Phil Twyford hopes new legislation will make it easier for the cost of infrastructure in new suburbs to be covered by homeowners; an arrangement Crown Infrastructure Partners says is proving difficult to pull off beyond an Auckland development

Phil Twyford hopes new legislation will make it easier for the cost of infrastructure in new suburbs to be covered by homeowners; an arrangement Crown Infrastructure Partners says is proving difficult to pull off beyond an Auckland development
Picture of Milldale taken from CIP's annual report

Crown Infrastructure Partners (CIP) says it’s proving difficult to roll out an infrastructure financing model being pioneered in northern Auckland in other parts of the country.

The model sees people who buy properties at the new Milldale development in Wainui contribute towards the cost of roading and wastewater infrastructure in the area by paying a levy for 30 years.

Homeowners will pay $1000 a year, and apartment owners $650. The levy will be hiked by 2.5% a year.

Ultimately, owners of 4000 properties will help pay for the $91 million of infrastructure necessary to support their subdivision and 5000 other properties in the area. 

Rather than the debt going on Auckland Council’s books, it will rest largely with a Special Purpose Vehicle set up by CIP (which is a crown-owned company).

CIP has raised $45.2 million of 35-year long-term debt from the Accident Compensation Corporate (ACC) at a fixed interest rate. It will also make a $3.7 million equity investment, while Auckland Council will contribute $33.5 million. The remainder of the costs will be covered by the developer, Fulton Hogan.

Bundling smaller projects a solution - albeit more complex

CIP is engaging with councils in high-growth areas like Tauranga, Hamilton and Queenstown to see if there are other bulk housing projects that could benefit from the model.

However CIP CEO, Graham Mitchell, told interest.co.nz these weren’t “quite as straight-forward”.

Not only does Milldale have the scale necessary to make raising debt economic, but it also only has one major developer, which reduces the complexity of all the contractual arrangements involved.

Mitchell said CIP was therefore looking at how smaller projects could be bundled together and debt raised for the package.

“If you had five developers doing 500 homes, in five different places, that’s 2,500 homes. Then that makes it a good package to go to capital markets with. If you went to capital markets with 500, it might be suboptimal to raise the money,” he explained.

Will legislation help?

Urban Development Minister Phil Twyford hopes to introduce a Bill to Parliament before the end of the year that will make it easier for the Milldale model to be replicated elsewhere.

He told interest.co.nz the aim was for the legislation to give developers a framework they could use, and cut out some of the red tape involved - especially when more than one developer is involved.

He said councils in high growth areas were keen on the concept; it ultimately taking debt to finance infrastructure off their books.

Twyford also maintained there were developments well-suited to the model, including at Rotokauri in Hamilton and Tauriko in Tauranga.

Mitchell wouldn’t be drawn on the specifics around how a law change could be helpful.

“No matter whether you go to a legislative model, or you go to a commercial model, the key challenge is - can you raise the money for it long term? And will people buy a house if it has an additional levy on it that looks like a targeted rate, but isn’t?” he said.

Mitchell admitted there were sceptics unsure of whether the model would work in Milldale, as it does in the likes of the US.

He believed progress at Milldale “significantly opens the conversation with other developers”, who ultimately want to be able to take land to market without being stymied by infrastructure costs.

He said at least 160 to 200 plots of land have been sold at Milldale, where house building is underway.

CORRECTION: The original piece incorrectly said 9000 properties will be levied. Only 4000 properties in the Milldale development will be levied, although the infrastructure funded by levies will help support an additional 5000 properties in the wider Wainui area.   

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"Homeowners will pay $1000 a year etc ". Perfect! And they only pay for that time that they are resident there. Live there for 1 year - pay $1,000; live there for 15, pay $15,000 plus the scheduled increase. That way the first owner doesn't have to pay the whole cost of the utilities (that last a lifetime and are used by many subsequent owners), and have the total cost incorporated into the initial purchase price. The first buyer will pay less for an identical property to that which they would otherwise pay for using today's front-loading system.
I see no reason that smaller developments can't access this model in due course as it's just a rebate of upfront costs amortised by a Crown Body over time.

