Bernard Hickey calls on Auckland to adopt targeted rates and look at selling its Port operating company, while Wellington should allow congestion charging and multiply its infrastructure fund for a huge and needed road, pipe and house building programme

Bernard Hickey calls on Auckland to adopt targeted rates and look at selling its Port operating company, while Wellington should allow congestion charging and multiply its infrastructure fund for a huge and needed road, pipe and house building programme

By Bernard Hickey

Not that any more urgency should be needed, but a quick look at this week's new population projections should give new Auckland Mayor Phil Goff and his Council a sobering reminder of the massive task ahead of them.

Somehow, Auckland and Wellington must reconfigure the way they finance the massive infrastructure spending needed to house and transport at least 2.2 million people in Auckland by the early 2040s because business as usual won't cut it.

Assuming the new Mayor sticks to his promise of increasing rates by an average of 2.5% per year, the Council will have to work with the central Government and its ratepayers to find new ways to pay for the roads, railways and pipes to service that new population growth and catch up on the existing shortages. A whole new set of tough conversations will be needed to find ways to raise and spend tens of billions of dollars over the decade or two to come. That's because many under-estimate the enormity of the problem.

Statistics New Zealand published a fresh set of national population forecasts after recording the fastest population growth rate since the early 1960s over the last year. Record high net migration of 69,100 and natural population growth of 27,900 increased New Zealand's population by 2.1% to 4.7 million in the year to June 30, with the bulk of that growth in Auckland.

The statisticians projected that New Zealand's population could rise to 5.5 million within 12 years if net migration was double the long term average of 15,000 per year. The risk is that net migration is even higher than that, given the structurally higher demand for international education and tourism from hundreds of millions of new middle class families in China and India, which is currently driving the temporary work and student visas pushing up migration. And then there's the increasing risk of rush of net migration over the next decade as expat Kiwis return home from an increasingly migrant-averse Australia and Britain, and more importantly, fewer New Zealanders here are able or want to leave to work there.

The Council and the Government should actually be planning for structurally higher level of population growth, and be working much more aggressively to deal with the shortfalls that have built up over the last decade. MBIE estimated earlier this year that housing supply was currently falling short of demand by around 8,000 a year and the shortage built up since 2009 was already over 30,000.

All those extra houses and the roads and public transport needed to service them will cost money that is currently not being raised through traditional rates and can't be raised through new debt issues. The Council is close to its limits that would allow it to keep its AA credit rating and can't easily accept a lower credit rating without both increasing rates for Aucklanders and for ratepayers everywhere else in New Zealand. That's because a credit rating downgrade for Auckland would most likely cascade on through with lower ratings for other councils. It might even endanger New Zealand's AA+ sovereign credit rating, which would mean higher borrowing costs for taxpayers and mortgage borrowers in general.

So that brings us all back to those tough conversations. One option that will be considered by Council is to levy targeted rates on new growth areas, which mean the new residents in those areas pay a 'premium' of sorts on top of their regular rates. This would help pay for the new infrastructure needed under and to those houses, and provide an extra incentive for land bankers to become land developers. It would reduce the political pain of ratepayers in established areas having to all pay higher rates for developments in other parts of the city. It would also reduce the big upfront costs of development contributions that often stymie or delay developments, and are pumped into the purchase price of new homes immediately.

Then there's the thorny issue of asset sales. Mr Goff has ruled out selling the Council's 22.4% stake in the airport or the Port of Auckland. But what if the Council could retain the land under the port for future development and instead sell the Port Operating Company with a 50 year lease, which would allow Aucklanders to control how that land was developed and re-developed.

The other player who should come to the party is the Government. It should allow Auckland to move ahead with congestion charging much faster than the current talk of a decade-long talk fest on the never never. It should also significantly increase the NZ$1 billion Housing Infrastructure Fund. A doubling or trebling each year for the new few years would start to touch the sides. Wellington should also look at using the very ample National Land Transport Fund, which is collected from fuel taxes, to help pay for the extra roads and public transport desperately needed to keep Auckland moving and repair some of those seams that bursting.

Auckland and Wellington have a massive funding juggling act ahead of them to deliver the concrete and tarmac and pipes needed for those 2.2 million plus residents within 20 years or so. Now is the time to grab a few new funding tools and put them up in the air to see which ones work because business as usual is not working.  


A version of this article also appears in the Herald on Sunday. It is here with permission.

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Assuming the new Mayor sticks to his promise of increasing rates by an average of 2.5% per year, the Council will have to work with the central Government and its ratepayers to find new ways to pay for the roads, railways and pipes to service that new population growth and catch up on the existing shortages. A whole new set of tough conversations will be needed to find ways to raise and spend tens of billions of dollars over the decade or two to come. That's because many under-estimate the enormity of the problem.

