Most Read Contributor in New Zealand, September 2016
The Productivity Commission is recommending reform of the
development contributions charged by local councils in relation to
new subdivisions, including a merits-based review right for
The recommendations are included in the Commission's draft
Housing Affordability report, released today. Submissions are due
by 16 February 2012.
The Commission's principal recommendation to ease the
pressure on house prices is to release more land for greenfields
development, particularly in Auckland. This reflects the fact that
land prices now account for almost 60% of the cost of a new house
in Auckland, and 40% across the rest of the country. This compares
to 10% in Adelaide and to 25% in Sydney.
But land release policies are the province of local government.
Although development charges are a much smaller piece in the
puzzle, the Government can legislate to change the charging
Development contributions are designed to cover the costs to the
local council of expanding existing infrastructure to accommodate
new areas of housing (hooking up the water supply and sewerage
Traditionally these costs were met out of general rates but the
trend in New Zealand and internationally has been to move toward a
user pays system. Typically the charges are levied off the
developer who recoups them through the price of the new house or
But submissions to the Commission revealed widespread concern
that councils are using these charges to "gold plate"
infrastructure services or to keep general rates down. Particular
complaints were that the charges are not subject to judicial review
and that the method of calculation is often unclear.
The size of these charges varies widely across the country but
can be more than $40,000 per section.
The Commission is recommending that the Best Practice Guidelines
to Development Contributions, developed in 2007, be updated.
Matters which the Commission considers should be covered in such
an update include:
when development contributions can be required (whether the
investment (A) of a scale to justify separate funding and (B) is
required predominantly to meet the needs of the new subdivision,
and whether alternative funding methods are available)
how to calculate contributions (so that the developer is
charged only for that portion of the cost which is necessary to
meet the increased demand arising from the development, with any
wider benefits met through general rates)
how to recover costs (upfront or over the life of the asset or
a mixture of both), and
how to increase transparency.
Recommendations to strengthen compliance with the new guidelines
giving them statutory status by incorporation into Schedule 13
of the Local Government Act
requiring councils to produce regular, externally audited
activity reports, and
improving capacity through a central government-led drive to
upskill relevant council staff.
This mechanism would allow developers to challenge both the
requirement for and the size of development contributions. The
Commission suggests that the merits-based test might include
answering such questions as:
is the project justified
have alternative funding methods been considered
do the charges pass the "rational nexus" tests
(including reasonable provision for a share of the cost to be
allocated to general rates)
are the estimates of costs of supply and capacity life of asset
reasonable (essentially an engineering assessment that might be
satisfied by a commitment to competitive tender)
does the calculation method have integrity, and
what are the implications of the contribution charges and the
way in which they are exacted for other community and national
objectives and policies?
Other building regulation costs
The Commission also looked at the impact of building regulations
on housing affordability. Areas it has identified for possible
creating a contestable market for building consent and
inspection services by encouraging private building certifiers and
allowing homeowners to use the services of any registered Building
Consent Authority (BCA), not just the BCA associated with the local
exploring the advantages, disadvantages and barriers to the
consolidation of BCAs between local authorities, and
having the Department of Building and Housing (DBH) monitor
councils' use of 'stop the clock' provisions to ensure
that they are not being used to drag out consenting processes
beyond the 20 working day timeframe.
Chapman Tripp comment
The regime the Commission is proposing represents a significant
improvement on current practice. We recommend that you take this
opportunity to have input into how the regulatory framework
governing the industry can be improved
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Be aware that most modern subdivisions now include land covenants which are registered against the titles.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).