Sunday, October 5, 2014

Frank Newman: Development contributions dishonest

Section 199 of the Local Government Act 2002 gives local councils, “the power to levy a development contribution if the effect of a development is to require new or additional assets or assets of increased capacity and, as a consequence, the territorial authority incurs capital expenditure to provide appropriately for reserves, network infrastructure, or community infrastructure.”

The intention was that local councils experiencing population growth would have an additional revenue mechanism to recover the cost of putting in infrastructure to service that growth.  When the levy was introduced in Whangarei in mid 2005 it was promoted as a matter of fairness by anti-development councillors and council staff. It would, they said, shift the cost burden of new infrastructure from the general ratepayer to the developer. 

While the argument had some misguided merit, the problem is when the Whangarei District Council (WDC) implemented the scheme they did not shift the rating burden. They happily collected the revenue from "developers"  but did not reduce the general rate take at all. In this regard some the councillors of the day and council staff said one thing, and did another - they were grossly dishonest.

To make matters worse, when staff calculated how much a fair fee would be, they assumed the cost of the new development would be funded 100% by debt. As a result, financing costs (charged at 5.7% currently) account for about half of the actual charges. This assumption is almost certainly incorrect and the WDC is charging a cost-recovery fee, without incurring the cost. That too is grossly dishonest.

The Whangarei District Council charge development impact fees where a new “household” unit is created. That could range from a granny flat to a large subdivision, and the costs are significant.

Regardless of where the house is built the WDC will charge a reserve contribution of $446, $7,111 for roading, a parks facilities charge of $679 and a library charge of $1,066 (a library charge!).

On top of that, those connecting to the council water system will pay $5,579 or $8,834 if they live in the Bream Bay area.

Those connecting to councils sewerage network will pay $5,507 or $21,568 if they live in a coastal area (which is more than the cost of installing an onsite waste water system!).
So someone building a new household unit in town (including a granny flat)  would pay $20,388 (or $23,446 if they can't recover the GST).

Those building on the coast and connecting to council services would pay up to $39,704 ($45,660 including GST). 

These costs are not only outrageous they are obscene. No wonder so few new homes are building built in our district and why houses are unaffordable for many. In most cases a homeowner will have to add the WDC fees onto their mortgage, so by the time the mortgage is repaid they would have paid four times the original amount!

And this is just the development fee. On top are building and resource consent fees, the latter (if required) is likely to be no less than $5,000 but typically more than $20,000 and sometimes substantially more.

In the year ended June 2013 the WDC collected $1.336m in development fees (almost half of the expected revenue of $2.437m); which goes to show how little new development there has been. It's pathetic - hardly the high growth economy the WDC claims.

Unfortunately Whangarei is not alone in this madness. In March Fairfax news published a story about a property owner in Christchurch who wanted to redevelop a two unit apartment building but cancelled the project after being hit with a $72,000 fee from the Council.

They wrote, "By the time the landowner paid for the build, consents, developer contributions and fees on selling the apartments, he would not get much of a financial return for his trouble."

They went on to say, "Housing Minister Nick Smith said in the last decade the average national developer contribution had gone up from $3000 to $14,000, with some councils charging as much as $64,000 per section. Smith said the fees were having an impact on the affordability of housing."

Councils all over New Zealand are killing the golden goose that provides jobs. Those that want to revitalise their local economy should cancel this highly destructive and dishonest development tax. Everyone would benefit.


Barry said...

Thank you for showing us just how bad the WDC is.

Angry Tory said...

Infrastructure should be paid for by rates levied equally on each property, or better still, simply provided commercially.

The sooner we get rid of all these elected councils and return to "city corporations" with boards appointed by ratepayers (mostly commercial) the better NZ would be. Start with the supercity and go down from there!

Sounds like the kind of move an (almost) majority National government (especially with ACT) would make as a matter of course...

Brian said...

Excellent Analysis Frank,
We can be assured that, not just the Whangarei District Council is gaining revenue from these sorts of activities.
This is the Curse of Rampant uncontrolled Bureaucracy coupled with a Local Government Act that fails to protect ratepayers.
I hate to be pessimistic but just how are New Zealand ratepayers going to change (a better more adapt word, would be “destroy”) the present L.G. set up?
If we sanction the Local Government Commission on their policy of amalgamation, this situation will spiral totally out of the control of ratepayers.
You will have councillors with layers of civic officials protecting them from the general public, you will also have more layers of bureaucracy, employing more staff, and any idea of financial restraint especially in non core spending will be lost in the ever increasing amount of “Red Tape”.

Put this, with the ever increasing demand that appointments be made to Councils based on race and not merit; followed by an MMP local government electoral system and you have all the hallmarks for a dictatorship.
As Frank states our present Local Government is killing the goose that provides the jobs, it also kills initiative, stifles growth and promotes the Green Party political objective of effectively reducing the viability of New Zealand economically.
At present ratepayers are perplexed at the vast number of regulations, hoops to jump through, into a malaise which is always perpetuated by an ever increasing costly bureaucracy.
A new ratepayer’s party standing on a platform for the complete re organisation of our Local Government, its rules, regulations and objectives, needs to be formed before the next L.G. elections.
To continue as we are, will see more and more power into the hands of the bureaucrats, with eventually councillors being relegated out of existence as toothless dinosaurs.

Mike said...

I disagree with you Frank. Existing ratepayers should only be paying the cost of essential services and reinvestment/maintenance cost of existing infrastructure at capacity that exists, plus special projects of universal benefit. Newcomers need to pay the cost of capital infrstructure capactiy expansion. No debate in my mind. Our Key problem is immigration - it pust pressure on all infrstructure and under levied new developments to accommodate mean existing ratepayer cover the burden of expansion of newcomers. Immigration is not an economic miracle - when all it does is create a service industry society hevaily weighted to imported coinusmer goods, rather then favourable export trade balance these problems will exacrebate and drive everyones standard of living backwards as we are seeing.

Anonymous said...

In the days long past, New Zealand communities and associated entities such as electric-power, drainage and hospital boards grew successfully by striking a Special Rate for a locality where a major infrastructure project was to be financed. The local authority, Borough or City Council, calculated the cost of the project, for example, a potable and waste water reticulation, sought ratepayer approval to raise a loan, usually over a twenty-five year period. The loan was earmarked specifically for the project. The cost per unanticipated number of households for the area to be serviced over that period was calculated and the Special Rate was added to the General Rate for that area to be levied over the time required to pay it off. Basically this was a form of user-pays which essentially kept local body indebtedness at a manageable level.