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Govt looks at special purpose vehicles to fund Akl Council past debt limits to support housing

Wednesday 7th June 2017

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The government is looking for ways to finance local councils who can't access its designated $1 billion housing infrastructure fund as they've already reached their debt limits.

The contestable fund, announced last July for use mainly by Auckland Council, was for interest-free loans for councils in high-growth areas. It uncovered a lack of ready-to-build projects and an unwillingness by the Auckland body to take on substantial new debt because it is already close to limits that could affect the city's AA credit rating.

At the social services select committee this afternoon, Minister for Building and Housing Nick Smith said the government is looking into “special purpose vehicles” – separate debt entities - as an alternative approach for councils facing up to their debt limits.

"You may have an urban development authority that could work like a special purpose vehicle – ie, the urban development authority legislation is intended to create new entities that are a mix of central and local government, there would be a mix of funding and a key part of what those authorities do is provide infrastructure. That is a work in progress."

The special purpose vehicle would be separate from the $1 billion fund, Smith said, though he denied the fund is useless for Auckland.

"There's a bit of debate going on about how we can make the fund useful, but the advice I've had to date is there are likely to be compliant bids that can work from Auckland," Smith said. "Not for all of their projects, but for some."

At a Local Government New Zealand briefing earlier this week, the lobby group for local authorities raised the prospect of similar vehicles being used to help replace ageing water infrastructure, estimated to cost more than $100 billion.

The housing infrastructure fund is oversubscribed, with about $1.5 billion in funding bids from councils such as Auckland, Hamilton, Tauranga and Queenstown currently being considered. The panel will make recommendations to the ministers in July with decisions due by the end of the year.

Smith said he didn't know how much of the fund's spending would be announced before the election in September, with Treasury having predicted money won't be spent until 2018/2019.

"Those sort of infrastructure projects have substantive delivery times. If you're looking at major roading, mains or sewerage, major water-type projects, it's likely the delivery of those will take two to three years, and that is why that's set out over a number of years," Smith said. "They may have very good quality bids we can advance very quickly, they may have some concerns about some bids."

The housing minister butted heads with Labour's housing spokesman Phil Twyford over the size of the housing shortfall in New Zealand's biggest city. Twyford said reliable sources, such as the Reserve Bank and advice sent to Smith by his own officials, estimated the size of the problem at around 30,000 to 40,000, and this was worsening by at least 4,000 every year.

Smith said he thought the best measure of the housing market was price, and it has been universally accepted by cost commentators that since last year, Auckland's house prices "have not moved an iota".

"That's a powerful signal that the supply curve and strong growth is getting supply and demand into balance," Smith said, though he later added he would need a longer period of flat house prices to be confident.

The minister said he wouldn't give an estimate for the shortfall in Auckland housing, but said he would “rest easier” when 13,000 houses are being built per year, as the Auckland Unitary Plan said would be needed every year on top of the 40,000 shortfall it estimated.


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