Crown company to invest $600m in housing infrastructure
on Steven Joyce
Minister of Finance
Hon Anne
Tolley
Minister of Local Government
23 July
2017 Media Statement
Crown company to
invest $600m in housing infrastructure
The Government will co-invest up to $600
million alongside local councils and private investors in
network infrastructure for big new housing developments
through a re-purposed ultra-fast broadband company, Finance
Minister Steven Joyce and Local Government Minister Anne
Tolley say.
“Crown Fibre Holdings will be re-named Crown Infrastructure Partners, and bring the investment skills and experience gained through the Government’s world-leading ultra-fast broadband rollout to the job of attracting private investment in roading and water infrastructure that open up big new tracts of land for more housing development,” Mr Joyce says.
"Crown Infrastructure Partners will set up special purpose companies to build and own new trunk infrastructure for housing developments in return for dedicated long term revenue streams from councils through targeted rates and volumetric charging for use of the infrastructure by new residents.”
“This innovative new funding method will be made available to cash-strapped councils who are struggling to fund new long-term infrastructure from their own balance sheets,” Mrs Tolley says.
“Councils will have the option of buying back the infrastructure at some point in the future, but won’t have to commit to doing so. This is all about introducing outside capital to build this infrastructure, so current ratepayers don’t get burdened with all the costs of growth.”
Two of the earliest projects to be assessed by Crown Infrastructure Partners for investment will be the Auckland North and Auckland South projects previously submitted by Auckland Council as requiring investment outside the Council’s own balance sheet.
“These two large projects can provide an additional 5,500 homes in Wainui to the north of Auckland, and 17,800 homes across Pukekohe, Paerata and Drury to the south of the city,” Mrs Tolley says.
Mr Joyce says the Government is prepared to be an investor alongside the private sector and take up some of the early uptake risk.
“We learnt from the ultra-fast broadband programme that if we de-risk some of the early stages of the investment, we can bring in private sector investors to take on much of the heavy lifting as the investments mature,” Mr Joyce says. “We would expect the Crown’s investment in each project to be matched with at least one to one with private sector investment over time.”
“This new model is another way in which we are helping Councils in our fastest growing cities to open up more land supply so more Kiwis can achieve the goal of home ownership,”
Mr Joyce says it forms part of our comprehensive programme for lifting housing supply to meet the needs of a confident growing country.
“Crown Infrastructure Partners is the logical next step in infrastructure funding following the Government’s Housing Infrastructure Fund which will deliver 60,000 houses across our fastest growing population centres over the next ten years.”
Crown
Infrastructure Partners (CIP)
Questions and
Answers
What is
Crown Infrastructure Partners?
CIP is a Crown
company (formerly Crown Fibre Holdings) that is being tasked
with designing and implementing new commercial models to
attract co-investment from the private or other sectors and
achieve the Government’s objectives for the efficient
deployment of water and roading infrastructure to support
the timely increase of housing supply.
The aim is to
increase the total investment in local arterial roading and
network water projects needed to make more housing
development possible by tapping private sources of
capital.
Why repurpose CFH
as CIP?
A number of corporate structures were
identified during the review phase. Establishing a Special
Purposes Vehicle (SPV) that investors, councils and
government have confidence in requires a high level of
commercial and financial expertise. This expertise currently
exists which CFH and since the Ultra-Fast Broadband
programme is nearing completion (Phase 1 is 75 per cent
complete), that work will start to wind down which means
there is capacity to start this new project. In addition,
repurposing an entity like CFH is significantly cheaper and
more efficient than establishing a new entity.
What is the aim of CIP?
CIP
will work to speed up housing developments. The aim is that
by introducing different sources of capital, it will allow
the infrastructure required for this growth to be brought
forward earlier than would be possible if it was funded
entirely from Council balance sheets.
Some high growth
Councils in New Zealand are constrained in their ability to
take on further debt to invest in infrastructure. Many of
these high-growth Councils are near their borrowing limits,
and so cannot finance the infrastructure investments needed
to keep up with demand. This limits their ability to open up
the supply of land for housing construction, which in turn
feeds into higher house prices.
How will CIP speed up housing
developments?
