Labour's targeted-bond housing infrastructure plan gets support from the New Zealand Initiative, critique from Infrastructure Minister Steven Joyce

Labour’s housing infrastructure bond policy received a solid airing in Parliament Wednesday with housing spokesperson Phil Twyford going head-to-head with Infrastructure Minister Steven Joyce on the issue.

Meanwhile, the policy received support from what some would regard as an unlikely ally for Labour, the New Zealand Initiative (NZI) think-tank. NZI Executive Director Oliver Hartwich said that although the details of the proposal were still open for debate, the merits of it were clear.

“This is not radical thinking, but a practical and sensible policy if we want to put housing within reach of first home buyers again,” Hartwich said.

See Alex Tarrant’s article from Sunday on Twyford’s proposal for a central government unit within Treasury to borrow on behalf of councils for infrastructure development, to be repaid by target rates over the lifetime of the assets.

The NZI’s Hartwich said that as long as councils were a monopoly provider of water pipes, roads and core infrastructure, the ability of New Zealand’s cities to grow was always going to be held back by their funding constraints.

The types of arrangements being talked about were “the bedrock on which major urban expansion has been built in the Southeast of the United States, where house prices have largely remained flat for decades after adjusting for inflation.”

Twyford vs Joyce - a battle between two Auckland ratepayers

In Parliament’s Question Time Wednesday, Twyford put the proposal to Infrastructure (and Finance) Minister Steven Joyce, who is part of the government team in talks with councils over allocating a $1bn Housing Infrastructure Fund to a selection of fast-growing councils.

Twyford asked why the government was offering more debt to councils with the fund, when the largest of the targeted authorities, Auckland Council, was near its debt ceiling.

Joyce replied that the fund was on the table to help fund water and transport infrastructure. He added the “transport part of that funding does not increase council debt because it’s a change in the funding assisted rate. The water infrastructure element does increase council debt.”

He then took a pot shot at the Auckland Council’s inability to pay for required infrastructure when its revenue stream had grown nearly 15% over the past two years: “While Auckland has indicated some concern around its debt constraints, its income each year is nearly $4bn, which is up about $0.5bn in just the last two years,” he said.

“That would normally provide the council a bit of headroom to provide its share of the infrastructure needed for growth, however we are working with the council on further options that may mean that some of their debt is not held on their balance sheet.”

Twyford put to Joyce that only one-third of the $1bn fund was earmarked for Auckland, against the city’s $20bn infrastructure funding requirement for “essential housing developments.”

Joyce disputed the figures, saying applications for the fund would be assessed irrespective of which council they came from.

“I speak as an Auckland ratepayer. It’s important to point out that actually Auckland’s income has grown a lot in the past couple of years,” he said. “If they’d held their cost structure…at what it was two years ago, then they would be generating $0.5bn worth of money which they could use against their debt today, based on two years ago.”

Twyford - also an Auckland ratepayer - pointed to figures that 10,000 new homes were consented in Auckland last year, “adding to growing deficit of 40,000 new homes needed.” Raising his target-rate plan, he asked Joyce whether the government agreed it would help make infrastructure financing “fairer, cheaper, and most importantly, will open up the flow of finance that new housing developments desperately need?”

Auckland was “in the middle of a massive building boom,” Joyce replied, adding that where he lived in Albany, there were “a couple of thousand apartments being built around now.” On the 10,000 figure: “by any standards, more houses are being built in Auckland now than in any time since about 2004.”

Pressing, Twyford asked why the government could not pass on its ability to borrow on the international bond market for new infrastructure and spread that cost over the lifetime of an asset.

“Councils borrow money and push it out over 20 or 30 years precisely for the reasons that the member identifies so it doesn’t all fall on today’s home owners,” Joyce said.

Another issue he had with Labour’s bond plan was that “it depends very much on how it’s structured, in terms of whether the debt still ends up on the council’s [balance sheet]. There’s a thing called international accounting standards, which means if you have a debt, it ends up on your balance sheet.”

Special Purpose Vehicles

“We are actually working with Auckland council and some other councils on some opportunities around Special Purpose Vehicles,” Joyce said. Twyford was wrong if he thought “that just allowing the council to borrow the government’s money and pay it back would actually solve the issue.”

Somebody had to hold the debt, and the council had to dedicate a stream of income against that debt. “You can call it a targeted rate, but it’s still some of the rates income of the council dedicated against that debt,” Joyce said.

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17 Comments

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Where was Steven Joyce when Foreigners for years were flipping Auckland homes and repatriating their untaxed profits ?
National were happy to keep this paradigm until people power made the silly Nats listen.
National is a me first party of scammers

Typical , there is always someone who thinks money falls from the sky , can be given away with no strings attached and does not need to be accounted for on your balance sheet .

How can central government , through Treasury, simply "pass on" the Government's ability to raise money internationally ?

Can you imagine giving the powerful un-elected Auckland city executives , who don't feel they are accountable to anybody and are renowned for their profiglacy , an open cheque book to borrow and spend our our behalf ?

That would be just crazy.

>"Typical , there is always someone who thinks money falls from the sky , can be given away with no strings attached and does not need to be accounted for on your balance sheet"

National's wealthy investor-voters who want an unneeded pension despite having millions in property portfolios?

Too right!

But aside from that, you know things have gotten pretty scarily off the rails when the NZ Initiative is agreeing with Labour rather than National's status quo Jesus-take-the-wheel approach of the last nine years.

Yes just like the $2.1B of taxpayers money that "falls from the sky" into landlords pockets and subsidizes their speculation....

Meanwhile, back down in Hamilton a 12% rate rise is deemed neccesary....to fund all this new growth.
JK, Joyce and English - would fit the role of "Economic Hit Man" in that well known book by John Perkins.

