GUEST BLOG: Alan Johnson – $1 billion infrastructure fund merely subsidises speculators
John Key’s announcement of his Government’s $1 billion infrastructure investment fund is a brilliant political gesture but as with everything else this Government has done with housing it won’t provide any affordable housing.
The idea of such a fund is brilliant politically because it appears bold and responsive so will placate the misgivings of soft National supporters who have become worried about the increasing evidence of street and carpark homelessness. But while it appears bold it isn’t really and there are probably no guarantees being offered as to how many affordable homes will be delivered. This is just another case of trickle-down economics that will have us believe that if we build enough houses in Auckland soon or later there will be enough for everyone.
At the National Party’s annual conference in Christchurch on 2nd and 3rd of July, John Key announced a $1 billion infrastructure fund as a response to the growing housing shortage. The idea is that Government borrows money for the market and on lends it, at no interest, to qualifying councils who will in turn use it to supply infrastructure to undeveloped land which has been zoned for new housing. This fund is targeted at councils in high growth areas such as Auckland, Tauranga, Christchurch and Queenstown. The rates from the properties created in these new developments will be set aside to pay off the resulting debt over a 10 year period.
Everyone wins from this deal. Council’s get more debt to pay for infrastructure which may not otherwise have been a priority. The Government gets to claim it is doing something extra to alleviate housing shortages in rapidly growing cities. Land bankers, land speculators and developers get away without having to pay development levies for the infrastructure which essentially increases the value of their land and gives them wind fall profits.
But it is not such a big deal in terms of the Government’s actual contribution. Presently the Government is borrowing at rates of less than 3% which suggests that at its peak the actual subsidy to Councils will be around $30 million per year and will amount to around $150 million over the 10 year life of the fund.
The question should however be asked as to whether Councils can afford to be borrowing more when some of them appear to be sinking in a sea of debt.
Take for example Auckland Council which is likely to be the prime target for this offering from John Key. In June 2011 the Council had borrowings of just over $4 billion and spent $173 million in finance costs or 19% of its entire rates revenue. By June 2015 Council borrowings had increased to $7.5 billion and finance costs had increased to $364 billion or 25% of rates revenue and this was following some hefty rates rises .
In other words over this four year period Auckland Council’s debt grew by $72 million every month. What’s more there is little sign of it slowing down. Watercare – Auckland Council’s water services company, is planning to spend $4.9 billion on new infrastructure over the next 10 years with 70% of the investment coming from existing customers or new customers. The Auckland CBD rail loop is expected to cost around $2.5 billion over the next six years with ratepayers having to meet at least half this cost. This will come out of the same pockets of those Aucklanders who may also soon be paying road tolls to use the city’s motorways.
Auckland obviously needs more people and more ratepayers to pay for this regional scale infrastructure investment but under John Key’s new plan many of these new ratepayers will be only be paying for the debt wracked up in infrastructure to serve their property alone.
Furthermore it seems unlikely that housing costs will drop significantly in the face of developers and land owners being able to pay lower development levies. New house prices are not related just to the cost of developing sections and building houses but to price of existing houses. If existing house prices are high this is generally reflected in higher prices for undeveloped land on the urban fringe as well.
In 2015 Auckland Council estimated that there was capacity for around 100,000 additional dwellings within the current urban zoned suburbs and the special housing areas. The soon to be released unitary plan will expand this development capacity into greenfield sites by a further 61,000 to 74,000 dwellings as well as radically increasing densities in most existing residential areas.
These opportunities and promises have done little to deflate Auckland’s housing bubble which has seen the medium house price rise 15% in the past year. This house price inflation appears to have less to do with land availability than with rapid population growth and easy lending by banks. John Key’s latest gesture will not address these factors but then it was probably never intended to.
Alan Johnson is a policy advisor to CPAG and Salvation Army
“increased to $364 billion or 25%” A typo maybe?
Andrew Little has just drip-fed something of Labour’s housing initiative… not much said just yet but enough for John Key, in reply, to say “that’s like declaring war on home-owners and developers”.
Apart from the ridiculous hyperbole of such a statement, it lays bare National’s self-serving strategy for alleviating the nation’s housing shortage though not as much as the article above.
Thank you Mr Johnson!
The circular argument just goes on and on: we need more people to pay for additional infrastructure; we need more infrastructure because we have more people; we need more people to pay for additional infrastructure; we need more infrastructure because we have more people……..
No wonder the quality of life in NZ continually declines.
Key’s plan as usual, will result in nothing being done to resolve the housing crisis and unprecedented homelessness, while billions of dollars that John key will have to borrow gets siphoned off into foreign government coffers. Wake up and smell the reality of the last 8 years New Zealand !!!
Yes WORDS the smell of a rotting Nactional carcass.
Yep, it’s a hat tip to developer donors and in that respect National are very loyal to their own. And yes this billion is nothing to do with more houses per se and again you’ve got to admire Keys seamless delivery, duplicitous to the last syllable.
But does it not emphasise just how much National want the status quo in Auckland to remain? They have NO intention of changing anything or putting in place anything that may alter investors current outcomes.
And on the Auckland Council, I’ve always believed it was created as a vehicle to sell its assets off to Nationals wealthy and well-connected but so far National have not got their people in to do that. So heaping more and more debt upon it, not stopping the rampant immigration and threatening to take over parts of its organisations is another avenue Key is using to achieve the same goal.
Nactional paper hangers furiously pasting over the huge cracks of the housing bubble about to burst!!!!!
This would make a good political cartoon sketch for the next election????
For that much money the government could *loan* individuals/families enough to buy a basic home outright, on land leased from the government.
If it were interest free then in 10 years even with a low level of payback they would at least have sizable equity in their home.
National’s programmes for building houses (such as they are) are a waste of time if speculators keep buying them up as soon as they hit the market!
We need a capital gains tax and Land Tax, stat!! Anything else is tinkering.
Very few companies have balance sheets strong enough to actually build houses, let alone buy the land?