Govt considers special interest rates for property developers to build infrastructure

Twyford brought up infrastructure funding as one of four key policy failures which have furthered the housing crisis. Photo by Lynn Grieveson

The government is looking at giving commercial property developers access to finance at low interest rates if they build vital infrastructure to support new homes, says housing and urban development minister Phil Twyford.

At the Local Government New Zealand Housing Symposium in Wellington this morning, Twyford said the current system for financing infrastructure is "utterly broken" and was slowing housing development, and said he hoped to give more information on how the scheme would work in the coming months.

"Councils in high-growth centres simply cannot continue to borrow to fund infrastructure, and actually nor should they," Twyford said. "Central government doesn't want to be writing cheques out every few months to fund the infrastructure for urban growth, and the current system puts an enormous pressure on developers to be the primary financing vehicle for the infrastructure that's needed to bring new land into supply."

The government has flagged changes to infrastructure funding under its urban growth agenda since last year, with Finance Minister Grant Robertson suggesting this could be done via infrastructure bonds serviced by a targeted rate in a speech last December. Local government has also been raising concerns about councils' debt ceilings for some time, with Auckland Council a particular cause for concern as it has hit its limit. Special purpose vehicles for debt were discussed by the last government to help the council maintain its AA credit rating.

Twyford said private developers who wanted to take on the risk of infrastructure development could be able to access long-term debt finance at the same rates the government can. The yield on the 10-year government bond was recently at 2.88 percent.

"It has to rest on a balance sheet somewhere, and it cannot be councils and it should not be central government," he said. "It's a new approach to financing infrastructure that will lift the burden off councils of having to be financing vehicles for infrastructure that's needed. If we get this right, it will turn on a tap of infrastructure finance for new development and will allow our cities to respond to demand and grow."

Twyford brought up infrastructure funding as one of four key policy failures which have furthered the housing crisis, alongside a tax system which encourages untaxed capital gains on property, restrictive urban planning which triggers land banking, and a lack of productivity and innovation in the construction industry.