The new funding and financing model

The Act creates a new model where a ‘Special Purpose Vehicle’ (SPV) is used to fund and construct infrastructure to support housing and urban development. SPVs will repay any finance raised by charging a levy to those who benefit from the infrastructure (for example, homeowners in the area serviced by the new infrastructure).

Levies are collected from defined area

Like property rates charged by local councils, levies will be applied to a defined geographic area. Properties within this area will be charged an annual levy for as long as specified in the levy order.

The responsible council will be responsible for collecting the levy and transferring it to the SPV. The council will continue to collect the levy on behalf of the SPV until the financing is repaid and the levy period concludes.

Levy payers will not be charged twice for the same infrastructure. Development contributions can be used alongside a levy but cannot be used to fund infrastructure already being funded by a levy.

Infrastructure

SPVs can build and finance the following types of infrastructure:

three waters infrastructure – such as water supply, sewerage, sewage treatment, or stormwater drainage
transport infrastructure – such as roads, cycleways, rapid transit, rail, walkways, ferries and the associated infrastructure
community facilities – including reserves
environmental infrastructure that manages risks from natural hazards, including avoiding or mitigating those hazards, and environmental restoration.

Once constructed, the responsible council or infrastructure provider (such as the city council or in Auckland, Watercare) will take over the infrastructure and be responsible for its ongoing operation and maintenance.

The Act streamlines the tool used to build the Milldale community in Auckland

This new tool has evolved from the SPV used in Milldale, north of Auckland in 2018. The SPV raised around $50 million to fund infrastructure to support housing development. This infrastructure will support the creation of a community of 9000 new homes, nearly ten years earlier than Auckland Council’s long-term plan provided for. Landowners pay an annual ‘infrastructure payment’ to fund this borrowing - $650 for an apartment or $1,000 for a house, over the next 30 years. Auckland Council collects these payments through the rating system, on behalf of the SPV.

The Act aims to make it easier for this model to be used by a broader range of projects, and by providing statutory powers to SPVs to support the delivery of infrastructure.

For more information on Milldale, see the Infrastructure Payments website.

Frequently asked questions

Will the levy pay for the total cost of an infrastructure project?

It is unlikely that a levy will meet the total cost of a project. Funding may be required from other parties such as councils, developers and/or the Crown.

What protections are there for levy payers?

A range of protections are included in the Act, such as:

the Minister responsible for the Act is required to take into account a range of considerations before recommending a levy order is made (section 27)
the framework for identifying beneficiaries and assigning benefit is taken from the Local Government (Rating) Act 2002 (this is an established yet flexible mechanism)
Cabinet and the Governor-General must approve a levy
the relevant council must endorse the proposed levy and the proposed infrastructure before it can be considered by Cabinet
protected Māori land (defined in section 11) may only be included in a proposed levy area if the owners of that land provide written consent
the costs that can be recovered via a levy are only those which are specified in the levy order (section 9)
a statutory monitoring system is provided to ensure SPVs act appropriately and the Crown has step-in powers if required.

What powers are provided to SPVs under the Act?

The Act provides SPVs with a range of powers currently available to councils. This enable SPVs to deliver infrastructure and bring land to market faster than under existing processes.

These powers include:

the ability to construct infrastructure on private land
the ability to construct water services infrastructure on roads and public land
those provided to network utility operators under the Resource Management Act 1991 (these include the ability to create designations to bypass the need for resource consents).

Local councils are also able to exercise their existing powers under the Public Works Act 1981 to acquire land on behalf of an SPV to facilitate the SPV’s projects. A council may then transfer land to the SPV so the SPV can carry out the works.

How will SPVs be regulated?

The Act creates a monitoring, reporting and disclosure regime to ensure SPVs act appropriately. SPVs will have ongoing reporting requirements – such as publishing an annual report every levy year.

HUD, as the monitor, can inquire and direct an SPV if there is a significant problem. If the SPV fails to comply with a direction to address the issue, the Monitor can recommend to the Minister that a Crown Manager is appointed to perform and exercise the powers or duties of an SPV.

What is the relationship with existing council funding and planning processes?

The Act will complement the existing council planning and decision-making processes, and ways of paying for infrastructure (e.g. targeted rates, development contributions). The Act just adds another way for infrastructure projects to be funded and progressed. Progressing a project using the model will provide opportunities to bring forward infrastructure provision that is planned for in the longer-term but can’t progress without funding and financing.

What does this mean for people looking to buy a house?

Councils often require developers to pay ‘development contributions’ to pay for the impact that new developments will have on existing services and infrastructure, and to fund upgrades (e.g. water supply and wastewater). These costs are passed onto purchasers in the sale price.

If infrastructure to service a new housing development is subject to an IFF levy, a purchaser will contribute to the cost of this infrastructure with an annual payment, instead of paying a purchase price that factors in the cost of the developer paying a development contribution to the Council.

How will people know if an IFF levy exists in an area?

IFF levies will be included on a property’s Land Information Memorandum (LIM) and any amount owing under an IFF levy will be included in rates assessments and invoices sent out by local councils.

All IFF levies in force will also be listed on our website.

Published: January 22, 2021