New infrastructure funding tool to build housing developments faster

A new tool to help councils fund and finance infrastructure could mean some housing developments happen a decade earlier than currently planned, Urban Development Minister Phil Twyford said today.

“This new tool, developed by the Government in partnership with industry and high-growth councils, will allow councils to access private debt finance to get infrastructure built sooner than would otherwise be the case, accelerating the provision of housing without putting pressure on council balance sheets.

“Particularly in the high-growth areas of Auckland, Hamilton, Tauranga and Queenstown efforts to develop land for housing are stymied by a lack of supporting infrastructure. Developers have been crying out for such a tool.

Council access to financing is the main bottleneck to getting that infrastructure– typically water, roading and community amenities - built.     

“Traditional approaches to infrastructure funding and financing are not working. Constraints on council debt levels means viable infrastructure projects are postponed for years, despite the pressing need for more housing in these high-growth areas.

“We know of projects that, with the application of this tool, could happen 10 years earlier than currently projected in council long-term plans.”

The tool will also create greater transparency about who benefits, and so who should pay for new infrastructure, Phil Twyford said.

Legislation enabling the new tool will be introduced into Parliament today and is expected to be passed by mid-2020. 

“I have met with both National’s infrastructure spokesperson Paul Goldsmith and housing and urban development spokesperson Judith Collins on this issue. I’m pleased the National Party sees the importance of this legislation and has agreed to support it to first reading.”

Water and transport projects, including roads, cycleways and public transport infrastructure, could be funded using the tool, along with community amenities such as parks and environmental resilience infrastructure such as flood protection. Once built, the assets would transfer to the relevant public body – usually a council.

“This tool will complement rather than replace existing normal council planning and decision-making processes. Councils will then need time to work through the usual issues involved with getting large and complex projects underway. The first project funded through the new tool could start in late 2021.

“In the meantime, our Government is developing a pipeline of possible projects to use this tool, and is exploring other ways to give councils greater flexibility in funding and financing infrastructure,” Phil Twyford said.

For more information: https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/new-infrastructure-funding-tool

Editor’s Note:

Key to the tool’s success will be the ability to ring-fence infrastructure projects from the relevant council’s balance sheet, ensuring that there is no financial or moral recourse to the council if the project fails.

Core elements of the tool include:

  • Finance for the infrastructure project (or a bundle of projects) would be raised through a stand-alone entity (a Special Purpose Vehicle or SPV). The SPV would be enabled by legislation to raise finance for the infrastructure project, collect a multi-year levy to repay the finance, and contract for the delivery of the infrastructure.
  • To fund the project, the levy would paid by those who are expected to benefit from the infrastructure project. This levy would be collected by councils via their normal rates collection mechanisms, on behalf of the SPV. Typically, a levy would last between 25 to 50 years. This time frame reflects the life of the infrastructure, and helps ensure the costs are spread across the generations that benefit from it. The levy ends once the infrastructure is paid for.
  • A Government support package would cover certain tail risks that can’t be managed by either the SPV or local authority.
  • All infrastructure assets built using the tool would transfer to the relevant public body, which in most circumstances will be a council. They will be responsible for the ongoing operation and maintenance of the assets.

A working example:

  • At Milldale, north of Auckland, a Crown Infrastructure Partners Special Purpose Vehicle was used in 2018 to raise around $50 million to fund infrastructure. That infrastructure will eventually support the creation of a community of 9000 new homes. Landowners pay an ‘infrastructure payment’ to repay this borrowing – $650 for an apartment or $1,000 for a home a year over 30 years. Auckland Council collects these payments through the rates system, on behalf of the SPV.
  • While at Milldale this approach was negotiated with the sole landowner, the new tool will be enabled through legislation so it can be used for a broader range of projects. This is because it would not be practical to negotiate with the large number of landowners typically involved in projects.