Huge News On Developer Contributions (1)

Update and clarification: Tauranga has two different development contributions, one by the land developer, and another by whoever builds the house.

The council is allowed to charge the land developer 100% of the growth infrastructure costs which means that the section price has already paid for growth. This reduces the cost of bare land because the developer has to take all of the costs off what the section can sell for. Tauranga has only charged 40% to the land developer (reducing to 20%). The remaining 60% (increasing to 80%) is made up by also charging the house builder a development contribution which is added to building consent fees, using rates income, and by increasing debt. This means that the bare land owner makes more profit and more costs are put onto the house owners and ratepayers. Often the bare land owner is also the land developer.

We have some good news for the ratepayers. Not such good news for developers.

For years Tauranga City Council has undercharged developers for contributions towards growth. The council is entitled to charge developers 100% of the costs of growth infrastructure. Instead, council has only charged the developers 40%. The remaining 60% has been paid by building charges to people building houses, rates, and debt. Under the current long term plan, the commissioners have reduced the developer contribution to 20%. We pay the other 80%.

The council may have also been fudging the growth costs. There are three categories of capital cost: growth, level of service, and replacement. Growth is what is required for new developments, either on new land or as infill. Level of service relates to improvements to provide better infrastructure. Replacement is replacing old infrastructure with new infrastructure.

New infrastructure is often a mix of all three categories (growth, level of service and replacement), so there is a large element of judgement in apportioning costs between each. Misapportioning costs can also reduce developer contributions.

Housing Minister Chris Bishop has just announced changes to the way growth is funded (RNZ).

A regulator will be set up to govern new pre-set levies – replacing ‘Development Contributions’ that currently don’t allow councils to recover the full costs of associated infrastructure.

Ratepayers have been left picking up the bill instead of the beneficiaries of the infrastructure, Bishop said.

“Put simply, you can’t have housing without land, water, transport, and other community infrastructure. It’s a package,” he said.

So hopefully the days of Tauranga ratepayers subsidising the developers will sooner or later be over. Fantastic news for ratepayers. This is an area which the council has refused to address for years, and it is essential to control council costs and rates increases. There has been absolutely ZERO desire by the current elected members (bar one or two) to address this. So now the government is addressing it on our behalf, and over the top of the heads of our developer friendly council.

Developer subsidies are a major factor in our massive rates increases, and our massive council debt. It has reached a point now where the subsidies are actually slowing housing growth because of the massive costs imposed on the council, home builders, and ratepayers. Cutting the subsidies is part of getting more houses built, lowering housing costs, reducing rates increases, and reducing debt. Adversely, it will reduce developer profits. For those who are concerned with developer well being, we could always setup a GoFundMe page for the developers.

Chris Bishop has proposed announced five key changes to infrastructure funding:

• The first is replacing Development Contributions with a Development Levy System
• The second is establishing regulatory oversight of Development Levies to ensure charges are fair and appropriate
• The third is increasing the flexibility of targeted rates
• The fourth is improving the Infrastructure Funding and Financing Act, and
• The fifth is broadening existing tools to support value capture

It is too early to have a party, but if we could persuade our elected members to take a similar ratepayer friendly approach on other council matters, we would all be better off.

This is a scam that has been running for decades so it will good to see it stop. We just need to sort out all the other council scams. The council organisation needs a deep restructure. Shonky council process, like procurement, need to be fixed. Spending priorities need to be changed. Elected members and council staff need to be held accountable.

This move has taken growth costs out of the hands of council. Now, hopefully, the developers will pay 100%, and we will pay 0%. About time.