"The Governments $1 billion interest free housing infrastructure loan will accelerate infrastructure and land development, but clarity of the implementation plan setting out how the funds will be released and how the debt will be repaid is now urgently needed, says Stephen Selwood, chief executive of the NZ Council for Infrastructure Development.
"If development levies are used, this will transfer risk to developers and result in higher section prices.
On the other hand, if targeted rates are used, this will reduce development risk and home owners will pay for infrastructure over time, rather than in section prices, making houses more affordable to purchase.
"This kind of approach is similar to schemes internationally, known as tax increment financing, where government or councils borrow to invest in infrastructure and the debt is repaid from the "incremental" tax revenue that results from growth.
"The debt is clearly linked to a specified development area and repayment is directly connected to the additional tax revenue that results from the investment.
This would be a useful model for the Government to use in New Zealand as it provides transparency between where the money is invested and how it will be repaid.
"The Governments proposal to establish urban development agencies with the power to aggregate land is another important element to increasing supply.
Matched with investment in the infrastructure needed for large scale development, this could make a significant difference to housing supply.
New Zealands traditional home by home construction sector does not have capacity to keep pace with demand. But if significant land holdings can be aggregated, this will be attractive to large scale developers in New Zealand and internationally.
In combination, interest free infrastructure loans and urban development agencies could make a material difference to housing supply and improving housing affordability, but an implementation plan is now urgently needed, Selwood says.
For further comment, please contact Stephen Selwood on 021 791 209.