Property developers accept a simple principle: growth should pay a fair share towards the infrastructure it creates demand for. What they should not be asked to accept is paying for things that have nothing to do with that growth at all.
That distinction sits at the heart of Property Council New Zealand’s concerns with how development contributions, soon to be development levies, have been used in practice. As government replaces the current development contributions model with a new development levies system, there is a genuine opportunity to fix this, alongside two other essential ingredients: a shorter, more accurate collection period, and an independent regulator with real teeth.
When levies stop being about growth
Development levies exist to fund the roads, pipes, parks and other infrastructure that new development relies on. The property sector accepts that principle. What has become a growing concern is the tendency for these charges to be used to fill broader council funding gaps, rather than being directly linked to the infrastructure that growth actually requires.
Expanding the scope of levies to cover wider community amenities, such as public swimming pools, is a clear example. These are worthwhile community assets, but funding them through development levies places additional pressure on development feasibility and ultimately flows through to the cost of housing. When the connection between what is charged and what it funds becomes too loose, the levy stops functioning as a cost-recovery tool and starts functioning as a general tax on new housing.
The cost of unpredictability
Beyond scope, the current system has proven strikingly unpredictable. In 2023, Auckland Council’s average development contribution in Drury rose from 22,564 dollars to 74,142 dollars, reflecting a shift to a 30-year funding and financing model. That is not a marginal adjustment. It is the kind of swing that can turn a feasible project into an unfeasible one overnight, and it illustrates exactly why long forecasting horizons create so much uncertainty: the further out a council tries to project infrastructure costs and growth, the more those assumptions can shift, and the more exposed developers are to that shift.
A once-in-a-generation opportunity
The government’s move to a new development levies system is a genuine chance to do better. Property Council’s position is that the new system should ensure levy costs are clearly defined, transparently calculated, and ring-fenced for their intended purpose, with strong regulatory oversight to maintain consistency and build confidence across the sector.
Importantly, the Government has now committed to several changes that Property Council has been advocating for, including independent regulation by the Commerce Commission, requiring the Crown to pay development levies, more accurate levy areas, and a clear implementation pathway.
These are significant steps in the right direction. Independent regulation in particular should provide greater consistency and transparency across councils, while more accurately defined levy areas should help reduce the cross-subsidisation that can occur when very different growth areas are bundled together. Without a body actively checking that levies stay tied to growth-related infrastructure, scope creep of the kind seen with wider community amenities becomes very difficult to prevent.
What good looks like
These are the settings that Property Council needs to make sure the new system works as intended:
- Levy areas need to be genuinely aligned with infrastructure catchments and cost causation;
- Transparency and Accountability must be built into the system from the outset through robust information disclosure, ring-fencing of funds and oversight of double dipping;
- The methodology must avoid recreating the unpredictability of the current system – long forecasting horizons, uncapped contingencies and assumptions that change and compound over time; and
- The transition to the new system needs to protect projects already in the pipeline and ensure long-term certainty of investment settings for our sector.
Our recommendation
Chief executive Leonie Freeman says the opportunity in front of government is significant.
“This is a once-in-a-generation opportunity to get infrastructure funding right. We welcome the Government’s commitment to independent regulation, more accurate levy areas and fairer treatment of Crown development. The next step is making sure those commitments translate into a system that is transparent, predictable and supports housing growth. Our sector accepts that growth should pay a fair share of the infrastructure it creates demand for, but we need confidence that levies are calculated fairly, used for their intended purpose and supported by infrastructure that is delivered when growth requires it.”
Property Council will continue to work with government as the new development levies system takes shape, to ensure it delivers a fairer, more transparent approach to funding the infrastructure New Zealand’s growing cities need.
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