All English speaking countries have relentlessly twisted the real issues, but none more so than the USA. The country underwriting the current status of the so called reserve currency system which underpins the value of our deriviative NZD and the cost of money.

Frankly, all that which you lament is not affordable under the current economic ideology which prevails within our society.

Prior to Greenspan and his cronies getting their grubby little non-callused academic hands on it in the 1980s, CPI reflected measuring the cost of maintaining a constant standard of living, as measured by a fixed-basket of goods. The purpose of all these adjustments and calculations has been to systematically repress the reported level of inflation as a way to keep the Social Security system solvent, allow the Federal Reserve to keep interest rates falsely lower for their banking cartel owners and the biggest debtor on the planet – the U.S. government, and to conceal from the average American how far their standard of living has fallen. It ain’t working.

The average household might not know real median household income is at the same level it was in 1989, but they know they are treading water on a daily basis – using credit cards to sustain themselves while paying 15% interest to the Wall Street banking cartel.

They know their wages are stagnant and their every day costs relentlessly rise. Real hourly wages, using the fake CPI, are up just 1.4% in the past year. In reality, using an accurate measure of inflation, real wages are falling. The government can tell them inflation is only up 1.5% in the last year, but they know better. Their real everyday inflation is north of 4%, as measured before the 1990 coverup began. Now, even the BLS is starting to lose control of the narrative of no inflation. Read more

New Zealand remains a visible echo chamber of the unacceptable, but studious indifference to the plight of the US majority.

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How about just fix the source of the problem and cut immigration to a level that can be adsorbed. or heres a radical idea make every new immigrant pay 100K to settle in Auckland to cover there costs. some countries already do this

How is a chef or a tour guide going to afford that? ;-)

Maybe they can't, noncents old thing, maybe they can't. Maybe that's the point being made.

Exactly. I was being a bit tounge in cheek.

Oh. Silly me.

Yes, that is the reality, they can't afford to come here if we don't subsidize them.
Reduce immigration to 15,000 and choose quality immigrants.
No more oldies. No more people with minimum qualifications.
The experiment was a failure. It will take 30 years for the infrastructure to catch up to the population growth and even longer to pay for it. Enough is enough!

Our government is now being faced with another consequence of its out of control migration and the inequalities it brings with it - you want your children to get an education - don't settle in Auckland

Many years ago, if one wanted to migrate to New Zealand, they had to have a sponsor, usually a family member or an employer who effectively guaranteed they migrant would have a place to live - they would be a burden on the resident family

One has to wonder where these 4,000 new arrivals into Auckland each and every month are going, where are they staying

Are they just being tipped into Auckland without any thought ?

Just 2 months ago it was suggested here on interest.co.nz that soon, if it isn't happening already, AKL based businesses that are bleating out for never-ending flow of (skilled) migrants will have to subsidise their living costs if they want to get them to stay

I liked the NZ Initiative idea from a while back that GST on construction materials goes to local government or some local infrastructure providing agency rather than being sucked up into the consolidated fund.

A big problem in NZ is the fiscal benefits of growth from immigration etc goes to central government but the costs go to local government.

This proposal would even out some of this imbalance.

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If the amount of infrastructure and services that is required for sustainable growth cannot be funded, then you have to question if we are growing too fast.

Wellington needs to address the issue of migration driven rapid population growth. With NZ population growth rates currently similar to developing countries, such as Pakistan, is it any surprise things are getting out of hand. Instead of reducing PR approvals by an arbitrary ~5%, central govt should have been bold and reduced by 50%. I always thought that the social contract with NZers was that when outward migration of NZ citizens ceased (as has happened now) that there would be a corresponding reduction in PR approvals as the current target of ~45000 pa was brought in to counter the mass outward migration of NZ citizens that began 30 odd years ago. I suspect that pattern may have turned possibly permanently.

The Chinafication of NZ undertaken [ Frgament edited. You know better. Absolutely no personal insults of anyone. Criticise ideas and policies, but leave the personal stuff out. Ed] is an absolute disaster for NZ - just read this article about the dodgy Chinese materials, lack of build quality, unlicensed builders etc building a pile of crap in Auckland - what hapened to Nick Smith - seems to have gone very quiet of late - read this disastrous story http://i.stuff.co.nz/business/industries/85508913/opportunist-builders-d...

Substandard Chinese steel, electrical components, safety glass logos on glass that is not NZ standard, unlicensed Chinese builders, electricians, plumbers, drainlayers - its an unmitigated disaster.

Such a farce.

