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Govt embraces targeted rates to spur urban infrastructure

Govt embraces targeted rates to spur urban infrastructure for housing

By Pattrick Smellie

July 23 (BusinessDesk) - The government's latest response to the Auckland housing shortage will see central government and private sector firms invest in 'special purpose vehicles' to fund essential roading, water and drains that Auckland Council can't fund without threatening its credit rating.

In a move supported by Labour but dubbed "too little, too late", the new policy follows months of behind the scenes wrangling to find a way to fund basic infrastructure required in new areas before house construction can even occur.

The policy will repurpose Crown Fibre Holdings, the revolving fund used successfully to accelerate the nationwide roll-out of fibre-optic cable for ultra-fast broadband, and will see central government and private sector investors co-invest in projects that councils will pay for through targeted rates and volumetric charging by the residents of the newly constructed residential areas and associated business and industrial parks.

First out of the block for the new special purpose vehicle approach under the renamed Crown Infrastructure Partners is a project in Drury South, on the southern outskirts of Auckland, where construction firm Stevensons has been ready for months to start work on infrastructure to support some 700 new homes and a180 hectare business and industrial development.

"Should major civil works commence in October 2017 it is expected the project will be ready for the first occupants in 2019," Economic Development Minister Steven Joyce and Local Government Minister Anne Tolley said in a statement.

Opportunities north of Auckland around Wainui, Silverdale and Dairy Flat are also among the $588 million of projects outlined in today's announcement, with potential to support the construction of up to 23,300 more new homes in coming years than the 5000 that current infrastructure would support.

By agreeing to allow targeted rating, the government is taking on board recommendations of the Productivity Commission's latest report on improving housing affordability and accelerating the likelihood of essential infrastructure being provided to allow construction to occur.

"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," said Joyce and Tolley.

The announcement follows the fact the government struggled to find takers for its $1 billion infrastructure fund, announced just over a year ago, because councils - in particular Auckland Council - were unwilling to take on further debt that would harm their credit ratings and raise the cost of borrowing.

Those funds were finally allocated in announcements earlier this week to nine projects in five different council area: Auckland, Hamilton, Waikato, Tauranga and Queenstown; but left unanswered until now the question of how much-needed additional development would occur in Auckland.

“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,” said Tolley. “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.”

Lobby groups Local Government New Zealand and the Auckland-based Employers and Manufacturers Association both welcomed the announcements, but Twyford said it was a case of: "“What took you so long?”

“Today’s announcement is an admission the government’s over-hyped one billion dollar fund announced a year ago was in fact just a line of credit for councils that could not afford to take on much more debt," said Twyford. “It got the government a headline but as a policy it was never going to fly.

Drury South is only the first step for two major Auckland projects, named Auckland North and Auckland South, which Tolley said were "previously submitted by Auckland Council as requiring investment outside the Council’s own balance sheet" in the context of the original $1 billion offer.

Joyce said the decision to repurpose CFH reflected the fact that the UFB project was nearing completion, with 75 percent of phase one finished, and that it was more efficient to use the commercial expertise already assembled in CFH to be applied to a new set of priorities.

“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,” said Joyce. “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.”

"The long-term goal is to change the market for infrastructure provision in New Zealand."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," said Joyce.


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