Budget document shows first $200m from govt's flagship $1bn Housing Infrastructure Fund expected to be paid out...in the year to June 2019, and only $600m to be lent by June 2021

By Alex Tarrant

The government’s flagship $1bn Housing Infrastructure Fund is set to only fork out its first $200m to ‘fast-growing’ councils sometime during the year to June 2019, according to Treasury's Budget forecasts.

And only $600m of the fund is forecast to have been lent out by the government by 30 June 2021, the Budget Economic and Fiscal Update (BEFU) shows. This will leave $400m to just be “allocated in subsequent years,” sometime after that.

But that won’t stop the government from making announcements later this year on where the funding might go, although Prime Minister Bill English said Monday that he wouldn’t want to raise too many expectations for the next few months.

The fund was approved by Cabinet in June 2016, and launched that July to much fanfare regarding its intention to encourage councils to bring forward infrastructure projects that would help boost the supply of housing.

This Cabinet paper shows targets are primarily transport and ground-infrastructure projects that are planned, but for which councils say they are struggling to find funding for. The intention is government financing support will allow councils to bring construction forward in time.

As reported, possible examples include government funding for the planned Penlink road in Auckland or adding bridges to Hamilton’s road/highway network that could allow for better access to vacant land.

Roadblocks

But the fund has been hit with a number of setbacks since being announced.

The first was councils baulked at having to attribute borrowings from the fund as debt on balance sheet. They’ve argued they won’t be able to do so because of their own self-imposed debt limits and reluctance to take credit ratings cuts from S&P, Moody’s and Fitch.

After some to-ing and fro-ing, the government agreed to consider lending the funds via special purpose vehicles, which could allow the debt to be off-balance sheet. These negotiations aren’t over yet, though.

At his Monday afternoon post-Cabinet press conference, Prime Minister Bill English quipped about Auckland Council’s own “rigid” debt limits, rowing back on a comment that the council didn't have room to take on more debt. He hinted the council might over time be required to shift on this, and also said that changes in legislation might be required at central government level, although not before the 23 September election.

Second, Ministers and officials had to send back many initial submissions, with some councils having thought they could just ask for funding to incorporate into their long-term plans.

In February, Finance Minister Steven Joyce said: “Only a small number of the 17 proposals received through the expressions of interest phase would result in projects being advanced earlier than previously planned by the councils.”

English on Monday said initial discussions with councils indicated they didn’t in fact have any well-prepared projects that were only waiting on funding. There were now “constructive discussions” to better understand “what roads and pipes are actually required to bring forward housing supply,” he said.

The government had called for final HIF submissions by 31 March this year. The Budget update last week stated that, “in principal,” officials would have recommendations for Ministers on which projects to fund through the HIF by late June 2017.

“Final negotiations” would then take place “on amounts and terms of the loans continuing with councils until end-2017,” it says in the BEFU.

The uncertainties thrown up by the process to date has led Treasury to warn of “additional fiscal risks” surrounding the HIF in the Budget last week. These include uncertainties relating to:

“The value of the bids that meet the criteria, the split between capital and operating spending, whether or not the full amount of the fund will be repaid to the Crown, and; the timing of repayments of those amounts that are to be repaid.”

There’s another minor sting in the tail, due to the time it might take for the government to actually lend the money to councils. Given the $1bn fund was announced in July 2016, accounting for Treasury’s own expectations for CPI inflation in the years to June 2017, 2018 and 2019, it will only be worth $950m by June 2019 at mid-2016 prices.

And that’s being conservative – construction costs are expected to rise at a greater rate than the general level of prices as they have been doing in recent years.