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New Zealand Productivity Commission: ‘Better urban planning’ report

Analysis and policy recommendations help to shape better urban planning in New Zealand.

The New Zealand Productivity Commission published a ‘Using Land for Housing’ report to improve the financial incentives for councils to develop more land and invest in infrastructure to accommodate the growing populations in their areas. The Commission’s suggested remedies included reforms to (and/or greater use of):

• targeted rates
• debt funding
• rating Crown property
• congestion charges
• infrastructure user charges
• development contributions that fully recover costs, and
• rates based on increases in property values.

We worked with the New Zealand Productivity Commission to assess the extent to which:

• these recommendations and findings had the potential to adequately incentivise councils to actively accommodate growth pressures, or
• whether alternative funding mechanisms are required.

Our analysis found that the policy findings and recommendations outlined in the Productivity Commission’s report:

• had enough scope to cover all the funding requirements of local councils, and
• were inexpensive to implement relative to the revenues generated.

However, we also found that the recommendations didn’t adequately account for the various risks that councils typically face in funding infrastructure. These risks include:

• changing infrastructure standards, and
• changes in demand for residential and commercial development.

Our analysis of alternative policy options suggested the following:

• where possible, development contribution plans with full cost recovery and targeted rates should be used to recover the capital costs of infrastructure provision. (In the case of infill development, sales of development rights may be a more practical measure.)
• user charges should be implemented where possible to ensure the efficient use of infrastructure. Targeted rates should be used were necessary to recover any remaining operational and administrative costs.
• funding tools (such as value capture, development rights and central government funding) should be used to compensate councils for the financial risks of providing infrastructure and/or for providing councils with a financial surplus. These tools could also be used if development contribution plans and/or targeted rates are not enough for full cost recovery.