Development Contributions
The amount of housing growth in Auckland is unprecedented. 10 years ago, fewer than 4000 dwellings were being consented in a year and in the last year we consented close to 20,000 dwellings. A lot of development is happening and all of this requires infrastructure to support it such as wastewater, stormwater, roads and community facilities.
Infrastructure is expensive.
Contributions are one of the ways the council recovers this cost. Charging development contributions enables us to recover costs from those who cause the need for, or will benefit from, the infrastructure Auckland needs to support our rapidly growing city. If we cannot recover a share of these costs from developers, the full cost will need to be recovered from ratepayers.
Currently we are consulting on an updated development contributions policy. To have your say please go to https://akhaveyoursay.aucklandcouncil.govt.nz/dc-policy before October 17.
To assist you with your feedback, here are some frequently asked questions
What are contributions?
The council uses a number of tools to recover the costs of investment from those that cause the need for or benefit from the investment. Development contributions (DCs) are one of these tools (alongside rates and charges for services) and they recover a share of the costs of the investment we make to support new developments from those developments.
The cost of infrastructure has to be funded somehow. If it is not being funded by the developer then it has to be paid for by all Auckland ratepayers or Government contributions will have to increase i.e. the taxpayer. The council cannot control Government funding decisions. We think it is fair that developers pay for an appropriate share of the infrastructure that their developments cause the need for and benefit from.
Why are we reviewing the policy?
The council has had a contributions policy since amalgamation and it is regularly updated to account for updates to projected growth, revision to the capital budgets and any relevant policy changes. We’ve made some big and exciting commitments in the 10-year Budget so we need to update our contributions policy in order to help fund these. We usually update the policy every three years following adoption of the 10-year Budget.
What is the process to finalise a new policy?
The Finance and Performance Committee is responsible for considering changes to the contributions policy. The committee considered the draft policy recommended by council staff on 16 September 2021 and approved the policy for consultation. Aucklanders are now able to have their say on the proposed policy from 20 September 2021 to 17 October 2021 Once the committee has considered the feedback from our communities and made any necessary changes, the final policy will be agreed in December and any changes will come into effect on 10 January 2022.
You can keep up with the progress by viewing agendas and committee meeting minutes on infocouncil.
What is being proposed?
The key changes to the policy being considered are as follows:
Updating for new information in the Recovery Budget
· The Recovery Budget (our 10-year Budget 2021-2031) commits significant investment to support growth across the next decade. The 10-year Budget made provision for the Contributions Policy to be updated for these decisions and includes an assumption of the revenue from development contributions. To ensure contribution levels remain fair and appropriate across the region, they need to be updated to reflect new projects and updated timing and cost of existing plans.
· Contribution levels are also updated to reflect latest projections for the pace and shape of Auckland’s development.
Inclusion of capital projects beyond ten years
· The 10-year Budget commits significant investment to support growth in priority areas. This investment funds projects that will build infrastructure. However, this is not enough to address the cumulative impact of growth. More infrastructure will be required to cope with the expected growth. Currently, contributions are charged to recover the growth share of the cost of infrastructure planned in the next ten years.
· The council plans for the delivery of these required investments through its 30-year Infrastructure Strategy. This ensures future development has the high-quality infrastructure Aucklanders expect and that we can better manage the impacts of growth, including climate change. It will also signal to developers the level of council investment and the impact this will have on their future plans.
· We propose that the growth share of the cost of all the investment in infrastructure to support growth (including that beyond 2031) is recovered through development contributions.
· All development over the next 30 years adds to the need for and will benefit from this. We consider its fair that development happening now pays an appropriate share of the costs of infrastructure that it will benefit from in the future.
· We plan to amend the contributions policy in stages for each investment priority area as sufficient information on infrastructure requirements becomes available, starting with Drury. The policy will apply to brownfield developments as well as greenfields.
· The cost of these projects may have a significant impact on the level of contributions in the areas where they are imposed.
Drury
· For the draft Contributions Policy 2021 we propose starting with Drury. Drury is the area where we have the best information in order to implement the changes. Other areas will follow as work progresses.
· The draft policy includes almost $2.5 billion of investment in local and arterial roads and parks in the Drury area. Under the new draft policy, the level of contribution would rise from between $11,000 and $18,300 currently, to $84,900 (taking into account the impact of the other proposed changes).
· Our proposal is to gradually update the contributions policy to include the infrastructure required to support growth in Auckland over 30 years, focussing first on the other investment priority areas:
Auckland Housing Programme (Mangere, Mt Roskill, Oranga, Northcote, Tāmaki)
Drury and the North-West (Red Hills, Westgate and Whenuapai)
CRL stations at Karangahape Rd and Mt Eden.
