Labour’s housing infrastructure bond policy received a solid airing in Parliament Wednesday with housing spokesperson Phil Twyford going head-to-head with Infrastructure Minister Steven Joyce on the issue.
Meanwhile, the policy received support from what some would regard as an unlikely ally for Labour, the New Zealand Initiative (NZI) think-tank. NZI Executive Director Oliver Hartwich said that although the details of the proposal were still open for debate, the merits of it were clear.
“This is not radical thinking, but a practical and sensible policy if we want to put housing within reach of first home buyers again,” Hartwich said.
See Alex Tarrant’s article from Sunday on Twyford’s proposal for a central government unit within Treasury to borrow on behalf of councils for infrastructure development, to be repaid by target rates over the lifetime of the assets.
The NZI’s Hartwich said that as long as councils were a monopoly provider of water pipes, roads and core infrastructure, the ability of New Zealand’s cities to grow was always going to be held back by their funding constraints.
The types of arrangements being talked about were “the bedrock on which major urban expansion has been built in the Southeast of the United States, where house prices have largely remained flat for decades after adjusting for inflation.”
Twyford vs Joyce – a battle between two Auckland ratepayers
In Parliament’s Question Time Wednesday, Twyford put the proposal to Infrastructure (and Finance) Minister Steven Joyce, who is part of the government team in talks with councils over allocating a $1bn Housing Infrastructure Fund to a selection of fast-growing councils.
Twyford asked why the government was offering more debt to councils with the fund, when the largest of the targeted authorities, Auckland Council, was near its debt ceiling.
Joyce replied that the fund was on the table to help fund water and transport infrastructure. He added the “transport part of that funding does not increase council debt because it’s a change in the funding assisted rate. The water infrastructure element does increase council debt.”
He then took a pot shot at the Auckland Council’s inability to pay for required infrastructure when its revenue stream had grown nearly 15% over the past two years: “While Auckland has indicated some concern around its debt constraints, its income each year is nearly $4bn, which is up about $0.5bn in just the last two years,” he said.
“That would normally provide the council a bit of headroom to provide its share of the infrastructure needed for growth, however we are working with the council on further options that may mean that some of their debt is not held on their balance sheet.”
Twyford put to Joyce that only one-third of the $1bn fund was earmarked for Auckland, against the city’s $20bn infrastructure funding requirement for “essential housing developments.”
Joyce disputed the figures, saying applications for the fund would be assessed irrespective of which council they came from.
“I speak as an Auckland ratepayer. It’s important to point out that actually Auckland’s income has grown a lot in the past couple of years,” he said. “If they’d held their cost structure…at what it was two years ago, then they would be generating $0.5bn worth of money which they could use against their debt today, based on two years ago.”
Twyford – also an Auckland ratepayer – pointed to figures that 10,000 new homes were consented in Auckland last year, “adding to growing deficit of 40,000 new homes needed.” Raising his target-rate plan, he asked Joyce whether the government agreed it would help make infrastructure financing “fairer, cheaper, and most importantly, will open up the flow of finance that new housing developments desperately need?”
Auckland was “in the middle of a massive building boom,” Joyce replied, adding that where he lived in Albany, there were “a couple of thousand apartments being built around now.” On the 10,000 figure: “by any standards, more houses are being built in Auckland now than in any time since about 2004.”
Pressing, Twyford asked why the government could not pass on its ability to borrow on the international bond market for new infrastructure and spread that cost over the lifetime of an asset.
“Councils borrow money and push it out over 20 or 30 years precisely for the reasons that the member identifies so it doesn’t all fall on today’s home owners,” Joyce said.
Another issue he had with Labour’s bond plan was that “it depends very much on how it’s structured, in terms of whether the debt still ends up on the council’s [balance sheet]. There’s a thing called international accounting standards, which means if you have a debt, it ends up on your balance sheet.”
Special Purpose Vehicles
“We are actually working with Auckland council and some other councils on some opportunities around Special Purpose Vehicles,” Joyce said. Twyford was wrong if he thought “that just allowing the council to borrow the government’s money and pay it back would actually solve the issue.”
Somebody had to hold the debt, and the council had to dedicate a stream of income against that debt. “You can call it a targeted rate, but it’s still some of the rates income of the council dedicated against that debt,” Joyce said.