In July 2015, Local Government New Zealand published the report Local Government Funding Review: 10 point plan: incentivising economic growth and strong local communities. The report argued that the funding arrangements of local governments meant that they may be less than welcoming of economic opportunities, including facilitating new housing.
The New Zealand Productivity Commission made findings and recommendations in its recent report Using land for housing that were aimed at improving the financial incentives on councils to develop more land and invest in infrastructure in order to accommodate the demands for growth in their areas. These suggested remedies included reforms to and/or greater use of:
- targeted rates
- debt funding
- rating Crown property
- congestion charges
- infrastructure user charges
- development contributions that fully recover costs
- rates based on increases in property values.
SGS was commissioned by the New Zealand Productivity Commission to assess the extent to which these recommendations and findings have the potential to adequately incentivise councils to actively accommodate growth pressures, or whether alternative funding mechanisms are required. It was found that the policy findings and recommendations above are sufficient in scope to cover all of the funding requirements of local councils, and are inexpensive to implement relative to the revenues generated. However, they don’t adequately account for the various risks that councils typically face in funding infrastructure. These include risks associated with changing infrastructure standards and changes in demand for residential and commercial development.