Payment timing
· We are proposing that payment of contributions required at building consent are payable at the grant of the consent. This will apply to all development (residential and non-residential). This is earlier than currently required and reverses the extension to payment timing we made for residential development in 2019. The council’s finances were significantly impacted by COVID-19. Requiring contributions to be paid earlier will mean council can recover the cost of infrastructure sooner.
Māori Land
· For Māori land we are proposing to continue to support the development of marae and papakāinga and Māori housing on Māori land through grants available through the Cultural Initiatives Fund.
· We propose an exemption for not-for-profit development on Māori land from reserve contributions.
· We propose retaining the current payment timing for contributions payable at building consent for non-commercial development on Māori land, if changes are otherwise made to payment timing.
Why is the council proposing an increase to contributions in some areas?
The 10-year Budget includes a substantial increase in investment in infrastructure to support growth and allow development to proceed. In the draft policy, contributions do not increase on average but across the region some areas will see increases depending on the level of investment we have committed to and the growth we are expecting in those areas. This allows us to fund investment.
Raising the level of contribution:
· better aligns contributions with the actual cost of infrastructure
· increases certainty that infrastructure will be delivered
· ensures ratepayers don’t bear the full cost of growth
· encourages developers to more accurately price land purchased for development to reflect future contribution costs
Who has to pay contributions?
Developments that require a subdivision consent, land use consent or building consent are assessed for contributions. This includes:
· new subdivisions
· new house builds
· student accommodation
· minor units (granny flat)
· Kainga Ora developments
· new retail space
· new office space
· commercial premises
· new apartments in old buildings.
Extensions to a house don’t have to pay contributions.
How are DCs calculated?
DCs are calculated by dividing the council’s capital expenditure for growth by the estimated number of new residential and non-residential developments.
To understand how the council calculates DCs, read How we set Development Contribution charges.
How does this affect house prices?
National and international evidence shows us that an increase in contributions fees does not cause house prices to rise.
The price of housing is not determined by the cost of land and building but by supply and demand for houses.
Over time, the development contribution costs are deducted from the price paid for land. Developers will adjust the price they are prepared to pay for land reflecting the price they can sell a house for less construction costs, development contributions, other costs and a margin for profit.
Can the payment of DCs be deferred?
DC payments can’t be deferred. The council seeks payment of DCs when they are due. The council funds its capital investment with borrowing. To keep borrowing within our debt limits we have had to constrain our investment. If we offered deferment of DC payments, ratepayers would be effectively providing a lending facility to developers, rather than borrowing funds to invest in building new assets.
Do all types of development pay the same price?
Different types of development pay different DCs. DCs are set at different levels depending on the demand they place on the need for the council to invest in infrastructure.
For example, a shopping centre will require more transport investment than a house. The transport contribution will therefore be higher. However, shopping centres don’t require investment in parks and community facilities. These are only charged to residential development.
The contributions policy includes a schedule showing different development types and the associated demand factors.
What are funding areas?
Funding areas are used to ensure the allocation of costs to areas reflect its demand on infrastructure.
We have funding areas that are Regional (everyone pays, e.g., Regional Parks), Sub-Regional (larger areas where projects benefit a larger area) and Local (small areas of targeted benefit).
‘How we set development contributions charges’ sets out additional information on how funding areas have been determined.
A new Drury-Opaheke funding area has been created for the local investments required to support Drury development. The contributions charges collected for the local investment in this funding area will be applied to the building of infrastructure in this area.
How is development in Auckland determined?
The Auckland Plan 2050 sets out our Development Strategy, which plans how we will manage growth over the next 30 years. It ensures we have enough capacity for growth and identifies development areas around the region where our planning and investment will be targeted.
Auckland Council’s 10-year budget includes a 30-year Infrastructure Strategy informed by the Development Strategy and sets out a capital programme of $31.8 billion.
Are DCs charged for affordable or social housing?
Central government is responsible for affordable and social housing.
The council supports affordable and social housing through the investments it makes in infrastructure.
Affordable and social housing are charged DCs as they place the same demand on the need for the council to invest in infrastructure as other developments.
The council may consider providing grants for some developments on a case-by-case basis.
Why does the policy not recover the full amount of capital required to fulfil all the infrastructure requirements in the Auckland Plan?
The council’s 30-year Infrastructure Strategy looks to address the big issues that impact our infrastructure and forecasts that this will require over $120 billion of capital investment over the 30 years. Our funding tools such as rates and development contributions can only pay back the investments we have made or are committed to making in the future. Our ability to invest is constrained in any particular time period by limits on our borrowing and intentions to keep general rates increases at affordable levels.
