The National Government has unveiled an $1 billion infrastructure spending spree, but is expected to create new investment vehicles and add to the funds needed to build the roads and pipes for hundreds of thousands of new houses in the decades to come.
The Government finally unveiled the infrastructure projects that will use up all the $1 billion Housing Infrastructure Fund announced in July last year, but is expected to announce more investments in Auckland in coming weeks through new types of special purpose investment vehicles that would allow Auckland Council to stay within its debt limits.
The infrastructure fund will back 40 roading, bridging and water projects across Auckland, Hamilton, Tauranga and Queenstown to underpin the opening up of 60,000 sections over the next 10 years and up to 103,000 sections in the longer run.
However, the investment spree is not over yet. The Government received applications for $1.5 billion worth of projects and noted in its announcement that some of the applications met the fund’s criteria, but were not approved because of council balance sheet constraints and the $1 billion limit to the fund. The Government has not ruled out increasing it again, given the Budget surplus in the year to June was already running $1.5 billion ahead of its forecast from the May 25 Budget.
It may also develop some sort of special purpose vehicle for shared equity investment in the projects that allows councils to operate the infrastructure but not have to hold the asset and its associated debt on their balance sheets, which would free them from current debt restraints. The Government and the Auckland Council have hinted at new types of vehicles to own the assets and take the debt off the Council’s balance sheet. Mayor Phil Goff suggested more announcements on new vehicles would be made in coming weeks.
Housing developments south and north of Hamilton
Prime Minister Bill English began the infrastructure funding spree day in Hamilton, announcing the first two projects would enable the development of 10,700 homes in the Waikato region over the next 10 years.
English, Finance Minister Steven Joyce and Construction and Building Minister Nick Smith announced that the fund would be used by the Hamilton City Council to build roads, a bridge and water infrastructure for an 8,100 section development on the southern border of Hamilton near the hospital and university, while the Waikato District Council would use the fund for a greenfield development adjacent to Te Kauwhata for 2,600 houses within 10 years.
The first homes in the Peacockes Development south of Hamilton would be completed by the end of 2018, with at least 1,000 built by 2022 and a further 7,100 released progressively as demand required, they said.
“This proposal from the Hamilton City Council includes a new bridge over the Waikato River, as well as an interchange at Cobham Drive and connection to State Highway 3,” Joyce said.
The fund would pay for local road upgrades, cycle connections and new water infrastructure for the Te Kauwhata development.
“The project includes a wastewater solution that will remove all the existing municipal wastewater discharges from the catchment of Lake Waikare and the Whangamarino wetland, allowing a major lift in the freshwater quality in both the lake and the wetland,” Smith said.
English released a short statement on the fund shortly before announcing the first projects at an event in Hamilton yesterday morning. Joyce later issued another statement that detailed all the projects, their costs and expected number of houses.
“The infrastructure projects announced today will speed up the delivery of 60,000 houses across our fastest growing population centres over the next ten years,” English said.
“This is another major step forward in our plan to permanently lift the capacity of the construction sector to support a more confident, expanding New Zealand,” he said.
He added the funding would be allocated across nine projects in five different council areas, including Auckland, Hamilton, Waikato, Tauranga and Queenstown.
“I want to congratulate the councils in these areas for their positive engagement with the fund and the quality of the infrastructure projects they have proposed,” English said.
“These projects will make their contribution to lifting housing supply alongside the Government’s own Crown Building Project, the Special Housing Areas, our planning changes, and the already record levels of new home construction taking place across New Zealand.”
The background to the infrastructure fund
The fund was first announced in a hurry in July last year after the 2016 Budget was criticised for having insufficient measures to deal with an infrastructure funding blockage for new housing at the council level, particularly in Auckland.
Treasury documents showed how the policy was rushed through in the space of 33 days
The calls for central Government help for councils reached a crescendo through late June after then-Housing Minister Nick Smith announced a National Policy Statement on urban development that served only to highlight the problems Auckland and other high growth councils had with funding infrastructure needed to build new housing. Many are up against their debt limits and cannot afford to pay upfront for the water, transport and other infrastructure needed for extra housing developments.
I wrote in June last year that Smith’s announcement ignored the ‘elephant in the room’ of infrastructure funding. Within three weeks the Treasury and the Government created the Housing Infrastructure Fund policy and it was announced by then Prime Minister John Key at National’s annual conference on July 3.
Subsequent Treasury documents showed how the policy was rushed through in the space of 33 days.