If you are looking at buying a new home ask if there was any Chinese labour used, were they LBP's and are any of the steel, glass or electrical/plumbing components imported from China and do they meet BRANZ standards

Even NZ companies have jumped onto the bandwagon using Chinese sourced product.

"Mr builder did you use any Alibaba sourced products in this house, did you remove any steel beams and replace with timber after the building inspector left and did you remove the insulation after the inspector left and before the gib board was fixed?"

have seen this with my own eyes, insulation was taken to another house did not even put in the walls they just had lying their ready to install when the inspector visited,
indian property developer and maori builders so I guess it is money that talks not race.
the family that brought the house forever have the aircon guys in trying to fix it every other week

Doubt very much that ant building inspector would pass an inspection without seeing the insulation in place?
Why didn't you pot the building inspector if he was not competent and breaking the law?

didn't cotton on until much later.
the whole buy the property, develop and sell was all done without going public, all nod and wink stuff.
if they decide to sell and advertise to the public then if a buyer wants to ask I would tell him to check it out.
by the by when they rewired the front house they cut corners, other neighbor who is a sparky was surprised how they got the work passed.
I would suggest anyone buying a reno or newbuild get an experienced builder to inspect, a few hundred up front can save thousands

When buying a new house ask for one section of gib to be removed to check that the batts were left in!

We need a complete overhaul of competition, regulatory approval for new products and training of tradies in the construction industry.

We know there has been a cosy cartel in building supply products so is it any surprise that people try to bypass that. What we need is tighter regulations that encourages more competition. Like every product must be approved, but an approval from another approved counfry is ok. US Canadian or Japanese being three countries exposed to earhquake risks and with good reputations that could be ok.

I see Phil Goff isn't wasting any time pissing the money Auckland hasn't got on some stupid sports stadium. Oh Dear!
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1173...

the only part of this I agree with is. we need to start talking about it.
as for moving to town why? that is an expensive option
you could move it to wiri by the airport,bytwo motorways and by the rail which you could run a line to and industrial so no noise problem. they already own the land and plenty of it
http://www.aucklandcouncil.govt.nz/en/newseventsculture/ourauckland/news...
as for bars and places to eat, plenty on the airport
or heres another use the money buy the houses around eden park demolish them and build a mix of retail and apartment blocks

What a great idea. Get the Auckland rate payer to pay the cost of Govt policy that encourages mass immigration to lift the economy. What could be fairer than that.

Well, if New Zealand can't afford immigration-fueled population growth, maybe New Zealand should stop doing immigration-fueled population growth.

Or bring Auckland into the LGFA so it can piggy-back off the superior credit ratings of the likes of Buller, East Cape, etc.

ACC already in;

http://www.lgfa.co.nz/about-lgfa/governance/lgfa-shareholders

If they go broke - the whole lot share the debt burden.

I would have thought that the obvious and sensible thing to do is sell Water Care Services to Vector. Their balance sheet is looking healthy after the sale of some of it's gas assets. As a result of such a deal the Auckland regional services trust would still own 80% of it. The citizens would still benefit through any dividend that resulted and it would tie up the asset so that no future, less loyal council could sell it overseas.

Auckland a 3rd World sh!thole due to population explosion in 3, 2....

TFT - we are probably there already - notice all the headlines about AKL traffic jam s in the last month and that is before all the building plans are activated to "get traffic moving again" (by 2030)

Tim, you might enjoy this peak into Auckland's future:
THE YEAR IS 2030. Forget about the flying cars, robot maids, and moving sidewalks we were promised. They’re not happening. But that doesn’t mean the future is a total unknown.

According to a startling Pentagon video obtained by The Intercept, the future of global cities will be an amalgam of the settings of “Escape from New York” and “Robocop” — with dashes of the “Warriors” and “Divergent” thrown in. It will be a world of Robert Kaplan-esque urban hellscapes — brutal and anarchic supercities filled with gangs of youth-gone-wild, a restive underclass, criminal syndicates, and bands of malicious hackers. https://theintercept.com/2016/10/13/pentagon-video-warns-of-unavoidable-...

We are already on our way to doing just that

Elysium

Get in while you still can! Somehow it seems more powerful in German.

What I can't understand with this funding problem is; if the average Aucklander can afford to pay a million dollars for a roof over their heads why can't they pay an extra $5k or so on the annual rates bill - 5 thousandths of it's value? Even in struggling provincial towns and a house on municipal sewage the rates bill will be $2,000 for a house worth $150K - 13.5 thousandths . Now why should that person, by way of central government taxes, be expected to help fund Aucklands problems. A big fat NO to any central gov help for Auckland!