Development contributions are just one tool the council uses to fund our infrastructure investments and are limited to investments made to support growth. As growth investments also benefit existing properties, a fair share of the costs are funded by ratepayers and road users (via transport subsidies from Waka Kotahi funded by fuel taxes and road user charges).
Investments made to address other challenges such as climate change, natural hazards, or service level equity are funded through other sources such as rates or charges for services.
Why do Private Developer Agreements (PDA) not allow for a reduction in DCs to be paid?
A PDA is an agreement between the council and a developer(s) to provide for the provision of infrastructure in a development area. The Contributions Policy accounts for the level of infrastructure required in the 10-year Budget and sets funding levels to pay for this. If offsets are included in the Contributions Policy, then the amount of revenue to be received is reduced and budgets are mis-aligned.To ensure all developments are treated fairly under a PDA, the council will pay for any work developers undertake on behalf of Council (which doesn’t include any developer mitigation), and charge them and other benefiting developments development contributions for the relevant project.
Why are transport costs for locations that have little public transport links so high?
DCs do not just fund public transport, but the transport network as a whole. This includes arterial roads and connections to locations throughout the region. By servicing the network as a whole, council is maintaining the ability of all Aucklanders to move around the region.
Development benefits the entire region so why aren’t the costs more equally shared?
All productive economic activity benefits the Auckland region. Where only private investment is required all the costs are met by the producers and consumer of the products or services . However, development requires public investment to ensure new communities have access to the same high quality services enjoyed by all Aucklanders.
Public infrastructure investments allow the developer to realise a price for their development that couldn’t be matched without council investment. In addition, without these investments existing resident might incur costs indirectly e.g. through congestion in our transport system. These investments incur costs which the council needs to recover from either the developers or ratepayers.
Some of the investments the council makes benefit, or are caused by, development across the city, regional, or are wider than the local development area (sub-regional). These are charged for across all development in those areas.
Some investments are only required for, and only benefit, a local area. They are only charged for in those areas. If these local costs were spread across the city developers building in areas requiring less investment would be subsidising those who needed less investment. This would not send the right cost signals and result in wasted investment.
How can people have their say?
The Consultation Document will be live on the Auckland Council website, where people can register for Have Your Say events.
Is the level of contributions being increased everywhere in Auckland?
The weighted average contributions charge across urban Auckland will fall from $23,900 to $21,500. This is because the pace of growth we are forecasting exceeds our increases in capital expenditure. We have also adjusted the charges to reflect a fairer share of the costs of growth between the development we expect in this decade and the next. The actual change in different parts of the city may vary from this, higher or lower, depending on the scale of investment we are planning to make.
If longer-term infrastructure for other growth areas in Auckland will be added to the policy later, does this mean development in Drury will be subsidising other areas in the meantime?
No, the local charges in Drury will only fund investment in Drury. The regional and sub-regional charges in Drury are the same as applied in other areas.
Will this policy change see Drury having the highest development contributions in New Zealand?
No, for example the proposed contributions charge of $84,900 in Drury is lower than the $93,226 charge for Rotokauri in Hamilton.
What is the impact if we don't proceed with the proposal to include projects beyond 10 years for Drury?
Early development will proceed without making a contribution to the cost of the longer-term infrastructure they create a need for and will benefit from. This will make it more difficult for the council to provide this infrastructure in the future and place more of the future funding burden on ratepayers.
Won't the council receive rates from the new houses which could pay for the infrastructure?
Yes, the council will receive additional general rates. These will fund the operating costs of the new assets in Drury and a share of the operations of the rest of the city the Drury properties will then be part of and benefit from.
Given that landowners get a significant increase in value when land is rezoned for development, why doesn't the council just demand a fair share of infrastructure costs from them at that point?
While this approach is commonly used in some overseas jurisdictions, existing legislation and current resource management in New Zealand mean that approach is not straight-forward to implement here. The use of development contributions provides a kind of proxy for this approach, to the extent that the landowners when the land is rezoned are largely the same group as the landowners when the DC policy is implemented, which our information suggests is largely the case for Drury
How accurate are the council's estimates of future infrastructure costs, and what happens if cost estimates change?
Any cost estimate for future infrastructure projects necessarily involves a degree of uncertainty. For all the infrastructure costs that we are seeking to recover via the contributions policy we have used the best information presently available and applied a consistent approach to all asset budgeting decisions to estimate future costs. We will continue to update our estimates to ensure they are as accurate as possible. If the costs change over time the policy will be adjusted accordingly and if appropriate developers will be refunded.
