Government's new $1b housing infrastructure fund a 'paper tiger'

Prime Minister John Key has announced a new $1 billion infrastructure fund for councils with high demand for housing.

A city must expect more than 10% population growth over the next decade to qualify.

That means Auckland, Hamilton, Tauranga, Christchurch and Queenstown are eligible to apply for the funding – or at least fight each other for it, given it's contestable.

The fund is designed to help fast-track water, roading and other infrastructure that supports new housing developments.

Finance Minister Bill English says his government will be required to borrow $1 billion to finance the fund. Councils will repay the money "over time."

ACT, opposition respond
The initiative should prove a boon for Auckland Council, which is already around $7 billion in the red and nearing its debt ceiling.

But it has drawn fire from the left and right.

Labour leader Andrew Little says it is insufficient to address what he calls a "$20 billion infrastructure deficit" in Auckland.

Winston Peters strikes a similar note, saying the fund "won't even remotely cope" with the houses needed for new immigrants, let alone the country's natural population increase."

Green co-leader James Shaw says, "It's not focused on actual investment in houses, it's just focused on the roads to get between those houses. What that means is that it's basically a subsidy for developers, so there's no assurance, and John Key did not mention the idea of affordable homes at all."

ACT leader David Seymour calls the policy a paper tiger.

“National’s policy is designed to get the number $1 billion in the headlines but it will not actually affect the housing market at all because councils still have to pay the money back,” he says.

“National are correct that infrastructure funding is holding back development but its plan leaves councils with the same problem, just a different lender," he says.

John Key announced the $1b fund at National's 80th-anniversary conference, held this weekend in Christchurch. The event featured congratulatory video messages from overseas conservative leaders Malcolm Turnbull, Angela Merkel and David Cameron – a lineup that probably sounded better when the celebration was first planned (@NikkiKayeMP).

“If the government wanted to let councils borrow more capital, it needn’t add a bureaucratic new fund. It could simply raise the limits on what councils can borrow themselves," Mr Seymour says.

“A more substantial policy would be a rule that gives councils a share of the GST collected from new construction projects in their territory.  That would give councils the funds and incentives to build infrastructure, without new bureaucracy."

The New Zealand Local Government Funding Agency (LGFA)  had lent $6.4 billion to councils as of June 2016, up $1.4 billion from a year earlier while total council debt is forecast to be  $14 billion, up from $13.1 billion in 2015.

Tune into NBR Radio’s Sunday Business with Andrew Patterson on Sunday morning, for analysis and feature-length interviews.