Hon Dr Nick Smith
Minister of Housing

Hon Chris Tremain
Minister of Local Government

15 August 2013

Council development charges reined in to assist housing affordability

The Government has decided on changes to the Local Government Act to rein in council development contributions to improve housing affordability.

“We are going to narrow the charges councils can put on new sections, provide an independent objections process and encourage direct provision of necessary infrastructure to get costs down,” Housing Minister Dr Nick Smith and Local Government Minister Chris Tremain say.

“Development contributions have trebled nationally over the past decade and have gone up more than any other component cost of a new house. This huge increase can be attributed to the local government law change in 2002 that gave councils carte blanche to charge whatever they liked and removed any check or appeal on these charges. These charges now average $14,000 per section but can be as high as $64,000 per section,” Dr Smith says.

“There is no magic bullet to improving housing affordability and we need action on many fronts to get costs down. This initiative restricting development contributions is part of a package of measures the Government is taking including substantive reforms to the Resource Management Act, the Housing Accords legislation, the inquiry into building materials costs, changes to the Building Act to reduce compliance costs, and the expansion of the Welcome Home Loans and KiwiSaver First Home Deposit Subsidy,” he says.

“Development contributions need to be set in a way that fairly balances the costs that should rightly rest with a new development and those of community benefit that should be paid by general ratepayers. There will always be pressure on councils over rates and we need a check on development contributions to ensure the new home owner is not over-charged,” Mr Tremain says.

“These changes will also restrict what councils can charge in respect of commercial and industrial developments. These charges, if applied beyond the costs of providing the necessary infrastructure, end up as a tax and discouragement on new investment and jobs. The changes mean that councils will only be able to charge for new infrastructure and not recreational facilities or reserves for developments that do not involve residential housing.

“Councils will still be able to charge for infrastructure and resources directly associated with a new subdivision. These changes are about improving transparency, encouraging councils and developers to work innovatively on minimising costs through development agreements and ensuring funds collected for infrastructure in an area are spent as intended.”

Changes to development contributions was recommended by the Productivity Commission’s 2012 report into housing affordability and are included in the Government’s Better Local Government reform programme. A discussion paper was released in February and final decision on the policy changes made by Cabinet on Monday. The law change will be included in a Local Government Reform Bill to be introduced to Parliament later this year.

The Cabinet Paper can be found at www.dia.govt.nz/Better-Local-Government#development-contributions

ENDS

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