The New Zealand government has announced a comprehensive overhaul of infrastructure funding mechanisms to bolster housing development. This initiative, part of the “Going for Housing Growth” strategy, seeks to address critical challenges in land supply, infrastructure, and growth incentives.
Transition to a Development Levy System
Central to this reform is the replacement of the existing Development Contributions system with a more flexible Development Levy System. Currently, councils can recover infrastructure costs only for planned, costed, and in-sequence developments. The new system aims to allow councils to recover costs for in-sequence development, regardless of prior planning or costing, ensuring developers contribute proportionately to the total capital expenditure necessary for new infrastructure.
Under this system, separate levies will be maintained for specific infrastructures such as drinking water, wastewater, stormwater, reserves, community infrastructure, and transport. These levies will be uniform across each “levy zone,” calculated based on overall growth costs and anticipated development levels. Councils will have the discretion to impose additional charges in areas where service provision costs are particularly high.
Establishment of Regulatory Oversight
To ensure fairness and transparency, a regulatory body will oversee the new levy system. This framework aims to prevent excessive charges and ensure that collected funds are effectively utilized to support urban growth.
Legislative Implementation Timeline
The Development Levy System will be implemented through the Local Government (Infrastructure Funding) Bill, expected to be introduced in September 2025 and enacted by mid-2026. A phased approach will allow local authorities and developers to adapt, with full application anticipated from 2027.
Additional Measures to Support Housing Growth
Alongside the levy overhaul, the government has announced three supplementary measures:
- Increased Flexibility of Targeted Rates: Allowing targeted rates to apply solely to new developments, offering an alternative to development levies where appropriate.
- Enhancements to the Infrastructure Funding and Financing Act (IFF Act): Broadening the scope of the IFF Act and simplifying the levy development and approval processes to improve its effectiveness.
- Expansion of Tools for Value Capture and Cost Recovery: Enabling the IFF Act to be utilized for major transport projects, supporting value capture and cost recovery mechanisms.
Stakeholder Reactions
The announcement has elicited mixed reactions. While many stakeholders welcome the increased flexibility and potential for more equitable cost distribution, there are concerns about potential increases in development costs and the implementation timeline. Ongoing dialogue between the government, local councils, developers, and communities will be crucial to address these concerns and ensure the reforms achieve their intended outcomes.
These reforms represent a significant shift in New Zealand’s approach to infrastructure funding, aiming to create a more responsive system that supports sustainable housing growth and addresses longstanding challenges in the sector.
