The Government’s proposed Housing and Urban Development Authority

In March 2017  we set out some tricky issues that would need to be addressed to ensure that the urban development authorities (UDAs) proposed by the then (National) Government would leave a positive economic and social legacy.

On 24 November Hon Phil Twyford announced the Labour/New Zealand First Government’s intended approach to a UDA and proactively released the relevant Cabinet Papers.  In this article we examine to what extent that proposal would address the tricky issues we identified in 2017.  The 2018 proposal goes a long way, but by no means all the way, towards addressing them.   In the New Year we will explore some additional issues raised by the 2018 proposal.

Tricky issue one – responsibility for ongoing debt:  getting the revenue streams right and addressing what will happen if private developers/infrastructure providers become insolvent

Issues identified in 2017:

  • Multiple short-term UDAs each with a built-in expiry date could potentially create legacy issues if the facilities/infrastructure promised by those authorities weren’t delivered, large amounts of debt were taken on and the private developer(s) involved no longer (legally) existed.
  • Compensation for land taken for a UDA project could be paid to affected landowners by way of an equity stake in the project. If private developers became insolvent this would create the risk of a wide range of landowners and business owners with an equity stake in debt.

Aligning revenue and debt remains an important issue yet to be fully addressed by the 2018 proposal.

The 2018 proposal makes it clear there will be only one UDA.  It will be a Crown agency and, in replacing Housing New Zealand as a public housing landlord, will have an ongoing role, rather than a built-in expiry date.

The Cabinet Paper relating to the 2018 proposal stresses the importance of having revenue streams to pay for projects.  The intention is that infrastructure paid for or built by the UDA would vest in an appropriate infrastructure operator  (e.g. by transferring the infrastructure without triggering an obligation to offer the related land back to the person it was acquired from).  Where there is outstanding debt in relation to that infrastructure both the debt, and the revenue stream to pay for it, could be transferred to that infrastructure operator.  For three waters, drainage infrastructure and local roads, this means it could be transferred to the relevant territorial/unitary authority.

The 2018 proposal retains the suggestion that private investors or infrastructure providers may help fund, or provide, some or all of the infrastructure within project areas.  It does not specifically address what would happen if such investors/providers became insolvent.  Recent experience with the parent company of one of the entities involved in the CityLink project underlines that this is a real, rather than merely a theoretical, possibility.

The 2018 proposal does provide for a variety of revenue raising mechanisms.  It enables the UDA to:

  • charge a targeted rate on properties within a project area for the provision of infrastructure or services which could be used to repay borrowing or bonds.
  • obtain development contributions from land within a project area that is under development by someone that is not associated with the UDA and would benefit from UDA-provided infrastructure.
  • charge a service charge to connect to UDA-provided infrastructure.

Other mechanisms such as leveraging land-value uplift to fund infrastructure are also being explored.  Land-value uplift would involve imposing a tax or levy on those who own land that has increased in value as a result of a UDA project.

The issues of what would happen if private investors/infrastructure providers involved in a UDA project became insolvent and the liability of a land owner who received an equity stake as compensation for debt, have yet to be specifically addressed.

Tricky issue two – how to ensure that infrastructure and services will be affordable to run on an ongoing basis

Issues identified in 2017:

  • Once infrastructure and services established by a UDA were transferred to a relevant infrastructure provider, that provider would be responsible for the ongoing costs of operating, maintaining and, at the end of their economic life, renewing them. Therefore, it is important that the infrastructure is built to a standard that can realistically be maintained on an ongoing basis and the  ‘whole of life’ costs of infrastructure are considered by any UDA.
  • What would happen if a public transport service established by a project wasn’t viable.

The 2018 proposal has given some consideration to these issues.  It would require the UDA to:

  • obtain input and approval from the operators of nationally significant infrastructure for any UDA works on that infrastructure.
  • consider the “whole-of-life costs and benefits” and “the performance, operational, service and compatibility requirements of the network utility operators and other agencies that will become the long-term custodians of … infrastructure assets” when preparing development plans or undertaking infrastructure activities.
  • not to be involved in directing regional councils and public transport operators to provide additional public services or network changes, acknowledging the issues around public transport.

Tricky issue three – what community infrastructure/cultural facilities will UDA projects be required to provide and what will happen if it doesn’t look like they will be delivered?

Issue identified in 2017:

The 2017 proposal included an ability for the Government to require private sector development partners to provide public good outcomes to offset the profits they would make when benefitting from the powers granted to UDAs.  Careful thought is needed about what kinds of public good outcomes could be required from private developers and what would happen if it looked like those facilities were not going to be delivered, or would be significantly delayed.

The 2018 proposal would specifically empower the UDA to apply to the Minister for Land Information to compulsorily acquire land required for community facilities for educational, recreational and cultural activities (including commercial facilities for those purposes such as commercial swimming pools).  That land could only be transferred (without triggering an obligation to offer the land back to the person it was acquired from) once the relevant commercial community facilities had been constructed.

However, the proposal does not address what would happen if proposed public community facilities were not delivered or were significantly delayed.

When will we know more?

Officials are currently working on detailed policy proposals, including a transition plan to establish the proposed UDA.   Minister Twyford is due to report back in the New Year to provide Cabinet with those detailed proposals and seek authority for legislation to establish and empower the UDA to be drafted.

Once they have been approved by Cabinet, the papers containing those detailed proposals may also be publicly released.

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