How New Zealand Is Reacting To The People Rush

With Pip Bowron

“Global mega-trend” is a term I first encountered when I started work at Wellington City Council in 2011. It struck me that it was a very impressive, important sounding term, but in my head, at the time, I quietly translated it to ‘stuff that happens all around the world’. I still do.

One of the global trends we were looking at back then was a prediction that more and more people would move from rural and provincial areas into cities. We concluded that New Zealand would not be immune to this, nor would Wellington and that we should plan for it.

All pretty straight forward, but that is exactly where the difficult bit starts.

While the trend was widely talked about back in 2011, serious predictions about size and timing of population increases were scarce and it was hard to get an idea about what it might mean to individual New Zealand cities.

Hindsight is everything. It would have been difficult for anyone to have predicted events like Trump’s election victory and the Brexit vote sending Kiwi expats hurtling home, and causing a spike in visa applications from people seeing New Zealand as a haven – physically and philosophically removed from changes they are not aligned with.

Air NZ. Wikimedia Commons.

Source: Wikimedia Commons

While many cities reflected the urbanisation trend in strategy, given the lack of solid predictions financial and infrastructure planning functions of central government and local bodies tended to stick to forecasts informed mostly by historical growth rates.

Fast forward to today and we are all very aware of the traffic congestion and affordable housing issues constantly being debated on the front pages of our papers. These issues are symptoms of urbanisation and higher tourist numbers. Or just lots more people.

To give you an idea of the magnitude, the Minister of Housing, Nick Smith, announced in December “Residential construction activity has reached $12.5 billion, an all-time high, and the number of homes consented has topped 30,000. This is the longest and strongest residential construction boom in New Zealand history, with five straight years of growth averaging over 20 per cent per annum.”

It is easy for armchair commentators to point out solutions to these: build more roads, build more houses, reduce regulation, etc. But there are a number of factors that need to be considered. None the least that local bodies in particular are not well set up to react quickly to these challenges.

The Local Government Act requires that Councils have a 10 year plan that is updated every three years. This is the mechanism by which Council and Councillors assess their competing projects, test them with the public and decide on the priorities for the following 10 years. At the same time they set the budget, including the rates required to support the plan.

The majority of the money is allocated to building, upgrading and maintaining the basic infrastructure needed to support a city – roads, footpaths, street lighting, drinking water, sewage and parks & reserves. Next comes services – parking, city planning, building & resource consents, rubbish & recycling, cemeteries, pools, community services, art & heritage, economic growth, venues, libraries and more.

You get the picture – there is a lot to do.

Council’s need to build infrastructure that is expected to last many generations. It’s not feasible for this to be funded by rates collected at the time, so they borrow money. But there is also a need to be very careful about how much is borrowed. Nobody wants to leave a mess for future generations and how much money is borrowed can affect how much it costs to borrow it.

Auckland traffic. Flickr.

Source: Flickr

So this is the issue faced by a number of Councils now. They are close to the limit of how much money they should be borrowing and are faced with the need to invest in infrastructure to support the rapid growth they are experiencing.

In February this year, government announced a $1 billion Housing Infrastructure Fund to assist Councils in high growth areas with housing related infrastructure. That fund has been committed to projects in Auckland, Hamilton, Waikato (Te Kauwhata), Tauranga, and Queenstown.

If we drill into just one of these, it gives us an appreciation for the size of the problem. Hamilton needed, and received through this fund, $272 million to develop infrastructure to support 8100 new houses in its ‘Peacockes’ development. This is more than the city’s entire annual budget so it’s hard to conceive how they would have been able to afford this any time over the next ten years without central government assistance.

While this funding clearly helps, the level of interest far outweighed the size of the fund and with investment being granted as a 10 year interest free loan, it didn’t help the balance sheet issue for Councils that are near their ideal debt limits.

As one strategy to address this, government announced that it will repurpose the Crown Entity set up to oversee the New Zealand’s fibre roll out (Crown Fibre Holdings) to oversee the establishment of co-investment partnerships with the government committing to contributions of up to $600 million.

Crown Fibre Holdings will be renamed Crown Infrastructure Partners and will set up companies with both private and public investment to build and own city infrastructure like roads, water pipes and waste water infrastructure. While councils will have the right to buy back the infrastructure at some stage in the future, it will not be compulsory.

There are a number of questions still to be answered, particularly around how the revenue to offset investment is managed and the impact of that on home owners and councils. But the idea is certainly interesting and shows a willingness to look at innovative ways to provide solutions.

In the longer term, there are an array of emerging technologies appearing that can help Councils manage assets in a much more efficient way. But they are unlikely to remove the need to look at new approaches to funding significant infrastructure projects.

Wellington New Zealand. Pat Ho on Unsplash.

Source: Pat Ho on Unsplash

The people rush continues to gain momentum and greatly impacts the work of local government. I wonder what we would’ve done differently at Council back in 2011, if we’d known about the impending Trump presidency and Brexit vote. We’d likely still be facing the issues we’re confronting today, of rising pressure from population increases. And expect we’ll still be grappling with it in another seven years, but hopefully leading the world in how we plan for this global trend.