Wellington (Tuesday, 19 October 2021) – Today, the Government took a significant step toward restoring housing affordability.

The New Zealand Initiative enthusiastically welcomed the announcement, supported by Labour and National, of a broad upzoning across urban centres where housing is terribly unaffordable. The plan will allow more houses and apartments to be built in sought-after urban areas.

But the think tank warned that improvements in infrastructure funding and financing, and in council funding more generally, will be needed to enable the necessary surge in building more homes.

At the root of skyrocketing house prices is a substantial shortage of houses. Housing is scarce because, for a very long time, councils have not zoned for enough building in places where people want to live.

“Today’s announcement means councils will have to move far more quickly to zone enough land for housing in places where people want to live,” said Initiative Executive Director Dr Oliver Hartwich.

“But councils have used zoning and consenting to block housing for decades because, to councils, growth in housing is a cost. Central government earns the GST, income tax, and company tax that comes with more housing and more development. Local councils are left holding a large infrastructure bill that they cannot easily pay. That has to change.”

Initiative Chief Economist Dr Eric Crampton added, “Councils have used obstructive zoning rules and consenting processes to protect their balance sheets against the infrastructure cost that new development imposes. Taking away obstructive zoning absolutely helps. But really changing the game requires changing the incentives councils face.”

The Initiative has argued for measures broadening the sources of council income, better financing tools for infrastructure, and aligning council incentives with the broader national interest. These measures include:

• Housing encouragement grants
  Central government would provide a grant to local government for every dwelling receiving final building approval.
• Revenue-sharing
  Local government initiatives that boost central government’s coffers also benefit local councils.
• Long-term infrastructure bonds
  Bonds to fund long-lived infrastructure projects using the revenues that those projects generate over their lifetime. These would be separated from council’s main balance sheet, without recourse to council bailout.

“Zoning that allows ample room for new development in places where people want to live is a tremendously helpful first step,” concluded Dr Hartwich. “But councils need to be able to see growth as a benefit to be sought, rather than a cost to be avoided. If councils faced better incentives, today’s announcement might not have been needed. Until those incentives are in place, they will find new ways to stymie the housing supply increase the country needs, but that councils cannot afford.”

© Scoop Media