Infrastructure Minister Grant Robertson yesterday unveiled the bill to fix New Zealand’s infrastructure deficit and then more or less said we couldn’t afford to pay it.
Robertson said it was estimated it would cost $31 billion a year for the next 30 years – “a sum we would struggle to afford or have the capacity to deliver,” he said.
Launching the Infrastructure Commission’s 30-year Strategy yesterday, he said it showed that if we continued on our current path, we would not be able to meet our future needs.
“We need to address our current infrastructure deficits, serve future needs caused by population growth and climate change, and pay for the ongoing cost of repairing and maintaining our infrastructure,” he said.
New Zealand currently spends around 5.5 per cent of its GDP on public infrastructure. This includes transport, water, health, defence and education facilities. There is significant further private investment in infrastructure on top of that – such as in telecommunications and energy.
“Simply trying to build our way out of these challenges would mean nearly doubling what we spend, to around 9.6 per cent of GDP over a 30-year period,” he said.
Introducing the Strategy, Infrastructure NZ CEO Ross Copland said 30 years from now, up to 1.7 million new kiwis would call New Zealand home.
“Our climate is changing, technology is evolving, congestion is growing, and this generation faces a 75% chance of a catastrophic earthquake on the Alpine Fault during their lifetime,” he said.
“Decades of underinvestment have accrued a large infrastructure deficit.”
So along with proposals for building the needed infrastructure, the Commission is also proposing that better and more efficient use be made of existing assets.
To do that, they have raised what may be politically unpalatable for the current Government; the use of pricing to moderate demand.
.“Charges and road tolling for the busiest roads at peak times will free up these roads, creating quicker trips for people who must drive, such as couriers, tradespeople and freight carriers,” the Strategy says.
“Charging to match the water we use will reduce costs for low users, encourage more careful use and reduce the need for costly new infrastructure.”
But charging will require water meters which have been controversial when local Councils have proposed them.
In 2009, a Ministry for the Environment survey found that many respondents who came from Council areas that did not have meters thought the idea of water being measured and charged for created a sense of loss of a New Zealand way of life – where water was free and unrestricted use was mostly possible (except for when there were seasonal water shortages).
In Wellington, meters are voluntary, but only 1200 of approximately 75,000 householders in the city have taken them up.
But scepticism about them might be understandable as the price to live in a New Zealand city keeps rising anyway.
The Commission says Auckland is now one of the world’s most severely unaffordable cities, with a median house price that’s ten times the median household income.
“All large and mid-sized New Zealand cities have median house prices well over five times the median household income,” the report says.
“Since 2000, average house prices have quadrupled in Auckland and tripled in other large, fast-growing cities, including Christchurch, Wellington, Hamilton and Tauranga.
“Average rents have more than doubled in these cities.”
The Commission forecasts that by 2050, up to 4.8 million people will live in or near New Zealand’s five largest cities.
“To meet this growth, we need to plan for infrastructure networks before they’re needed,” it says.
It proposes that rather than investing in infrastructure before it was needed, planning should set aside corridors that could be acquired and protected for use later on.
The Resource Management Act reform package, which includes a spatial planning act, would enable this.
And the report also dives into the controversial area of local government reform, noting that the OECD had found that a reduction in the number of local government entities in urban areas was associated with faster GDP growth.
“The same relationship is observed in New Zealand; notably, Auckland, where local government was amalgamated in 2010, is the only region in New Zealand where per capita GDP growth was faster in the 2010s than in the 2000s,” the Commission says.
But it’s not just constructed infrastructure that is a challenge; so are natural hazards.
“We’ll need to rebuild, strengthen, or relocate infrastructure in response to our changing climate and to recover from natural disasters, like floods and earthquakes,” the Strategy says.
“There is, for example, a 75% chance that the Alpine Fault will rupture over the next 50 years, likely triggering an earthquake of magnitude eight or higher.21
“We estimate that adapting our infrastructure to climate change and repairing infrastructure after earthquakes will cost at least 0.2% of GDP every year over a 30-year period, in addition to the above needs.”
And the infrastructure industry faces another challenge; construction costs are rising more rapidly than other sectors of the economy.
“It’s currently difficult for the construction industry to hire the skilled people it needs to meet increasing demands,” the Commission says.
“We face competition for labour from an infrastructure boom in Australia, where wages are considerably higher. “ “Costs are also driven by the increasing complexity of our projects and slow, costly and bespoke consent processes.
“Unless we address these root causes, these trends mean we’ll have to spend more to get the same results.
“We estimate that these cost pressures will add 1.6% of GDP to our infrastructure costs every year over a 30-year period, in addition to the above needs.”
Robertson is required by law to respond to the Commission’s Strategy by September this year.
“There are already some areas where we are looking at changes that support the direction set by this Strategy,” he said.
“For example – the Government is considering congestion charging as part of our Emissions Reduction Plan.
“And we have already announced plans to allow greater height limits for buildings in our major cities and to speed up the implementation of the National Policy Statement on Urban Development.”
Robertson, however, was a bit disingenuous when he claimed that New Zealand had never had an Infrastructure Strategy previously.
Literally, we did not. But in 2015, a document called a 30-year Investment Plan was produced by the Treasury, which could be seen as a forerunner of what was launched yesterday.
The 2015 plan was wide-ranging and set out a 13-page action plan. How much has been achieved is not known.
The requirement that Robertson responds adds teeth to yesterday’s Strategy, but whether it succeeds or not will depend on his response.