Cost blowouts cancel flagship govt deal for 400 new homes

Infrastructure funding to enable the construction of 437 much-needed houses was announced with fanfare – then quietly cancelled in the shadow of the election, Newsroom has learned.

This week, Porirua mayor Anita Baker describes the cancellation of the $6.1m Kenepuru Landing deal as “heartbreaking”.

Former housing minister Megan Woods had signed off a $6.1m deal between Kāinga Ora, Porirua City Council and Te Rūnanga O Toa Rangatira to build transport and water infrastructure for a new residential development at Kenepuru Landing. The December 2021 grant was the first from her new $1 billion contestable Infrastructure Acceleration Fund.

But the three parties have since confirmed they are unable to progress the projects as planned “due to an increasingly challenging economic climate”.

Kāinga Ora, which administers the contestable fund, says the council and iwi have reluctantly withdrawn from the deal. “This means no Infrastructure Acceleration funding will be provided to these infrastructure projects.”

It underlines the growing difficulty in funding and financing local infrastructure, that is set to be an even greater challenge for Woods’ successor, Chris Bishop.

A report today from the infrastructure commission, Te Waihanga, says local government funding has been an issue of concern for the past 60 years.

But a succession of inquiries – including last year’s Future for Local Government report – have failed to recommend wholesale changes, significant new revenue tools or new system-altering central government transfers.

That means councils have to look to borrowing – and the report’s author Peter Nunns argues there are ways they can raise their own debt or use special-purpose vehicles that will enable them to get around existing debt-to-revenue caps. If anything, he argues, council borrowings are low by historical standards – but so too are the revenues with which councils can repay their debts.

The difficulty, today, is that much of the infrastructure spending councils need to do is renewal of existing pipes, roads, drinking water and wastewater plants and, unlike brand-spanking new infrastructure, renewals don’t bring in new ratepayers and increased revenue streams to repay the debt.

So councils are in a funding and financing Catch 22. Just this week, Auckland Mayor Wayne Brown demanded that the Government hand back $415m of GST charged on rates, and start paying $36m a year of rates on Crown land it owns in Auckland. The Government refused.

So are mayors right to say that their funding model is broken? “This is a challenging situation,” Nunns replies. “There are some real pressures on infrastructure and infrastructure investment, not just at a local government level. The best way to face those is with clarity about what the trade-offs are; clarity about where your real room to manoeuvre is.”

In response to Newsroom questions about the cancellation of the Kenepuru Landing infrastructure deal, Kāinga Ora commercial group general manager Caroline McDowall has provided a statement on behalf of the agency and its two partners.

Porirua City Council was allocated the $6.1m from the Infrastructure Acceleration Fund for transport and three waters upgrades, she says, to enable additional housing in the Ngāti Toa Rangatira development at Kenepuru Landing.

But since the deal was signed three years ago, New Zealand has experienced interest rate rises and the effects of continued economic pressure – particularly on the housing market.

“The council and their developer partner Ngāti Toa Rangatira have advised Kāinga Ora that this has led to high inflationary pressures affecting infrastructure costs and the delivery timelines for these projects,” she explains.

Council debt as a share of revenue

So the council and Ngāti Toa Rangatira have “reluctantly requested” to withdraw from the formal infrastructure funding agreement. Kāinga Ora was notified of the changes and, with ministerial approval, agreed to dissolve the funding agreement.

“While all parties acknowledge this outcome may be disappointing to the Porirua community, it was not a decision that was taken lightly,” McDowall adds. “Porirua City Council and Ngāti Toa Rangatira are committed to working together in the future to unlock housing development.”

Newsroom learned of the project’s cancellation this week from a brief note in a weekly summary of Kāinga Ora’s briefings to its minister. At the start of October last year, former housing minister Megan Woods was asked for sign-off to terminate the agreements – just a week out from the election on October 14.

It’s not clear whether she provided that sign-off, or whether it was left to Chris Bishop to make the tough call, after he was sworn in on November 27. The deal’s cancellation was not publicly announced.

It’s expected the first 400 houses in the iwi project should still go ahead; some are already built. But there’s now a question mark over how many of the remaining 437 will be built. The first of these houses were expected to be delivered by 2025, and the development completed by 2030.

The $6.1m was intended to fund a transport upgrade to the Titahi Bay Road/Kenepuru Interchange, and three waters infrastructure for the new housing.

Megan Woods says the Kenepuru Landing deal would have been “really good value for the Crown”, if it had gone ahead. The $6.1m for infrastructure would have enabled the iwi to construct more than 400 new houses, working out at one new house for every $14,000 invested.

(On top of that, Woods had earlier signed off another $136m from a separate but related pūtea, the Housing Acceleration Fund, to assist with the construction of 2000 houses around Porirua, including Kenepuru Landing.)

Challenges like housing in Porirua showed that the new Government’s new levy-funded private finance solutions weren’t enough: “Porirua was one of the cases that made it abundantly clear that we needed some direct Crown investment in infrastructure,” she says.

“There’s certainly a place for some of those infrastructure funding and financing tools, but one of the things we realised pretty quickly was that imposing an infrastructure levy on a community like Porirua would price out a lot of the people that already lived there, when we wanted to get them into their own homes.”

The cancellation of the Kenepuru Landing deal is “hugely disappointing”.

“It’s exactly the kind of project that we need in New Zealand, but particularly for the Wellington region to be able to get this kind of housing uplift. In a Wellington regional context, we don’t really have a lot of available land.”

She says the $1 billion infrastructure acceleration fund contained a contingency allowance for eventualities like cost increases; she questions whether sufficient effort was made to salvage the deal. “Given the current economic conditions, maybe there needed to be some flexibility around timelines.”

But Anita Baker says the council sought more money from that contingency allowance; it was refused.

“The infrastructure pricing is more expensive than we thought. It’s heartbreaking to hear that it will affect the number of houses that can be built,” Baker says.

“This was always important because we’re short of so many houses in Porirua, and it’s disappointing to lose anything. Unfortunately, the cost of interest and infrastructure has just risen hugely and we’re already putting 55 percent of our long-term plan budget into the three waters.

“It’s really hard, when you know that you need the housing and you can’t afford it – especially more social housing, which we obviously need, because we’ve got a huge waitlist every year.”

She sees nothing in the new coalition Government’s infrastructure financing plans that will help councils anytime soon. “This is a really tough pill to swallow,” she says.

“Chris Bishop’s in a really tough position. I understand that some funding has to stop. But in the meantime, we still need the housing – and they want to build it. I know he’s trying really hard. He wants us to push water and housing. So it will be interesting to sit down and have another conversation about where this is actually going.”

Bishop has been approached for comment.

It’s not the first problem for the Kenepuru Landing housing project. In September last year, the developers were fined more than $93,000 for unauthorised earthworks and discharge into the Mitchell Stream, which is a habitat for indigenous fish species.

Ironically, given the promises that the new water infrastructure would help clean up Porirua’s harbour, the developers’ spill ended up in the harbour.

Kenepuru Limited Partnership, Kenepuru Developments Ltd, Kia Consultants Ltd and Calibre Consulting Ltd were sentenced on 22 charges at the Environment Court in Wellington.

Judge Brian Dwyer said the discharge of sediment was the most significant contaminant in New Zealand’s rivers and coastal waters. “That is a major environmental problem in the case of Porirua Harbour and should be recognised as a factor in sentencing for discharges which ultimately end up there.”