New Infrastructure Funding Legislation Intended to Accelerate Housing

Introduction

The Infrastructure Funding and Financing Bill (the Bill) is expected to be passed shortly, with the Select Committee report on the Bill having been recently released.

Significant infrastructure investment is needed to address housing issues and keep up with development demand in high growth areas around the country. Development is constrained where council funding limitations lead to development projects being delayed, until such time as the supporting infrastructure is able to be built. Accelerating infrastructure investment will increase the availability of land for development.

The intent of the new legislation is to facilitate housing and urban development through enabling an alternative model, to the traditional public sector model, allowing private capital to be accessed for funding and financing infrastructure needed to underpin new development.  

The new infrastructure funding model will enable housing and urban development projects to begin sooner than council funding would allow by providing for stand-alone entities, known as Special Project Vehicles (SPVs), to raise finance for infrastructure projects. Under the Bill, SPVs include companies, limited partnerships and Crown partnerships.

The cost of infrastructure funded under this model takes the form of a levy which will be paid over a number of years by property owners, who will have the benefit of the infrastructure.

SPVs will be responsible for both financing and constructing the infrastructure. Once constructed the infrastructure will vest in the relevant local authority or government entity.

Infrastructure Previously Funded by Similar Model

The approach embodied in the Bill is not completely new to infrastructure funding in New Zealand. A similar model was implemented in relation to the Milldale residential development (north of Auckland) two years ago, where a ‘special purpose vehicle’ raised $50million to fund infrastructure. Landowners will repay the borrowing through payments over a 30 year period, collected by Auckland Council through the rates system.

Urban Growth Agenda

The Bill is one of a range of initiatives the government is implementing under its Urban Growth Agenda (UGA). The UGA is aimed at addressing problems associated with rapid urban growth and, particularly, issues relating to housing developments not keeping up with urban growth. Other UGA initiatives include the Urban Development Bill, which provides Kãinga Ora with development powers designed to address barriers to complex, large scale urban development, mostly notably via ‘specified development projects’.

The Environmental Select Committee report confirms the two Bills are related, and therefore intended to work together.

Type of Funded Infrastructure

The new funding model proposed by the Bill will enable funding of water and transport infrastructure and community infrastructure and facilities (includes reserves, network infrastructures, community centres). In addition the Bill makes provision for environmental resilience infrastructure to be funded, expressly defining this type of infrastructure as infrastructure for:

(a) managing risks from natural hazards, including by avoiding or mitigating those hazards and reducing risk; and

(b) environmental restoration generally.

Submissions to the Select Committee confirm support by councils for the inclusion of environmental resilience infrastructure to be funded by this new model. However there is a common concern regarding whether the proposal for this type of infrastructure goes far enough, with submissions calling for the definition to be expanded to enable infrastructure to provide for environmental improvements.

Alignment of Bill with Urban Development Strategies & RMA processes

The Bill has a very specific and narrow focus - to create a new funding and financing tool to support the provision of infrastructure for housing and urban development. Consequently the provisions providing for the role and powers of councils under the Bill are correspondingly narrow.

This is particularly evident in the provision for ‘endorsement’ of infrastructure projects by councils. The scope for endorsement is limited to technical specifications and specifically, whether:

(a)         those specifications are compatible, or will be made compatible, with any wider infrastructure network which the infrastructure will be a part of; and

(b)         councils will be able to meet operational and maintenance costs after infrastructure is vested in the council.

While the Bill has a narrow focus, it is intended to work with complementary regulatory regimes, including resource consent processes. The Bill makes provision via consequential amendments to the Resource Management Act 1991 (RMA), for SPVs to receive a designation or compulsorily acquire land, to allow for construction of the infrastructure. Developments supported by infrastructure funded by the new model will also remain subject to resource and building consent processes.

Nonetheless, the narrow scope of councils’ powers of endorsement under the Bill has led to submissions to the Select Committee raising the concern that there will be a loss of infrastructure planning power on the part of councils and that infrastructure which is funded via this model, could in some instances result in infrastructure (and the development it is intended to support) not being aligned with relevant council urban development strategies.

Potential Limitations of New Funding Model

There is also a concern that there will be some limitations in terms of the application of the infrastructure funding model.

The expectation, evident through submissions made to the Select Committee, is that infrastructure funding under the new model is best suited to greenfield areas, where project risks can be easily understood and growth planning is well progressed. A question has been raised however as to whether the bill has sufficient flexibility to enable this funding model to work well in relation to brownfield areas, which are seen to give rise to more complex issues, including beneficiary identification and allocation. Inevitably this question will be answered over time.

Conclusion

The new infrastructure funding model provides a positive solution to council funding constraints limiting the availability of land to meet the demand for housing development, particularly needed in high growth areas. While the Bill has a narrow focus, it is clearly intended to align with other UGA initiatives and complementary regulatory regimes, including the RMA. The overall success of the new model (once the Bill is passed into law) will inevitably rely, not only on the ability of the new funding model to result in more land being available for housing development sooner but also on alignment of projects with council spatial planning and urban development strategies, other UGA initiatives and the RMA.

If you would like to discuss any of the content of the article please get in touch with one of the Adderley Head team.

Disclaimer: This is a brief summary for information purposes only and is not legal advice.

Posted on Friday 10th July, 2020 at 02:28 pm