The New Zealand Initiative has released a new research note examining how to implement revenue-sharing between central and local government, a policy the think tank has advocated for since 2013 and which the Government has now committed to pursue.

The research note, titled 'Revenue Share' for Housing, explores options for councils to receive a portion of tax revenue from new housing developments, addressing New Zealand's persistent housing shortage.

"Our research shows that by redirecting, for example, just 1.4% of its tax revenue, central government could boost local council budgets by 11.3%," said Nick Clark, Senior Fellow at The New Zealand Initiative and author of the research note. "This relatively small shift in funds could create a powerful incentive for councils to say 'yes' to new homes."

The concept is simple: when new houses are built, the government shares some of the resulting tax revenue with the local council. This creates a virtuous cycle where more housing leads to more funding for local services and infrastructure.

"There are several ways to structure revenue-sharing," Clark explained. "Our analysis shows that some methods are more effective than others at encouraging housing development. The key is to ensure a clear link between new homes and increased council funding."

The research suggests that basing payments on new building consents or completed builds could provide the strongest incentives for councils.

Importantly, any new revenue sources should not substitute for stronger fiscal responsibility in local government.

"We're excited to see revenue-sharing on the Government's agenda," Clark added. "This policy has the potential to significantly boost housing supply across New Zealand, addressing one of our most pressing national challenges."

The New Zealand Initiative stands ready to assist policymakers in designing an effective revenue-sharing system that works for both central and local government.

The research note, ‘Revenue Share’ for Housing is available on The New Zealand Initiative website.

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