He said good cities were the key to growth and productivity, which had lagged in New Zealand.

“It will probably surprise – and I hope alarm – you to learn that our productivity is closer to places like Poland, Hungary and the Czech Republic than it is to Australia, Canada, the United Kingdom or the United States.

“In other words, our productivity rates are on par with countries that endured 40 years of communism.”

In New Zealand, it is estimated that doubling a city’s population could increase output by 3.5%. And, on average, workers in cities earned one-third more than their non-urban counterparts, he said.

The plan

Bishop has split his housing reform plan into three pillars — his announcement today formed the second of those pillars, with the first focused on freeing up land through zoning.

Pillar 2 has five policies:

The most significant is perhaps the replacement of development contributions. Currently, councils use these to recover some infrastructure costs from developers.

Under the status quo, councils can recover infrastructure costs only for planned, costed and in-sequence developments. In effect, this means councils can recover costs only if they have certainty about when, where and what development occurs.

Bishop said this system was not working because councils had not “been able to effectively recover growth costs, leaving ratepayers to pick up the cheque”. He gave examples of Auckland ratepayers picking up $330m in growth infrastructure costs for the Drury development, while Tauranga Council was reporting “16% under-recovery for projects that were included in DC policies, which saw over $70m of debt expected to be transferred to ratepayers”.

“Not only is this unfair, but it makes existing residents resistant to growth,” Bishop said, adding that this stacked the “political economy of housing” against actually building houses.

Instead of these contributions, Bishop is proposing a new model that would rely less on planning — a decision that ties up with the Government’s general thrust of liberalising zoning to be more permissive (a decision that built upon two massive efforts by the last Labour Government).

“Once Pillar 1 goes live and there is an abundance of urban land, councils won’t be able to plan or cost growth in detail anywhere, everywhere, all at once – it’s simply not feasible,” he said.

Replacing DCs – payments from developers to councils – with development levies, charged to developers, which would be passed on to the beneficiaries of that development, would create more incentive to build.

“Under this new system, councils and other infrastructure providers will be able to charge developers for their share of aggregate infrastructure growth costs across an urban area over the long-term.

“Development levies will provide far more flexibility for councils and other infrastructure providers to recover costs for any in-sequence development – whether it is planned and costed or not,” Bishop said.

There would be separate levies ring-fenced for each specific infrastructure service, such as drinking water, wastewater and transport, as well as specific “levy zones”, which are expected to cover pre-defined urban areas that are larger than most current developer contribution catchments.

Councils will also have discretion to impose additional charges on top of the base levy in specific locations that require a particularly high-cost service.

Bishop said the changes would reduce risks for councils and may “moderate rate increases, better incentivising communities to support growth”.

There would be regulation around the new system, which would “restrict local authority discretion about various matters, such as setting the methodology used to allocate project costs”.

IFF changes – rates for roads

Bishop also announced tweaks to the five-year-old Infrastructure Funding and Financing (IFF) Act, which allowed councils to fund infrastructure, in part through targeted rates.

He said no residential development had yet made use of the IFF. He announced tweaks with his undersecretary, Act’s Simon Court, to make the IFF more appealing.

It would be broadened to allow it to be used to fund transport projects such as highways and busways, including projects such as NZTA’s state highways.

Bishop said the Government was embracing what it called “Transit-Oriented Development, or TOD”.

“TOD promotes compact, mixed-use, pedestrian-friendly cities with development clustered around, and integrated with, mass transit. The idea is to have as many jobs, houses, services and amenities as possible around public transport stations.”

He said the Government looked at using a value-capture style system to bring TOD to fruition but ultimately decided against it, arguing it was too complicated to calculate and tax windfall gains.

“[W]e have concluded that it is fine in theory but much harder in reality.

“Our preference is for a much simpler solution that builds on existing legislation – getting beneficiaries to pay for some proportion of the cost of the investment through infrastructure levies.”

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.