LGNZ: Development Contributions Review Risks Further Financial Burden on Ratepayers

11 February 2013

Local Government New Zealand today questioned some of the policy concerns expressed in a Government discussion document on development contributions. While welcoming the debate, it is important that adequate time be given to assess the facts before solutions are leapt at.

“Development contributions, which are fees paid by developers to help cover the costs of new services for developments, such as running water and sealed roads, contribute towards the legitimate costs imposed on communities by private development,” says LGNZ President, Lawrence Yule.

“Where developments impose new incremental costs on communities, then it is entirely appropriate that those imposing the costs pay them. The alternative would be either that ratepayers would pay or the infrastructure investment required would not be made or deferred for a period of time. If ratepayers are to pay then it is important to recognise that they would be subsidising private commercial activity. This is not good practice,” Mr Yule says.

We know that the development contribution component is about 4 per cent of the total cost of building an average 145 square metre house in Auckland, while 36 per cent of the cost is related to land and 49 per cent is for labour and materials. So development contributions make up a comparatively small proportion of housing costs in most territorial authority areas. The discussion document states this to be the case.

Development contributions in New Zealand are comparable with other countries such as Canada where the average charge is NZD $26,163.

Mr Yule says if development contributions are capped, as suggested in the discussion document, then a reduction in infrastructure investment may occur as rates cannot simply be raised carte blanche to meet privately imposed costs. It is hard to reconcile such an outcome with the Government’s own desire for councils to restrain their expenditure.

The Government is seeking comment on its discussion paper with submissions closing on 15 March. The issues raised are significant with potentially major financial ramifications. In such circumstances, the consultation process is remarkably short. This at a time when the Productivity Commission has recently criticised central government policy makers for not taking enough time to understand issues and particularly the practical impact of its policies on local government before leaping to a solution.

“The Government should give itself the necessary time to understand the full ramifications of its proposal. If it does not, the risk is that the selected solutions will be counter-productive,” Mr Yule said.

ENDS

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