CIP will look at how Crown
investment through an SPV might be designed to bring forward
the provision of infrastructure, particularly in these
high-growth areas, to enable housing supply to be brought
forward.
The long-term goal is to change the market for
infrastructure provision in New Zealand. CIP will fix this
problem by establishing SPVs. The role of the SPVs will be
to invest in roading and water infrastructure assets in the
place of Councils. In return the SPV will receive a stream
of revenues from developers or the households that use the
infrastructure. In the case of developers, that revenue may
be in the form of a one-off payment. In the case of
households, the cost of the infrastructure will be recouped
over the life of the asset through a targeted rate or
volumetric charging.
The advantage of the SPV model is
that it allows land owners and developers to bring forward
the infrastructure projects that would otherwise not have
started for a number of years due to councils’ financial
constraints. This is because a key feature of a SPV is that
the debt it takes on is reflected on the SPV’s balance
sheet, not the council’s. As such it does not affect
councils’ debt limits, and frees up the local
infrastructure funding bottleneck.
Why look for private capital instead of
traditional rates funding?
Rates are tax levied
against property owners to pay for the goods and services
they receive from their local council. As such there are
affordability and equity considerations that councils have
to take into account when setting rates. For instance, it is
not equitable to ask ratepayers to fully pay for long-term
infrastructure today when it will be used by multiple
generations. Most councils overcome this by accessing
long-term debt, spreading the costs over the life of the
asset. However, some Councils’ ability to do this is
constrained by their debt limits and limited borrowing
capacity.
By accessing private capital, councils sidestep
this financial constraint and provide the necessary
infrastructure their growing communities need.
Is this just a tool for Auckland to
use?
No. This model will be scalable and used in
other fast-growing centres across New Zealand.
However,
as most population growth pressures are concentrated in
Auckland, the first SPV being explored will be within in New
Zealand’s biggest city. Other Councils will be eligible to
apply to set up SPVs provided their projects meet certain
criteria.
What are the SPV
criteria?
CIP will develop these criteria over
the next few months, but at a high level projects must show
an ability to generate sufficient revenue to cover their own
costs over time, including the cost of capital in most
cases. They must also include an exit pathway to allow the
Crown to recoup its capital within a reasonable time period.
Projects should include a mechanism through which external
providers of capital can invest in
infrastructure.
What
investment opportunities are there in Auckland for
CIP?
As part of the Housing Infrastructure Fund
(HIF), two proposals were put forward by Auckland Council
for an additional investment in roading and water
infrastructure so as to accelerate the pace of house
building in Auckland. The North project encompasses the
Wainui area, and the South project encompasses the areas of
Paerata, Pukekohe, Drury West and Drury South.
These
projects did not receive HIF funding as they did not meet
the specific criteria set by the Government, such as falling
within the current 10-year planning period, and they
couldn’t be funded from within the Council’s balance
sheet using HIF funding. The characteristics of these
projects make them highly suitable to fund roading and water
infrastructure through and Special Purposes Vehicle
(SPV).
Should projects proceed to completion, it is
expected that combined they will open up sufficient land for
the construction of 23,300 additional houses, taking total
housing capacity in these areas to 28,300. The total
infrastructure investment being sought is $588
million.
Additional housing
enabled
Project Current
yield Enabled by CIP Total
yield
North
Wainui 2000 5500 7500
South
Paerata 1000 4500 5500
Pukekohe 700 7300 8000
Drury
West 1300 5000 6300
Drury South 0 1000 1000
Total all
areas 5000 23300 28300
NORTH AUCKLAND
How
big is the opportunity to the North of
Auckland?
New urban areas in the North,
including Silverdale, Wainui and Dairy Flat have been
identified by Auckland Council as areas where greenfield
housing development can be significantly expanded over the
next 30 years, provided the necessary infrastructure is in
place to support the expansion.
What infrastructure investments are
needed in the North?
The North project focuses
on Wainui, where the existing infrastructure can only
support the construction of 2,000 new houses in the area
zoned for residential use in the Auckland Unitary Plan. It
is estimated that an infrastructure investment of $201
million ($149 million for transport; $52 million for water)
could sufficiently increase infrastructure capacity to
service up to another 5,500 houses in Wainui.
