Housing Minister Nick Smith is looking at a proposal that would see Chinese property developers fund their own infrastructure in Auckland.
The Prime Minister floated the idea at the Chinese Chamber of Commerce on Saturday and confirmed it at his weekly press conference yesterday.
But the proposal appears to extend only as far as “horizontal infrastructure” which means roads and pipes for the so-called three waters – sewage, stormwater and potable water.
Other infrastructure like parks or swimming pools or facilities like schools are not included.
The scale of the problem in Auckland is huge.
The Council has consented 94,000 sections – enough for the next seven years. Council CEO Stephen Town estimates they will require $18.6 billion of infrastructure.
Over and above that the Council has identified another 11,000 hectares that could be developed for housing and that would require another $20 billion of infrastructure.
This financial year the Councill have a rates income of $1.64 billion and will need to borrow $8.77 billion but it is running up against the limits of its balance sheet and the idea of getting the developers to fund totally the infrastructure means that the borrowing could be set against their balance sheets rather than the Council’s.
“I’ve had quite a number now of development companies suggesting to me, and I suspect other Ministers that they would be prepared, they would like to play a role where they did the complete development of an area and include all of the horizontal infrastructure and the above ground dwellings that are built there,” said the Prime Minister.
“Some of the Councils feel cash strapped for the horizontal infrastructure that they need to put in.
“It’s slowing down some of the developments, and so the argument for people who have raised the issue with me is that they would then assume the full liability, and there would have to be some financing mechanism through the development contributions or whatever going back to the developer to allow them to be repaid for the infrastructure that they put in.
“It would raise a couple of issues.
“One of these is obviously meeting the standards that are required for matching up and connecting up with the other horizontal infrastructure.
“The second issue is the legal capacity to do that.”
And so Mr Key is proposing that this could be done by creating Urban Development Authorities that could cover a particular area such as has already been seen (in a way) in Tamaki and Hobsonville.
“So the point I am simply making is that the Housing Minister has been doing some thinking in this area and giving some thought as to whether this is a credible model.
“We are not there yet insomuch that there needs to be more thinking done, but we are not ruling it out as a potential model.”
Though the Council and other sources in property development in Auckland all say that there are other factors – such as constraints on construction industry – contributing to the failure to build enough houses in Auckland to keep up with demand, the Prime Minister and the rest of Government, have repeatedly emphasised the need for greenfields development.
But when Environment Minister Nick Smith produced his draft Urban Development National Policy Statement earlier this month, there was widespread criticism that it failed to address the infrastructure issue.
The issue is starting to surface in the Auckland Mayoral election with centre-right candidate Victoria Crone suggesting that the private sector could play a much larger role.
The Auckland Future centre-right group also favours the privatisation of big ticket assets like the airport and port.
But all of those are political solutions whereas the proposal floated by Mr Key would seem much more simply activated.
The Chinese Property Development Society in Auckland has seven development companies as members all of whom say they want to operate on a big scale.
As an example of the scale, the developers like to work on, one company, Mex Enterprises, is currently developing 48 terrace town houses in Papakura.
It is the Chinese companies’ ability to provide scale and also to actually get the houses built that make them attractive to the Government.