This transfer cost model may have worked in the boom times; just has leasehold did (Aid and abated by ignorant purchasers and poor valuation advisors), however when you have competing product that don't have these additional outgoings, there is naturally going to have to be a price concession; and the land banksters wont like that.

The transfer cost model has finally caught up with these land banksters; thank goodness, as growth Councils can no longer fund the present cost model that has seen transferring the cost escalation risk away from these developers.

although of course a traditional development contribution would only equate with what the costs are with the long term demands on infrastructure being reflected in rates. In fact the list of what can be included in development contributions has been subject to significant legal challenge in the past and has ended up with a very limited list - from memory excluding libraries for instance.

"Ultimately, owners of 9000 properties will help pay for the $91 million of infrastructure necessary to support their subdivision."

Thats $10K per site - and 30 years at $1000/yr is $30K. Something is not right?

Roger the lodger, we will need to form a committee/may be a new CCO to answer this one. i will push to have the committee formed by Xmas.

... and if you include the annual levy hike of 2.5 % per annum ... the levy will raise well over $ 300 million across 30 years ... $ 90 million accruing to the actual cost of the infrastructure...

$ 200 m. into the pockets of backers , promoters , wide boys & spruikers ... middlemen... ticket clippers... the council... yadda yadda ...

And this is for the 'infrastructure' that is not within the subdivision.

How do you define that?

... that's why I think infrastructure needs to be a crown issue ... 'cos councils struggle with the funding ... and this CIP approach appears bureaucraticly expensive , and not entirely " fair " in its reach and accuracy ...

Someone, somewhere will have done the sums. ( I know. That doesn't inspire confidence!). But it's in the interests of the Council to get this one away successfully.

The homeowners will “help” cover the cost of the infrastructure. Not pay for all of it. Hope that makes sense. 

The grandparent commenter says the homeowners are paying three times *more* than the cost of infrastructure, not less.

Interest shouldn't explain that, because they're really paying $1000 in "today-dollars" a year when you account for the ramp-up (to more than $6k/annum 30 years from now.)

So for them to charge these amounts budgets must have been done for total infrastructure costs.

Have you seen what this is?

Otherwise they are just pulling figures out of the air?

If I recall, Tauriko in Tauranga was supposed to be standalone on quite a bit of its infrastructure such as sewerage and possibly potable water too but the Tauranga City Council wouldn't allow it and insisted they plug into the city network which created all sorts of expense, especially when the development went bankrupt post GFC. Its been rebooted under another developer and has regained its momentum but I think TCC is on the hook for quite a bit already...and thats before you mention Bella Vista Homes....

Not sure where you got your information from.

Its a deliberate twist propaganda, in an attempt to socialise the (poorly budgeted) costs to Tauranga wider ratepayers. The sweat deals Tauranga City Council has given to these large scale land developers over the years explains the sad current state of its Balance Sheet.

Past and some present Councillors should be hanging their head in shame; including the yes Councillor executive that work for them.

Thanks for that heads up, I was talking about the original development that was called 'The Lakes' but morphed into Tauriko etal...so is the current 'Tauriko' the land Bob Clarkson tried to develop north of the highway or have the owners of the 'Jack Shaw' landfill south of the highway finally put enough dirt ontop of all the asbestos dumped there too enable a few houses to be built on top?

It is now with Classic Builders. "Tauriko West" needs a plan change before it can go ahead with the 3000ish houses anticipated. State Highway infrastructure is main constraint now.

Clarksons old farm?

. Why is it that in NZ we introduce multiple layers of complexity and bureaucracy to everything we do . .

.. at every turn there is a middleman or department clipping the ticket... billing us unnecessarily ... adding tiers of red tape for the sake of keeping some unemployable shiny bummed officious twat in a job ... and with a brass name plaque on his anointed desk .. SIGH ! ..