So we can add Steven Joyce into the National denial camp. He and the rest of his mob must really have contempt for the intelligence of New Zealanders to think we will buy his story that National are building enough houses.

This building boom is pathetic -in Auckland it is only 6 houses per 1000 people. In Christchurch it was 12 per 1000 and Christchurch's demand shock stopped. Christchurch stopped having earthquakes. This meant the housing shortage could be filled.

Auckland demand shock is ongoing -45,000 is what the population grew by last year -that is another Whanganui. 10,000 houses is not nearly enough for that volume of people. The building rate needs to increase by another 50% or immigration needs to fall.

Steven Joyce needs to wake up. NZ has one of the most expensive housing in the world. Every credible economic outfit acknowledges this. This government for 8 years has been in denial about the housing crisis and given they have done nothing about it, any sensible voter who cares about the housing crisis should vote for someone else.

And Bill English still asks you to swallow "it's a sign of our success".

They are out of ideas.

In fact, they've been bereft of them all along.

Labour has controlled Auckland for 8 years, why don't they do something to let us build more houses?

Nothing stopping you from buying land and building a house in Auckland environs - you just may not have sealed roads, 3 waters, electricity, power, shopping centres, schools and close access to medical assistance when you need it

The problem is, Central Government receives all the money, GST, Income Taxes, Royalties, Excise on Fuel while Auckland only has rates it receives but has to cop the infrastructure burden of ever-increasing inbound migrants and travellers which is controlled by Central Government

The problem is Auckland Council is building lots of overly expensive sprawl in the middle of nowhere and is running out of money to pay for all their sprawl. Now Auckland Council want the taxpayer to pay.

Auckland Council is very happily spending billions building infrastructure around Wellsford, Warkworth, Kumeu, Orewa, Pukekohe, Clarks Beach, Beachlands. When it comes to doubling, tripling, quadrupling the size of almost any small town, no expense is too much for Auckland Council. Sure it means a lot of sprawl and lots of unnecessary duplication of services, but Auckland Council is more than willing to commit ratepayers money to waste on that job.

However should someone wish to build housing next to Auckland City. That is forbidden. To build a house on the Ardmore Flats, where someone might take advantage of the expanded motorway and the better rail services, be able to join an existing sewage network, be closer to work - this is banned until 2037 at least.

Look at Kumeu. The council is constructing wholly new services and infrastructure for free running development from Kumeu Westward. However it is forbidden to build to the East of Kumeu (closer to the city) where infrastructure would cost less and commutes would be less polluting.

Look at Dairy Flat. North of Dairy Flat Auckland Council building sprawl enough to last two lifetimes (with all the associated costs). South of Dairy Flat (closer to the city) where development could mesh with the existing busway and sewage network - forbidden.

Auckland Council could let us build where we want to build - next to Auckland. We'd have shorter commutes and our infrastructure would cost less and we'd build more houses.

Here is how Auckland Council planning operates, is the land area?
A - close to the city with a short commute distance, able to adjoin to existing infrastructure.
B - far from the city with a long commute distance, requiring an almost entirely new infrastructure build.

Select accordingly. When run out of money, blame immigrants.

Have you tried to build a house ???

Did you vote in the last local body election ???

NZ has been one of the best performers in OECD countries since the GFC, what would people expect more from that, if Labour was in power in last 8 years we would end up like Greece. We need more investment, more pro-business policies to make NZ prosperity again as we was in 1970s. Do not worry too much about (sustainale) debt, borrowing is a leverage for economic growth. The rich love debts, the poor hate debts.

Best performers in what field? Certainly not GDP as the increase is only because we've been letting in tens of thousands of immigrants and had a building boom in Christchurch since the February earthquake. Not GDP per capita as that is virtually stagnant. Not quality of life, not happiness, not wage growth, not prosperity, not productivity....

We've only been spared much of the shock of the GFC because our economy is tiny compared to ones like Australia, the U.S., China and so on, and because our debt levels are much lower. In fact, you could argue NZ's GFC hasn't even happened yet. Since interest rates plummeted in 2007 to 2009, every man and his dog loaded themselves up with debt to buy houses. As soon as interest rates rise enough again and people are slowly unable to service their mortgages, mortgagee sales will start to happen and lots of investors will be underwater with negative equity.

I agree wildcard, but wish to add that we have deferred the GFC, we haven't been spared it.
We deferred it by selling much of our productive industry and called it investment.
We deferred it by selling our housing that we now rent from foreign owners and called it investment.
We deferred it buy allowing record numbers of immigrants to move to NZ, yes they did bring foreign currency with them, but they haven't increased our export earnings which have actually gone down and we now have a 100 billion dollar deficit of money needed to build infrastructure for all this new population of people.
The enlarged population means more people to be supported by our dwindling export earnings. A country is a business and can only purchase cars, computers and oil etc to the value of what it exports. Countries like Sudan that don't export anything don't get sold anything.
We were not spared the Global Financial Crisis by the brilliance of our politicians. We have merely deferred it and depleted our resources by adding more people. When we stop the growth formula by choice or by losing the quality of life that attracts the immigrants, then the bubble will burst and the ponzi scheme within, will be all so obvious.

I'm confused by your post "Jimmy". Ending up like "Greece" is caused by running up huge public debt.

Labour ran surpluses all through their previous nine years in government, invested them responsibly and paid down public debt to almost nothing. They did a good job there.

National to the contrary have run large deficits most of their time in government and have only managed the illusion of economic growth by mass immigration. Under National GDP per capita has been going nowhere while quality of life has been falling and the young are kicked in the guts.

Your post is nonsense and judging by the poor spelling and grammar I question whether you even lived in New Zealand when we had a Labour government.