Auckland Council says Development Contributions don’t Affect House Prices: Let’s Look Closer

🏘️ 👀 🤔 Auckland Council says Development Contributions don’t Affect House Prices: Let’s Look Closer

Council is currently using a report to justify potential increases in Development Contributions (DCs) – the fees developers pay to help fund infrastructure for new builds. However, I believe the report’s core conclusion is flawed and risks making housing less affordable.

The report in question is titled “Economic incidence of developer contributions” by Dr Cameron K. Murray and Dr Tim Helm, June 2022.

It argues that DCs don’t increase house prices (I think it was commissioned by a council).

It claims these costs are simply passed backward to landowners through lower land purchase prices, because house prices are supposedly set by the wider market, not construction costs.

While this sounds plausible based on one economic theory (tax incidence on land), I think it misses the crucial reality of how development actually works:

Landowners have other options:

✅ Viability: If DCs become too high, it can make building new homes unprofitable. Basic business sense tells us developers won’t proceed if the costs outweigh the potential return.

✅ Supply Squeeze: When development becomes unviable, fewer homes get built. This isn’t rocket science – it restricts housing supply.

✅ Restricted Supply: Puts upward pressure on prices. The idea that these costs aren’t ultimately reflected in the final house price ignores this fundamental supply-demand dynamic.

✅ Alternative Uses: Landowners won’t necessarily accept a massively lower price for their land just because DCs went up. They might simply choose not to sell if holding the land, renting existing properties, or pursuing another use offers a better return.

⚡ High DCs can effectively take land off the table for new housing.

My concerns aren’t just theoretical. Industry bodies like the Property Council New Zealand have repeatedly stated that high DCs add to the final purchase price for buyers and hinder the construction of much-needed homes.

This isn’t a new debate. A 2013 discussion paper (“Development Contributions Review”) by the Department of Internal Affairs explicitly stated that DCs add directly to housing costs and noted they could represent a significant percentage of average house prices at that time. It seems the Council’s own government department acknowledged the link between DCs and house prices years ago.

Council circulating and relying on the Insight Economics report’s conclusion feels like wearing blinkers.

While DCs certainly impact land value, claiming they have no effect on house prices ignores their real-world impact on development viability and housing supply.

Using this potentially flawed premise to justify higher DCs could worsen Auckland’s housing affordability crisis, not solve it.