Government says ratepayers have been footing $11b infrastructure bill,

The Government is moving to scrap the development contributions system that helps councils fund infrastructure for new developments. It says the current system will see $11 billion worth of development costs lumped on to existing ratepayers between 2021 and 2031.

Housing Minister Chris Bishop and Commerce Minister Cameron Brewer announced the new system today, scrapping the contribution model in favour of development levies.

“Existing ratepayers should not be cross-subsidising housing that they don’t benefit from – growth should pay for growth,” Bishop said.

The Government also announced that all parts of government would begin paying the levies. Currently, core government departments do not pay development contributions, while Crown entities do.

Bishop said the levies would enable the construction of new housing by giving councils more incentive to zone and approve developments, knowing they would be no worse off as a result of new development.

Currently, contributions from developers do not always cover the full infrastructure cost of new developments, including new roads, water pipes and other council services.

This means those costs are forced on to councils and their existing ratepayers, making councils less keen to approve those developments in the first place.

Bishop said this phenomenon had led to an “artificial scarcity of land” in a country with relatively abundant land.

He said he hoped that, under the new system, “growth pays for growth” and that new developments would pay the entire cost of the infrastructure they required.

“New Zealand has struggled for decades to build infrastructure at the same pace as our towns and cities have grown,” Bishop said.

“We can free up land for housing, but if the infrastructure isn’t there to support development, projects will still struggle to get off the ground and communities rightly worry about additional pressure on existing roads, pipes and social services.

“The development levies system is a once-in-a-generation improvement to infrastructure funding. We consulted extensively on how the new system should work and we have listened to feedback.”

When it was pointed out that this levy may contradict the National Party’s “No New Taxes” promise, Bishop denied the levy was a tax.

“It’s not a new tax ... this is a levy and levies are different to taxes and this is a levy,” he said.

“This is a levy, it replaces a charge that is already charged to developers,” he said.

How it works

Since 2002, councils have been able to charge developers a development contribution to recover the cost of connecting a development to infrastructure.

But the system is rigid and its pricing methodology can be opaque and unwieldy. Councils can charge only for the “growth share” of new infrastructure, which forces them to calculate what portion of a project’s scope is attributable to the needs of the existing community and what portion is attributable to growth. They can recover these costs only once they have planned and costed the infrastructure.

The contributions are also allocated on a “catchment basis”, which is neither defined nor standardised. This leads to some cross-subsidisation, with some people charged for infrastructure they are unlikely to use.

Under the new system, councils will be able to charge levies for six services: “water supply, wastewater, stormwater, transport, reserves and community infrastructure”.

The Commerce Commission will develop a methodology for determining how these services should be priced fairly and how much can be levied from developers. Councils will be able to use this methodology to calculate the levies.

There will be an appeals process for developers who believe a calculated levy is unfair. The levy will take into account factors such as the number of bedrooms in a home and whether it is an apartment.

Bishop said that, over time, these levy costs would be reflected in the price of undeveloped land. Undeveloped land would likely become cheaper because the market would factor the likely cost of developing it into its price.

He acknowledged that the system was “complex”, but said it would receive a full select committee process in the next Parliament if the coalition parties won the election. Labour was last briefed on the proposal in 2025. The Government has been pursuing some form of development levy since 2024.

Local Government Minister Simon Watts said councils “strongly supported moving from development contributions to development levies, but developers raised legitimate concerns about overcharging, cross-subsidisation and the need for greater consistency and predictability”.

“Under the revised approach, councils will be required to establish separate levy areas where there are substantial differences in forecast infrastructure costs,” Watts said.

Commerce Minister Cameron Brewer said the Commerce Commission had been given $30 million to pay for the new regulatory work it would undertake under the scheme.

“Independent regulation will help build confidence in the new system by ensuring councils and developers are working from clear and consistent rules,” Brewer said.