Source: New Zealand Government
Good afternoon!
I want to acknowledge the immense amount of work Minister Bishop has done in leading this Going for Housing Growth programme – it is vitally important.
As the Minister flagged, central to Going for Housing Growth is this idea that growth should pay for growth, and a key tension in this system centres on finding a balance between certainty about where growth will occur and having the flexibility to respond to demand.
The Infrastructure Funding and Financing Act (IFFA) hits both of these things – it levies those benefitting from the infrastructure and is an important piece in this responsiveness puzzle, enabling demand-led growth without further straining councils’ balance sheets.
However, we’ve become aware of barriers to its use, so we’re making some changes to make it fit for purpose, which I’ve been tasked with leading.
IFFA background
The IFFA emerged from a great example of the market innovating to solve coordination problems and deliver benefits much sooner than the public sector could have.
Developers saw an opportunity at Milldale to deliver housing but needed infrastructure to enable that to happen.
Unable to rely on a council constrained by its own growth plans and lack of funds, the developers set up a special purpose vehicle (SPV) to raise the finance needed to deliver the infrastructure and then levied the subsequent landowners to repay the debt.
Recognising the value of this approach, the government at the time rightly sought to codify this to be replicated around the country, culminating in the IFFA.
In addition to providing a responsive, market-led pathway to enable greenfield development, the IFFA has several benefits.
It can enable intensification in existing urban areas by funding and financing infrastructure upgrades.
As the SPV is off balance sheet, it preserves council debt headroom while delivering additional infrastructure capacity.
It ensures revenue streams are certain and are hypothecated to the relevant infrastructure.
It ensures fairness in that those who benefit pay – it spreads the infrastructure costs over a longer period of time and, therefore, more fairly across the beneficiaries over that infrastructure’s lifespan.
Yet, its responsive, market-led vision has not been realised.
No further greenfield deal has been done since the IFFA’s Milldale inspiration, with only two city-wide levies have been struck.
We set out to understand why, and we have gone about fixing it.
Streamline levy development and approval
We’ve heard the process for standing up an IFFA transaction is unnecessarily burdensome and costly.
A range of requirements are duplicated and redundant, which slow the process without adding any real benefit.
A Minister doesn’t need to be bogged down with immaterial technical detail, and we don’t need ambiguities that arbitrarily leave some important matters neglected.
We’re making a range of detailed changes to address this.
Our focus is to ensure the right information is available in the right format at the right time to make the right decisions.
There is also an embedded suggestion that a Minister is somehow always the best arbiter of what’s reasonable and affordable, even where affordability is already internalised.
While we acknowledge the decision to impose a levy on existing ratepayers is a serious one, if a greenfield levy is proposed by the developer with skin in the game, or everyone affected otherwise consents, we are now going to take the wild approach of trusting that they’re acting in their own best interests.
Increasing uptake
Extending access to a variety of users
Last year, Cabinet made the decision to extend the scope of the IFFA to cover water entities under Local Water Done Well, and now we’re extending it further to NZTA projects.
This will mean major transport projects can recover a share of the infrastructure cost from those who benefit from an increase in development capacity, helping growth pay for growth and adding to the potential funding stack.
Supporting developer-led proposals
Part of the current process requires a levy to be endorsed by levy and infrastructure authorities, such as councils, before a proposal can be progressed, with no clear criteria to limit obstruction.
In pursuit of responsiveness and growth, we are making changes that will require the endorsements to be given where statutory requirements are met.
We cannot afford to give a licence to say ‘no’, so we’re not going to give it.
Deferrals
We’re also moving to enable levy payment flexibility.
While infrastructure adds value to properties which benefit, and generally increase wealth, annual levies may be difficult to provide for when property owners may not have much financial headroom.
We’re therefore introducing levy deferral options, so property owners can defer payment to a later date or until a specified triggering event.
Ensuring deferral options are reflected clearly and transparently will mean all parties can make better decisions, including the responsible Minister through the affordability assessment.
Project eligibility
Currently, there is ambiguity about whether projects commissioned prior to when a levy proposal is submitted are eligible, so we’re clarifying that projects commissioned up to two years prior will be.
This will extend coverage to circumstances where projects may have recently been completed but house sales have yet to occur.
Use for development levies
With the advent of the development levies Minister Bishop has just announced, we’re also making changes to help them work together with the IFFA.
If a developer is facing the prospect of big development levy for council-provided infrastructure, there may be demand for the IFFA to finance this to be repaid by future homeowners.
For this use case, we are removing the requirement that IFFA levies have a direct link to specific bulk infrastructure.
Other changes
There are a range of other changes, such as:
- SPVs getting explicit powers to commence recovery action for unpaid levies
- councils being able to request reimbursement of levy administration costs as a condition of endorsement
- introducing flexibility about where the infrastructure must be vested
- putting levies on an even keel with rates in the event of a rating sale
- several other minor, technical, and remedial tweaks.
Together, these changes will deliver a more usable pathway for IFFA deals that can be accessed by developers and others.
The objective is to deliver infrastructure that may not have been planned by councils or planned for in the timeframe that developers need it.
Conclusion
While the IFFA is relatively technical, it is a very important tool, and it has a key role in facilitating demand-led growth.
By streamlining processes and improving usability, and having National Infrastructure Funding and Financing (NIFF) engaged to assist councils and others with expertise and growing capacity, we expect the IFFA will be much more attractive and used much more widely.
We need growth, and growth must be responsive to demand.
The IFFA has a distinct and important role in delivering this.
