🏗️💰Development Contributions and Housing Affordability – A Growing Burden: 19 March, 2025

Very late last night (over some nice wine!) I was reviewing the Department of Internal Affairs’ 2013 discussion paper on development contributions, which highlighted how development costs were impacting housing affordability.

My reading led to (note: I used AI to prepare pretty graphic for you): 📈

🔎 In 2013, infrastructure costs in Auckland were ~$25,133 per home ($14,133 in DCs plus $11,000 in Watercare charges)
🔎 This represented 4.70% of Auckland’s median house price ($535,000)
🔎 Fast forward to 2025, these costs have skyrocketed to ~$80,000 per house
🤔 With median house prices at $949,000, infrastructure charges now represent 8.43% of a home’s cost

That’s a 79% increase as a percentage of house value in just over a decade! 😳

This burden is particularly heavy in our most affordable areas—Papakura, East Tamaki, and Inner Northwest—precisely where we need affordable housing the most. 🏘️

Interesting timing for this reflection, as Infrastructure Minister Chris Bishop just announced on Friday (Feb 28) that the government is replacing Development Contributions with a new Development Levy System, including regulatory oversight to ensure fair charges. ⚖️

My thoughts on this change: 🤔

✅ I’m reserving judgment until we see more details
✅ The concept of a regulatory ‘ringmaster’ to ensure consistency and fairness seems promising
✅ I take issue with the narrative that ratepayers shoulder the leftover burden — also they had less of a burden in their time! Increase is well over CPI
✅ New homes often bear costs of upgrading failing public infrastructure so paying for what the ratepayers haven’t (tit-for-tat)

😭 On a recent project, I paid $200,000 to replace degraded public lines on the street (around 40 m) —on top of standard DCs! 💸. There was no compensation, the asset vested to the City, and the cost was reflected in the selling target prices.

Looking at Auckland’s DC models, I’ve noticed: 🔍

💰 Budgets have tripled from $41M (2018) to ~$130M today
💰 Fewer households are sharing those costs
💰 Some entities have negotiated special “deals” creating a social tax paid by other homebuyers

⁉️ The biggest PROBLEM I SEE is the inefficiency in procuring, providing, and allocating infrastructure charges.

I’m cautiously optimistic that this proposal might a wee bit of a positive step towards addressing these systemic issues. 🤞Not sure if the money will be obtainable though (might need some kind of City/Sovereign Wealth Fund as another group once showed me).

But it is a bit ridiculous that the 2013 report identified many of the issues and I quote states: “Usually these costs are passed onto the buyer in the land or house price”… page 20 of the 2013 report if you want to check it out.

Note: figures are illustrative and roughly checked out as valid (median)