Housing Minister Chris Bishop last week announced key changes to improve New Zealand’s infrastructure funding and financing tools to stimulate housing development. This announcement is part of “Pillar 2” of the Government's broader "Going for Housing Growth" initiative, which seeks to fix the fundamentals of our housing crisis: land supply, infrastructure and incentives for growth.

The development contributions system will be overhauled

The primary measure announced is the replacement of the existing Development Contributions system with a new Development Levy system. 

Currently councils can recover infrastructure costs for planned, costed and in-sequence developments. However, the Government considers that greater flexibility is required to enable the recovery of costs for in-sequence development, whether or not it is planned or costed. The levy system will be designed to provide a clear framework that ensures developers contribute a proportionate amount towards the total cost of capital expenditure necessary for new infrastructure, so councils can recover the actual costs of growth. 

Regulatory oversight will be established to ensure that the new levies are fair, transparent, and proportionate to the infrastructure costs associated with new developments. This regulatory framework aims to prevent excessive charges (by restricting discretion about various matters such as the methodology used to allocate project costs) and ensure that the funds collected are used effectively to support urban growth.

The Minister has indicated that separate levies will be maintained for specific infrastructure such as drinking water, wastewater, stormwater, reserves, community infrastructure and transport. These levies will be the same across each “levy zone” and will be calculated based on the overall growth costs and expected levels of growth. Councils will then have discretion to impose additional charges on top of the base levy for any part of a levy zone where the provision of services is particularly high. 

The levy system will be implemented through a Local Government (Infrastructure Funding) Bill. This legislation is expected to be introduced in September 2025 and enacted in mid-2026. The Government intends to take a phased approach to allow local authorities and developers to adapt to the new system so that it applies from 2027. 

Additional measures have also been announced to improve infrastructure funding

Alongside the overhaul of development contributions, the Government has announced three other measures to support housing growth:

• Increasing the flexibility of targeted rates so that they only apply to new developments. This could be used as an alternative to a development levy where it may be easier to manage the use of targeted rates.
• Improving the Infrastructure Funding and Financing Act (IFF Act) including by broadening the scope of the IFF Act and simplifying the levy development and approvals process.
• Broadening tools to support value capture and cost recovery by enabling the IFF Act to be used for major transport projects. 

Although the focus is on enabling housing, the new regime will apply to all development types. 

The proposals have largely been welcomed although there is residual concern regarding the potential increase in costs 

The announcement has garnered mixed reactions from various stakeholders so far. Local councils are likely to generally welcome the changes as a positive step towards addressing infrastructure funding challenges.  However, some developers have expressed concerns about the potential increase in costs and the impact on housing affordability. Housing advocates have praised the Government's commitment to increasing housing supply and increasing the consistency of contribution payments but have called for additional measures to ensure that it is not first home buyers who are primarily affected.

Minister Bishop's announcement is a significant milestone for the Government’s Housing for Growth initiative and efforts to tackle New Zealand's housing crisis. We expect announcements in relation to “Pillar 3” later this year. 

This article was co-authored by Holly-Marie Rearic, a Senior Solicitor and Aimee Harris, Solicitor in our Environment team.