Who will pay the massive bill to make housing affordable?
By Richard Harman (author)
Urban Development Minister Phil Twyford is about to ramp up Government plans to change the face of our inner cities, particularly Auckland.
But the Government obviously realises it can only do so much and is now calling on the private sector to join it as it starts to build the housing and the infrastructure that will be needed to support it.
Within the next few weeks, Twyford expects to unveil the details of his promised Urban Development Authority.
The Authority will have the powers to procure so-called “brownfields” (or already built-on) land in cities; demolish what is there and replace it with more intensive housing.
The proposal is central to the Government’s promise to make housing more affordable.
And his colleague, Nanaia Mahuta gave a strong hint that the Government will be looking to the private sector to help with a multi billion dollar bill to restructure the country’s water and sewage systems as they are upgraded to meet new environmental standards.
Twyford outlined his proposals to Infrastructure New Zealand’s “Building Nations” conference in Auckland yesterday.
"It (the Authority) is designed to crack one of the problems that we have got, and that is our relative inability to date to undertake large-scale second-generation urban growth," he said.
He said most of our towns and cities operated under a 1950s model of incremental expansion of one street and a suburb at a time.*/
"We have to work at pace and at scale, and we have to work out how to do density well, and we have to be able to do large scale brown and grey fields developments.
“They are too complex and too uncertain for the private sector to do on their own.
“And that is why we are setting up a powerful new agency that will have all of the funding, financing, zoning, consenting, planning and infrastructure tools that currently only local government has.
"The Urban Development Authority will be a powerful new central government agency, but it will be tooled up to partner at the local level with Councils, iwi and private investors to build whole new communities; not just subdivisions, not just houses but whole new communities with all the things that people need; great transport connections, good urban design, open spaces, civic amenities, retail, access to jobs; all those things.”
Twyford said the first example might be the 30 hectares that the Government has purchased in Mt Albert from the Unitec campus.
His idea is plainly modelled on the success of the Hobsonville Land Corporation which is a Government-owned developed agency which developed former Defence land in Auckland's upper harbour into a mix of social, affordable and market housing.
But there was an ominous warning about affordability to the conference from the Hobsonville Land Company's general manager of Masterplanning and Placemaking, Katja Leitz.
“In the absence of loads of funding to make housing more affordable, the best thing we can do is build smaller homes,” she said.
“The only way we can do that is if we are building at high density.”
However, though Twyford was promoting his Urban Development Authority, he also told the conference that it had to be recognised that housing was a market.
“One of the great flaws of housing policy for the past few decades is that successive governments acted as if we could solve housing problems simply through social provision.
“Of course it’s important to build more public housing.
“Of course it is important to seriously try and end homelessness, but three decades ago governments got out of the business of trying to stimulate the building of new affordable homes for first home buyers.
“They naively thought they were withdrawing the state so the market could get on and do what it does best.
“And the result is that the taxpayer is now spending two billion dollars a year subsidising rents.”
That, he said, was a sign of a failing market.
And he said that the number one factor was the lack of available finance for the infrastructure that was needed for urban growth.
It was the number one roadblock that stopped our cities growing and that meant urban land house prices went up.
It was a constant theme all day at the conference; how to finance the massive infrastructure build that the country now faces.
There was no more graphic example of the size of the challenge than a new estimate presented to the conference of the cost of cleaning up urban wastewater so that when it was discharged it complied with the proposed new National Policy Standard (NPS) on Freshwater.
The Director of Central and Local Government Partnerships at the Department of Internal Affairs, Richard Ward, told the conference that a report from consultants GHD and Boffa Miskell to be published in a fortnight would show that the minimum cost to clean up wastewater to comply with the NPS would be two billion dollars.
“But there a couple of caveats, the report only deals with 40% of the treatment plants, only those that discharge into a freshwater environment," he said.
“Secondly, it doesn’t deal with the overflow issue.”
Local Government Minister Nainaia Mahuta has ordered a study of the so-called “three waters” --- drinking water, wastewater and stormwater --- and how they can meet new environmental standards in part as a consequence of the Havelock North water contamination tragedy.
“Our three waters system faces significant funding challenges,” she said.
She said the two billion dollar figure might be conservative.
But the issue for local government is how to find the money to undertake these repairs.
Even the Auckland Council cannot borrow much more; its debt limit is set at 265% of rates revenue, and Deputy Mayor Bill Cashmore told the conference the Council was within ten per cent of that now.
A number of speakers at the conference argued that there would be a need for local governments to merge their water operations into larger entities to gain efficiencies.
Ward suggested that one possibility was what he called the super rugby proposal where the country has five water managing entities based roughly on the super rugby teams boundaries.
And Mahuta hinted that private finance was going to be needed to help solve the problem.
However, she said the Government was committed to the public ownership of water infrastructure assets.
“But we don’t see a conflict between public ownership and the ability to structure water services in such a way as to finance and deliver necessary infrastructure.”
The Prime Minister and two more Ministers will address the conference today, and it is expected they will make a major announcement, possibly the creation of a high powered Infrastructure Commission which Infrastructure NZ have been proposing for some time now and which National promised as part of its election manifesto last year.
The need for that is urgent.
Ward pointed out that there is currently no actual Minister or Government department responsible for the big issues around water infrastructure.
What was evident at the conference was that housing was dependent on infrastructure and if Twyford wants more affordable housing he first has to solve the infrastructure issues.