. .. wouldn't it be so much simpler if the government just introduced a nominal land tax... and used the $ billions collected annually for infrastructure projects and upgrades around the country..
.
No bundling of projects into CIPs ... no more creation of bureaucrats and hangers on ... no more middle men clipping the ticket : go the direct route thru central Gumnut ....

... land tax - Gunmut - infrastructure ...

Or a permanent residency contribution payment of $100k+ per person or family. If 10% of the 9000 new homes are new residents, they will have completely funded the infrastructure costs for the whole subdivision.

Not unrealistic if you judge by what Indian's have paid agents to get them into NZ as pseudo-students or those tragic Vietnamese paid to be smuggled into England and suffocated en route. Could easily be paid by the employers who employ immigrants to dodge the cost of training Kiwis.
Since all governments have proved themselves unable to build sufficient residential property either we need to charge the immigrants or alternatively use our taxes to persuade Kiwis to emigrate.

Simpler, sure, but this scheme is very non-distortionary and far more accountable than alternatives. I think new infrastructure should be paid for by new developments, and so should the upkeep of that infrastructure.

Intensive development has lower cost to add supporting utilities than sprawl. Less pipe per unit, both because pipes are shorter, and because slightly fatter pipes carry much more water. Having developers (and so homeowners) bear that cost means the market can trade off that efficiency against people's desires for back yards. (A land-tax is imperfect here. A high-rise is more burdensome than flats on an equivalent parcel.)

With the government handling it there's also little accountability. Projects that wouldn't make sense because of infrastructure cost can be done because it's a drop in the bucket in the overall budget. Just get everyone else to pay a few bucks more.

It would. That money would be used for infrastructure inside the country and recirculate through the economy rather than flowing out overseas as interest-based profit for foreign owned banks.

They're right about the price!
https://www.trademe.co.nz/property/house-and-land/auction-2163766585.htm...

Anyone paying a $1M for a something this ugly on a 320m2 section in the middle of nowhere would have to be on drugs.. Plus another $1000 a year.

There's your housing crisis right there. Why do the stupid NZ public put up with this?

Roger ... in most parts of the world a cool $ million gets you quite alot of property... something big , bold ... with pizzazz .... a killer view...

... here .... here we get butt pug ugly box on a postage stamp next to others equally dreary ... and the view is more of the same.... Crazy !

In Long Bay you pay near this for just the postage stamp.

https://www.bayleys.co.nz/1330663

The issue is zoning for the 'compact city' . The Long Bay prices are super high because the council managed to stop them making 1000 more sections.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=120...

Blame Chris Darby and his precious RUB.

"Darby said the decision was "a massive win for the council and the Unitary Plan. It is further evidence that Auckland Council will strongly defend the Rural Urban Boundary and a second, notable win for the city, protecting the 'green lungs' of Auckland and ensuring that we retain breathing space beyond the city limits for people and nature."

Yeah, the "Darby Plan" is for Auckland to be a city with massive exurban growths. Building of housing close the existing city is forbidden. Large exurbs miles away in the middle of nowhere are the go.

Auckland Council portrays adding a pointless 2-3 million km per day commuting as good for the environment.

You know what would actually spur development and pressurise landholders to be more efficient and productive with their landholdings? If the infrastructure was funded by property rates levied against land values.

Yes. Rating land value not land plus improvement value increases the holding cost for property which has un-utilised amenity value and decreases its marginal build cost. It encourages land be used productively rather than speculatively.

Remember these infrastructure costs they are talking about have nothing to do with the infrastructure within the development.

They are for the 'extra' infrastructure offsite which in many cases could be aged infrastructure that was needing replaced regardless of any new addition.

Ie the newbies have to pay for the oldies as well.

This has rort written all over it.

Yup ! .. this CIP approach leaves homeowners vulnerable to being ripped off on a grand scale ...