Fund infrastructure differently - ASB

ASB chief economist Nick Tuffley

It’s a matter of public record that Auckland is suffering from an under development of the infrastructure it desperately needs to keep up with its rapid pace of growth.

The chorus of voices weighing in on the issue include such heavy hitters as the IMF, the OECD and the Productivity Commission.

Yet while it’s widely accepted the city’s infrastructure problem has to be addressed, the process of doing so seems to have run aground.

But now ASB is offering up its suggestions for alternative funding methods to boost Auckland’s infrastructure development in its latest Home Economics report.

ASB chief economist Nick Tuffley said infrastructure provision is one of the biggest challenges councils face across the country, particularly in Auckland.

“Current infrastructure funding models have contributed to under-investment in housing-related infrastructure and exacerbated house prices.”

This is because the infrastructure funding models used in New Zealand tend to involve high upfront costs, uncertain future revenue streams, debt financing constraints and ratepayer resistance.

In Auckland, this has led to the council underinvesting in infrastructure and this, along with limitations on the supply of new developable land and strong population growth, has exacerbated the rise in land costs.

Tuffley said this suggests that councils, notably Auckland’s, need to be open to a broader range of funding methods than those they have relied on previously.

“In the report, we look at alternative funding methods and how they could be implemented to help alleviate house price pressures over the longer term.”

Suggested alternative funding models that could be employed include infrastructure bonds, value capture, public private partnerships, superannuation funds, infrastructure banks, and user charging.

But the report’s pick of these funding models is infrastructure bonds which could be administrated via Municipal Utility Districts (MUDs) – as is being done successfully in Texas.

This model would help to fund infrastructure provision in a fair and equitable manner and lower the entry barrier for developers which would enable more to undertake residential development, the report said.

“Core to new alternatives is the need to variously overcome the current disincentives to provide the infrastructure speedily and the need to finance infrastructure from much broader sources.”

Infrastructure bonds have previously been touted by a number of different sources.

Last year Labour’s housing spokesperson Phil Twyford proposed funding infrastructure by using bond financing paid back by targeted rates, on the property owners of new developments, over the life of the asset last year.

At the time, then Finance Minister Bill English said infrastructure bonds are an interesting and constructive idea.

Prominent Auckland developer David Whitburn has also long been a proponent of infrastructure bonds.

In his view, they would be a good alternative to the current model which just results in big costs for developers that are then passed on to house buyers.

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