The biggest unintended consequence was that councils were wary of borrowing from the fund, or being seen to borrow from the fund, because it would be deemed as extra debt by Standard and Poor’s and therefore would fail to solve the debt limit problem – particularly for Auckland.
Since then the Government has talked about lending the funds through special purpose vehicles that would effectively move the debt off the council balance sheets from a credit rating agency point of view. There was no indication in today’s announcement of how the fund was being distributed, whether through loans or a special purpose vehicle.
English and then Steven Joyce were also frustrated early in the process that councils had either simply asked for funding for existing plans, or did not have specific plans available.
“Initially the councils talked about their very pressing needs,” English said yesterday.
“It turned out their planning processes had to be changed a bit to accommodate growth and not just get the Government to pay for things they were going to do anyway,” he said.
English’s tone was more positive yesterday about the council’s plans.
“We’ve been impressed, as I hope they’ve been with central Government, with the strong common sense of purpose about getting more housing supply and getting it boiled down to specific projects and specific dates and specific costs, and it’s been really quite successful,” he said.
“Not just for allocating the $1 billion, but for getting Government to understand the pressures councils have to deal with, and some of the weaknesses in their systems. And councils understanding the over-riding need for more housing supply in a growing economy.”
I asked if, therefore, the Government would increase the size of the fund. He would not rule it out and said we’d have to wait and see.
Five councils to get infrastructure funding
Five of New Zealand’s fastest growing Councils will have infrastructure projects funded through the Government’s $1 billion Housing Infrastructure Fund, Finance Minister Steven Joyce and Building and Construction Minister Dr Nick Smith say.
“These funding decisions will help provide another big step forward in housing supply,” Minister Joyce says. “The funding will be used to provide network roading and water infrastructure for 60,000 houses across nine projects in these five fast-growing urban areas.”
“The funding of this infrastructure is bringing forward the ability to build these homes in some cases up to eight years earlier than otherwise,” Dr Smith says.
“Adding these big new subdivisions will help lift the supply of residential sections and bring greater consumer choice into the housing market.”
The fund is broken down as follows:
1. Auckland Council – $300 million – 10,500 houses in a treenfield development (North-west) at Whenuapai and Redhills.
2. Hamilton City Council – $272 million – 8,100 houses in a greenfield development (Peacockes) on southern edge of Hamilton.
3. Waikato District Council – $37 million – 2,600 houses at Te Kauwhata (new development on the shore of Lake Waikare).
4. Tauranga City Council – $230 million – 35,000 houses Greenfield development at Te Tumu (eastern end of Papamoa) as well as a capacity upgrade to the Te Maunga Wastewater Treatment Plant and a new (Waiari) water treatment plant (at Te Puke).
5. Queenstown Lakes District Council – $50 million – 3,200 houses in two new greenfield sites (Quail Rise South and Ladies Mile) on the Frankton Flats and an extension of the Kingston township.
Joyce said the next step was for the Councils to complete with the Government the detailed funding agreements in the next few months.
“The Government expects to make statements on further new funding options and tools for housing infrastructure in the coming weeks,” Joyce said.
Labour Housing spokesman Phil Twyford said the Government had again over-promised with no detail on delivery.
“Like the Special Housing Areas, this is a just a list of ghost houses from a Government that has made an art form out of promising houses but never building them,” Twyford said.
‘Kiwis are left with a lot of ghost houses and not a lot else’ – Twyford
“Bill English and Nick Smith are attempting to pull a fast one. They’re claiming specific numbers of houses will be built, but they’re not actually providing funding for a single house. This is loans for water infrastructure and bridges; National cannot point to a single plot of land and guarantee a house will be built there as a result. Even if Smith’s promises come true for once, they amount to less than 20,000 houses in five years, and just 2,200 in Auckland,” he said.
Twyford has proposed using infrastructure bonds to fund new infrastructure for housing, with the debt serviced through targeted rates on properties in new developments. Labour is promising to build 100,000 affordable houses nationally over the next 10 years, including 50,000 in Auckland.
“National is good at promising its latest half-baked idea will solve the housing crisis but, after nine years, Kiwis are left with a lot of ghost houses and not a lot else.”
Auckland Mayor Phil Goff said Auckland had received most of what it sought from the HIF.
“In the coming weeks there will be a further important announcement from Government on new funding options for Auckland that take into account the balance sheet constraints the city faces,” he said.
“We have worked constructively with Government to find innovative solutions to meet Auckland’s needs. The HIF package will help significantly, but with ongoing growth and the pressing need for matching infrastructure, we will need to continue to work together to increase and bring forward investment to tackle Auckland’s housing shortage and growing congestion.”