Palmerston North City Council does housing. When some councils like Auckland have done their best to sell off their big old apartment blocks and wash their hands of their struggling tenants, Palmerston North is building new.
They’ve nearly completed 78 small homes targeted at retired people and those receiving disability benefits, in their colourful Papaioea Place neighbourhood. And they’re developing the 114-property Tamakuku Terrace for sale, where most homes will be targeted as affordable housing. They believe they have to get in and get their hands dirty: the region’s housing prices rose a massive 31.3 percent over 2020.
But, meeting with new Infrastructure Minister Grant Robertson, the council’s chief executive Heather Shotter has warned of the scale of the problems they face: not only is it difficult to find the funding now to pay for infrastructure like roads and water pipes and sewage disposal whose benefits will be spread over generations, but even when all the planning and resource management approvals are signed off, there are no builders and engineers to construct the new projects.
Palmerston North had put out tenders, she told Newsroom, and not a single contractor had replied. “It’s very tight,” she said. “You can go to tender and get one response, sometimes none. That’s causing a great deal of concern to us, in terms of the pipeline of work.”
In one failed tender, a common reason given for companies not submitting a tender was their limited capacity to price and commit to the work. In another, two potential tenderers said that due to limited resources, they were unable to put their names forward.
She, with other chief executives and mayors of the country’s 10 biggest cities, met in Wellington to raise their concerns about funding and building that long “pipeline” of major projects – roads, rail, active transport structures, the three waters, and of course housing.
The Government has booked and planned $42 billion of infrastructure investments for the next four years, and local government has committed billions more, but it’s still barely making a dent in the housing shortage and backlog of work needed on basic infrastructure like schools and hospitals. Just last week, the chief executive of Northland District Health Board told Newsroom that Whangārei Hospital was unsafe, unfit for purpose, and needed to $500 million rebuild. That’s the scale of the challenge.
Robertson told them: “My job is to ensure that what we say we’ll build – we’ll build.”
But he acknowledged how hard it would be. Already, the Government has passed the Infrastructure Funding and Financing Act to break the funding deadlock between councils and developers over funding the core infrastructure underlying new housing developments. It sets in place Special Purpose Vehicles modelled on one created for a big housing development at Milldale, in North Auckland.
That allowed the council to secure a loan, which is being repaid by the buyers of subdivision’s 4000 mostly residential sections. They were levied $1000 per home, $650 per apartment in their first year, with this cost increasing by 2.5 percent a year for 30 years.
Amid criticisms of the high cost, the new statutory framework is intended to manage down the size of the levies. Robertson said it would probably be used at Drury in South Auckland (where Auckland Council and developers are tied up in court over the cost of the infrastructure) Rotokauri in Hamilton, and Tauriko in West Tauranga.
“We appreciate it is a sizeable task. But given the magnitude of the housing crisis it is both necessary and urgent to do what can and should be done, to encourage more housing to be built.”
– Grant Robertson, Infrastructure Minister
“Using an SPV can ensure long-term debt financing is available to developers willing to build trunk infrastructure financed over a longer term, rather than – to take housing as an example – having to line up up-front purchase price of new homes to get a development underway,” he said.
“It allows costs to be paid off over the life of an asset – rather than having to be included in the upfront cost like the sale price of a house.”
Robertson told the mayors and chief executives that central Government alone could not fix the housing crisis; he needed local councils to use the National Policy Statement on Urban Development to lower barriers to housing development.
“There is a lot of work here, so we’re very keen to see these civil contractors here, they bring their families, they make lives here, it’s great for our city, it’s great for the region.”
– Heather Shotter, Palmerston North
He was pleased to already see councils using the new tool to remove rules on the minimum numbers of carparks, for instance, which made development more expensive. “We appreciate it is a sizeable task,” he added. “But given the magnitude of the housing crisis it is both necessary and urgent to do what can and should be done, to encourage more housing to be built.”
Palmerston North’s concerns were echoed by other councils. Heather Shotter said the council was partnering with other authorities, like neighbouring councils and the NZ Transport Agency, to package up big construction projects to make it more attractive for contractors to move into the region. Higgins was active in Manawatū, she said, and Fulton Hogan was doing the big Gorge road replacement.
