Money paid in GST on new house builds should go back to local councils, The New Zealand Initiative’s latest housing report says.
It says the government needs to restructure financial incentives for local councils, shift the burden of water infrastructure costs, and create competition in planning if it wants to deliver affordable homes.
"There is a common misconception out there that the housing affordability crisis is a result of market failure," said executive director Dr Oliver Hartwich. "In actual fact, it is poor policy which has fostered an anti-development sentiment among local councils.
"For too long, local government has been left to carry the infrastructure costs that come with new housing developments, without a means of sharing in the economic benefits new residents bring. Under this framework it is entirely rational for councils to discourage new home construction, but it has serious consequences for the supply of affordable homes."
He said that was clear in the data that showed the median house would take 5.1 times the median income to pay off, compared to an international benchmark of 3.0.
The New Zealand Initiative recommends that councils should be entitled to a one-off Housing Encouragement Grant for every new house built in their area, provided the house meets minimum delivery deadlines from application to completion. Grants would be benchmarked on the GST levied on the house, recognising the impact of sales tax on house prices.
It says water provision should be stripped from local government, as it has been in Auckland, and five regional water companies should be established. “These water companies can use network pricing to create quality water infrastructure and make long-term investment decisions free of political or electoral considerations.”
And to counteract what the report’s authors say are the high costs charged by monopoly suppliers for infrastructure within new development areas, they recommend a new kind of infrastructure funding option be created.
“Loosely based on Municipal Utility Districts in Texas, these structures will be able to privately raise debt finance to build new infrastructure and charge residents an ad-valorem tax to repay the debt. This would serve to pay off the infrastructure costs over the life of a house and not capture it in the upfront price of a new home.”
Hartwich said: “Implemented on their own, each of our recommendations would help make housing more affordable. But implemented as a package of reforms, they will deliver the big bang that’s needed to unclog the supply of new houses."