By Alex Tarrant
Lower land prices up front, but higher ongoing rates payments for essential infrastructure. Will that reduce the overall price of housing?
That’s the question Prime Minister Bill English says the government is looking for an answer to as it embarks on its targeted rates experiments to the North and South of Auckland.
Finance Minister Steven Joyce and Local Government Minister Anne Tolley on Sunday announced the creation of a Crown infrastructure financing company that would invest in special purpose vehicles alongside private interests to fund key trunk infrastructure like roads and water pipes to open up land for new housing development.
The government and investors will earn a return from residents paying “targeted rates” on that infrastructure – essentially a user-pays way of funding roads and water pipes over a period of time.
It sounds like a great plan. There is a problem though: these targeted rates bills are expected to come in higher than the typical rates bills we’re used to. That’s right, we don’t effectively pay full price for the infrastructure we use. (Or some pay more, some less).
For example, Watercare’s Infrastructure Growth Charges do not recover the full costs of growth (ie new pipes for new housing). Particularly if the pipes are to the wops. That’s where these new North and South Auckland houses will be (no offence). The story might be different if we were talking about densification, but it’s an election year, so that’s a no go in Auckland right now.
The government has in recent months stepped up the rhetoric on making Auckland land markets much more competitive. Steven Joyce last week even said he wanted section prices there to become much more reasonable.
Previous announcements regarding the new Auckland plan, RMA reform the Housing Infrastructure Fund were backed up Sunday by the creation of this new infrastructure company. The broad idea is to make the price of land cheaper by opening up much more land for development (or densification).
But will that feed through to lower house prices? English and co. are being a bit cagey on that front right now.
“I would expect that looking ahead, if the policies are right, then you’ll tend to see land being less expensive, but there being a bit more paid for marginal infrastructure,” the PM said at his post-Cabinet press conference on Monday.
“Overall, whether that means the overall price of housing stays the same or goes down is, I think, yet to be seen. But clearly, better regulation of our land markets and more competitive land markets, are going to tend to take the pressure off the price of land,” he said.
“This vehicle, alongside the Housing Infrastructure Fund, are important elements in creating more competitive land markets, which would in time, with better regulation, lead to, on average, lower land prices.”
The government would be testing how much land values might fall, and how much that would be offset by higher infrastructure costs. “But these are, I think, steps in the right direction,” English said.
“We’ll get to test [whether land values would fall more than infrastructure costs rise] as the market realises there’s greater availability of finance, and that the usual bottlenecks, such as council debt ceilings, which have helped underpin higher land prices, are gradually being freed up.”
And so the great experiment begins.