“It’s fantastic to see other contractors here, and setting up a presence. There is a lot of work here, so we’re very keen to see these civil contractors here, they bring their families, they make lives here, it’s great for our city, it’s great for the region.”
“We have worked hard to get contractors on board by giving them some surety of work going forward, by planning well and ensuring we have further development that will take place after the initial round. It’s a matter of creating a package of jobs.”
– Jim Boult, Queenstown
Queenstown Lakes mayor Jim Boult, who chairs the group of 10 metropolitan councils, said his council was also packaging up projects to maintain basic infrastructure for the fastest-growing district in New Zealand.
Queenstown, too, is suffering soaring house prices – at the same time that many residents have lost their jobs or businesses because of the disappearance of international tourists with the Covid-19 border closures. “It’s a bit of an irony, isn’t it, that there’s a lot of people under real pressure at the present point in time, and I know some people that are forced into selling properties when they don’t want to sell them.
“We haven’t got miles of green fields around the place to build on. We are quite restricted.
“We have worked hard to get contractors on board by giving them some surety of work going forward, by planning well and ensuring we have further development that will take place after the initial round. It’s a matter of creating a package of jobs.
“I don’t want to sound conceited but I think we’ve made more progress towards solving housing affordability for those on lower incomes, than any other district in New Zealand. But I’m not taking away from the fact that it’s a major challenge for NZ Inc.”
“This underscores the importance of building the capacity of the construction industry through a consistent, stable flow of work which encourages firms to invest in training, new capital plant and technology to lift both productivity and output.”
– Ross Copland, NZ Infrastructure Commission Te Waihanga
There are 40 construction industry occupations on Immigration NZ’s skills shortages list. New Zealand Certified Builders says the country has had building booms and skilled trade shortages before, we’ve never before such extremes at the same time. “It’s been exacerbated by the incredibly high volume within the industry currently,” said chief executive Grant Florence. “So we’ve just got a perfect storm.”
The New Zealand Infrastructure Commission, Te Waihanga, does not track tender response information for individual projects. However, it does capture forward investment intentions in its Infrastructure Pipeline. To date, it has 82 contributors lined up, with 1,616 projects totalling an estimated value of $47 billion.
In some regions, said Te Waihanga chief executive Ross Copland, there were a significant number of concurrent projects, or a handful of very large projects, that would put additional pressure on the supply chain.
“Cities like Dunedin are gearing up to manage the effects of a mega-project like the new Dunedin Hospital which is likely to draw resources from across Otago and further north,” he said. “Other regions like Palmerston North have a range of significant investments on the horizon which will need to be carefully planned to match capacity to the programme to ensure time, cost and sustainability metrics are achieved.
“This underscores the importance of building the capacity of the construction industry through a consistent, stable flow of work which encourages firms to invest in training, new capital plant and technology to lift both productivity and output.”
“Sometimes they’re getting no reply at all to tenders. And that’s a worry. Contractors’ books are so full now that they just can’t take on any more.”
– Stuart Crosby, Local Government NZ
In order for New Zealanders to get the world-class infrastructure they aspired to, significant investment would be needed over the next 30 years, he said. Te Waihanga is preparing a 30-year strategy for infrastructure, to be presented to Robertson in September.
“The challenge of how to sustainably grow market capacity in a world with greater restrictions is top of mind in our work on the strategy,” Copland said.
Local Government New Zealand chair Stuart Crosby also questioned Grant Robertson about housing, and construction capacity to deliver the associated horizontal and vertical infrastructure. “We need the technical expertise to do it,” he said.
“It’s been an ongoing issue. I finished being the mayor of Tauranga in 2016, and from time to time we were struggling then, in specific areas of work, to get bids in.
“But what I can tell you now, that was articulated by a number of CEOs at that meeting, is that sometimes they’re getting no reply at all to tenders. And that’s a worry. Contractors’ books are so full now that they just can’t take on any more.”
But, he said, there seemed a real and unprecedented willingness now for councils, central government and bodies like the Infrastructure Commission to collaborate to progress a high-level strategy to reduce the country’s infrastructure deficit.
