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The great New Zealand infrastructure and fees scam

The great New Zealand infrastructure and fees scam

Before embarking on a building project, the average Kiwi has little to no idea about just how much the cost of council-imposed infrastructure, council butt covering and regulatory fees increase the cost and time it takes to get a new home.

What they then discover is nothing short of a national disgrace, as they come up against a wall of bureaucracy with costly and often mindless road blocks at seemingly every turn.

They are further enraged when they find they are getting charged by the minute by the very same entities as they try to navigate through this maze of ever-shifting goal posts.

The home owner naturally begins to think that surely this can’t be happening in New Zealand. Why is this so difficult? Am I being singled out for unfair treatment? Is there any thought or care as to what the economic or social impact may be to the applicant?

Those that operate within the construction and development industry are acutely aware of the dysfunctional way the Resource Management Act (RMA), the Local Government Act and the Building Act are skewed not to provide service, but to exonerate local authorities from risk and to generate revenue at local levels.

Home owners and contractors are powerlessly trapped within an outdated monopolistic system that needs a complete overhaul. The drivers within the current system are set to inadvertently create an outcome that’s so risk averse and subjective that it is hobbling productivity and driving up costs for the end user.

It’s no surprise then that the cost of providing housing is needlessly soaring. In the past 15 years the cost of delivering a standardised new house has risen 110%, compared with the overall cost of living rising only 44% in that same period.

Much of this extra cost is to do with the compounding effects of layers of regulation, council fees and unfairly imposed infrastructure costs.

The torturous land-to-market journey starts with the RMA which, while originally well intentioned, has proven to be completely devoid of any cognisance of what financial implications or costs might be incurred with a project, or any understanding as to what the nation requires to house its population.

Next, local authorities, along with often ideologically-driven planners, interpret the RMA alongside their own local guidelines and unique district plans, complete with an individual planner’s subjective views which can put unrealistic conditions and significant infrastructure costs on raw land or a building project, ultimately driving costs up.

Costs incurred by new home owners and developers include things such as stormwater detention tanks, replacement or upgrades of council drains, unnecessary replacement of existing drains on private property, new water mains, fire hydrants, photovoltaic power systems, impositions on design, and above-code insulation — if you can imagine it you might be charged for it.

Many of these extra costs are a result of ongoing insufficient infrastructure funding, maintenance, forward planning by the local authority or a particular penchant of the council officers.

For them, the easiest way to get funding is by imposing the cost on the next home builder. Local authorities must remember that they are there to provide the basic services that a city’s inhabitants require — not only the immediate requirements but those for future growth as well.

Councils appear to have lost focus on what their main purpose is, and often much-needed infrastructure takes a back seat while funding gets side-tracked on social projects and feel-good follies.

It is often more politically advantageous for local authorities to lump costs onto the silent minority who are building rather than risk the ire of the voting public by alternatively spreading costs across all ratepayers, or over many years.

 

Populist planning choices

Local politicians who wish to be re-elected are, unfortunately, set up to make populist planning choices rather than choosing what is best for a city in the long term.

The fear of NIMBY and voter backlash too often gets in the way of the greater good. These planning functions should be removed from local politicians’ mandates and put in the hands of experienced commissioners.

Only then would we start to get well thought out, pragmatic and apolitical planning decisions. Councils could then plan for the future infrastructure the city or region needs on a longer-term basis, and fund accordingly.

Local body politicians can also get tripped up badly by the council officers who often deliver services that contradict what the councillors want to happen.

A case in point — you only need to look at Wellington Mayor Justin Lester’s recent comments about how he wanted to make rules to stop land banking and increase available building land around Wellington.

Worthy comments by the Mayor, but the developers rightly pointed out the inefficiencies and road blocks council officers place before those wanting to develop the green field and infill sections he feels are being land banked.

Local authorities are also guilty of over use of the RMA provisions, often demanding resource consents for the most minor of issues that, realistically, have no impact on anyone, aside from delaying a project and emptying the wallet of the applicant.

Unbelievably, on larger projects it can take three to 10 years to get approval through the RMA and council, and can cost developers many hundreds of thousands of dollars in the process, with very little certainty of the final outcome.

All this time and money turns into extra cost that gets added to the price of providing buildable land.

Many of the world’s most successful and prosperous cities have a very light regulatory touch on the supply of residential land and, not surprisingly, they bring affordable land to the market very quickly.

If we are serious about solving land supply, we need to stop being so precious, pick the best out of overseas practice and make some urgent pragmatic changes.

Hidden amongst all of this lurk monopolistic utility providers that are free of any overriding regulation or competition. They charge what they feel like for supply of services, often many more times than the actual cost.

Indeed, it is cruel and unjust that the initial developer/home owner pays an over-inflated price to set up the infrastructure, yet the ownership of it remains with the utility provider who then commands a rental fee to allow the same developer/home owner to use the infrastructure they paid for themselves. Go figure!

This racket has flown under the radar for far too long, and needs addressing as soon as possible.

Central Government also needs to step up and accept that many local authorities just don’t have the immediate financial resources or skills to provide the infrastructure for rapidly increasing city limits and population growth.

Turning a blind eye or expecting a new home owner to foot the total fees, GST and infrastructure bill upfront on a section purchase or building project is neither a sustainable nor affordable model, as is being witnessed now.

Central Government could help local authorities by providing low interest loans, and by looking at rule changes to spread the recovery of the infrastructure costs and fees over many decades, which would help keep the cost of land down and present a far more equitable solution.

Central Government also needs to provide strong leadership and bring uniformity to our mish mash of local planning regulations.

Everyone knows the current system is no longer capable of delivering what is required, and expecting the market to sort it out or hoping that 70-odd disjointed local authorities will collectively come up with a solution is a pipe dream.

Time will only tell if the long-awaited reforms to the RMA that have just been passed will make an appreciable difference. I suspect it will be too little too late, and that it will be back to the drawing board again before we see any meaningful difference made.

 

 

What can be done?

So what can be done in the short term while the bigger picture is grappled with?

The worst offending councils need to take a realistic view of the actual risks they have when issuing and administering building consents, rather than the imagined risks, and call the dogs off.

Home owners’ money and productivity are being squandered in the inane pursuit of eliminating all possible liability.

Standardise and cut back the number of instances in which resource consents are required across the country. The current level has reached tipping point, is out of touch with reality and can only be viewed cynically as soft touch revenue collecting.

Limit the authority of planners and urban designers. They need to stop operating as pseudo clients and start working in the real commercial world. They must realise that textbook utopia is beyond the financial resources of most.

Legislate to have financial oversight of monopolistic utility providers. Their practices need to be curbed, and competition introduced.

Infrastructure costs should be funded on rolling averages over many decades, not be fully imposed on the first person who purchases or builds.

The fees local authorities charge for infrastructure and reserves should be limited and regularly audited to ensure they are fair and used for their intended purpose. 

And, finally, start engaging with industry to come up with a workable system that brings affordable, sustainable efficiency back into the mix with the correct amount of checks and balances.

Ultimately, the systems currently in place are not working in an efficient, affordable or sustainable way, and need a pragmatic overhaul.

I trust my words and suggestions are taken in the manner they are intended — as constructive criticism — and as a starting point for discussion that might, indeed, be a catalyst for positive change.

 

• This article contains the author’s opinion only, and is not necessarily the opinion of the Registered Master Builders Association, its chief executive or staff.

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