What water infrastructure developments
would this cover in the North?
The estimated $52
million infrastructure investment in the North would pay for
a number of water developments including the:
•
New Wainui service reservoir ($15 million)
• New
water supply booster pump station ($10 million)
•
New Wainui sewer and pump station ($25 million)
•
Wainui Storm water ($2 million)
What
transport infrastructure developments would this cover in
the North?
The estimated $149 million
infrastructure investment in the North would pay for a
number of arterial transport developments, including
the:
• Wainui Arterial Road ($60 million)
•
Curley Ave Bridge ($89 million)
SOUTH AUCKLAND
What is the opportunity in the
South?
The greatest opportunity to create new
urban areas in Auckland is to the South of the city, where
around 5,300 hectares of land has been identified for urban
development. The areas of Paerata, Pukekohe, Drury West and
Drury South offer the greatest opportunity to fast track the
supply of housing as they are the most ready to
develop.
What
infrastructure investments are needed in the
South?
Although areas in the South have
significant potential to expand greenfield housing capacity
in Auckland, only 3,000 additional houses can be supported
by the existing water and roading infrastructure.
It is
estimated that an infrastructure investment of $387 million
($215 million for transport; $172 million for water) could
increase the supply of new houses by 17,800 across Paerata,
Pukekohe, Drury West and Drury South.
What water infrastructure developments
would this cover in the South?
The estimated
$172 million needed for water infrastructure in the South
would pay for a number of developments including (but
limited to) the:
• New Paerata water main ($30
million)
• New Paerata sewer ($40 million)
•
Drury West wastewater reticulation ($20 million)
•
Drury South pump station ($25 million)
• Bremner
Road sewers ($2 million)
• Bremner Road pump
station ($20 million)
• Paerata storm water ($1
million)
• Pukekohe storm water ($26
million)
What transport
infrastructure developments would this cover in the
South?
The estimated $215 million infrastructure
investment in the South would pay for a number of transport
developments, including the:
• Rail stations at
Paerata and Drury West ($60 million)
• Paerata
rail crossing ($20 million)
• Bremner upgrade
($38 million)
• Mill Road, Great South Road/Spine
Road ($97 million)
DRURY
SOUTH
Why is Drury
South being considered for the first SPV?
Drury
South is one of the four areas (including Drury West,
Paerata and Pukekohe) situated to the South of Auckland that
has been identified as having the greatest opportunity to
create new urban areas. Out of the four areas it is the most
developed and is in near ready-to-go status, having already
obtained planning permission, with the design and consenting
expected to be complete in 2017. Should major civil works
commence in October 2017 it is expected the project will be
ready for the first occupants in 2019.
What will be built in Drury
South?
The Drury South project being developed
by Stevensons Group is an integrated development that will
provide for more than 700 houses as well as an 180Ha
business and industrial development adjacent to the
Stevenson Drury Quarry. The business park will facilitate
15,400 jobs across the Auckland region, 5,000 of which will
occur within the business park, which is expected to
contribute $2.3 billion to the regional economy every
year.
What transport
infrastructure is needed in Drury?
To facilitate
and accelerate development within the southern sector of the
city, Auckland Council and NZTA are investigating the
southern section of the Mill Road Corridor, a Primary
Arterial Road/Expressway that will link Mill Road in Manukau
with Pukekohe.
The Drury South project proposes that a
Mill Road Arterial be constructed that will intersect and
connect to SH1 within the bounds of the Drury South
Development Area and Great South Road in the West. This
interconnection via the spine road will provide important
network resilience to both the Mill Road Arterial and
SH1.
What water
infrastructure investment is needed in Drury
South?
The project requires new wastewater and
freshwater connections. This includes a 4.5km trunk sewer
between the project and Hingaia pump station north of Drury,
and a new connection to the Waikato water pipeline in Drury.
This infrastructure will be designed to integrate with other
developments in the area and could service in excess of
10,000 households.
How much
will it cost?
Civil works to deliver the land
ready for development will total $300 million, of which an
estimated $68 million in road and waste infrastructure will
be assessed for CIP funding.