Incentives and flexibility needed to fix urban development


New Zealand’s urban growth system is broken and must be revised to incentivise cities to grow, an infrastructure expert maintains


City leaders must be given the flexibility and tools they need to succeed, says Stephen Selwood, CEO of Infrastructure New Zealand.

“We took 42 public and private sector infrastructure leaders to Portland, Denver, Dallas and Houston – four big, fast-growing cities facing the same challenges as New Zealand cities, but with different economic, social and environmental outcomes.

“The US cities may not be able to match New Zealand centres for liveability, but they do know how to grow.”

Homes are being built, roads and public transport are being delivered and homelessness is down by a third in the last decade, Selwood says.

“The key to US success is an urban growth system which is incentivised to want growth and has the tools and flexibility to overcome challenges.

“The metro areas of the US, including the constituents and governments, benefit from growth.

“Sales and income taxes complement property taxes.”

More homes, residents and investment means more revenue for local authorities, Selwood observes.

“Federal and state agencies sweeten the deal with grants and funds to encourage performance.

“America’s thin welfare net doubles the importance of successful urban performance – if cities don’t grow and succeed, homelessness, unemployment and social costs fall much more heavily on local institutions.

“Cities are not only better incentivised, they have the ability to respond.”

“Different revenue streams provide flexibility of funding, Selwood adds.

“Innovative financing is used to transfer the costs of infrastructure to beneficiaries who repay debt over the long term.

“Regional governments evolve to meet city-wide challenges, special purpose infrastructure districts fill resourcing gaps.”

New Zealand’s urban growth system, by comparison, is poorly incentivised, he believes.

“Central government captures the tax benefits of growth, leaving councils reluctant to invest in costly upfront infrastructure.

“Councils that try to grow have to rely on rates paid by those with homes in order to fund services for those without homes. Debt ceilings constrain finance and hard regulatory instruments become the preferred tool to manage growth.

“Overdependence on urban boundaries and density restrictions has undermined competitive land markets, preventing affordable housing, and there are no price signals to ratepayers about the consequence of council policies.”

Overall, the American system is far more collaborative, innovative, aspirational and effective at responding to growth, Selwood claims.

“We simply must revise our governance responsibilities and funding. It is not working having a multiplicity of small councils with limited capability manage limited funds for such an important task.

“We must re-gear local governance so that local authorities benefit from growth and have the tools to respond.”

Selwood says a review of local government funding and responsibilities should be launched as part of the review of planning statute and alongside the Tax Working Group.

“In the meantime, central government has to intervene with grants and transfers, like the Provincial Growth Fund and city and regional deals which allocate funding to councils who support economic and urban growth.”

Responsibility for financing costly growth infrastructure needs to shift away from ratepayers, Selwood urges.

“Activities which provide a revenue stream, including water services and toll roads can be used to finance investment without compromising council borrowing costs.

“Crown Infrastructure Partners needs to have a wider scope to finance infrastructure delivery and rate future property owners.

“If we combine these measures with emerging urban development authority legislation and get on with delivering attractive new cities and centres, like a satellite city in south Auckland, we can remove planning regulations and allow competitive land markets to deliver housing New Zealanders can afford,” Selwood says.

A full copy of the Infrastructure New Zealand report on findings from a delegation to the USA can be found here.