Opinion: Aligning incentives could lower development costs and deliver better buildings

Recent weeks have seen the Wellington Committee and member businesses engage with Wellington City Council on changes to its development contributions policy, and proposed increase in the rating differential – the formula used by the Council to calculate the split of rates between our residential and commercial sectors.

Striking the balance between council’s need to raise revenue and keeping commercial activity in Wellington economically viable has made for challenging conversations with WCC, particularly with many businesses struggling to stay on their feet while the ‘Red Traffic Light’ settings mean working from home is still prevalent.

One interesting part of WCC’s development contributions framework since 2015 has been the provision for a 50% reduction in development contributions for buildings with a 5* Green Star rating, something that Property Council had lobbied for since 2009. Our City Council is New Zealand’s only territorial authority to offer this incentive, which was introduced at a time when only a handful of Wellington developments had been built and certified to this level – with commercial property owners leading the uptake of Green Star ratings.

Seven years later and ratings tools for green buildings are much better understood by the market – Green Star and NABERSNZ from the NZ Green Building Council, and the International Living Future Institute’s Living Building Challenge, Zero Energy and Core Green Building Certification. And last year the government announced that from April 2022 all new government non-residential buildings over $25m ($9m from 2023) would have to be certified to 5* Green Star (representing ‘New Zealand excellence’) as part of the Carbon Neutral Government Programme.

The public increasingly understands that 5* Green Star means a building is ‘good’, even if they don’t quite know why. There is real value in using ratings tools to demonstrate green credentials and hold the project team accountable through design and construction; done well, great sustainable building developments are manifestations of their owners’ values and strategic objectives, with a strong sustainability narrative; at the other end of the spectrum are projects that regard getting a ‘green tick’ as compliance.

Green Star, Core and other tools benchmark sustainability across a range of metrics – carbon performance, of course, but also building management, land use, and so on. So it is important to make sure that the tool matches the job. For example, in mandating 5* Green Star certification, the Carbon Neutral Government Programme (run by Ministry for the Environment) requires minimum performance on a number of Green Star credits that align closely with its goal of making the public sector carbon neutral by 2025.

Wellington City Council’s development contribution consultation is an opportunity to match the levers of green rating frameworks with the City Council’s infrastructure challenges. For example, managing drinking water, wastewater and stormwater consumes $33 of every $100 in rates. Why not align green rating remissions with buildings that show excellence in these specific areas, and allow ratepayers to see WCC in synergy with developers focused on minimising their demands on costly infrastructure rewarded?

An even more extreme case is Victoria University of Wellington’s new Living Pa on its Kelburn campus. This is being designed to the rigorous ‘Living Building Challenge’ standard, which means the building is essentially regenerative. It will likely feature rainwater harvesting and composting lavatories – and it is hard to see the case for any development contributions given that the new building effectively has zero demand on the council’s infrastructure and carries a financial premium for such a high-performance design.

Local government has some powerful levers that could reduce the cost of development and deliver better stewardship of our natural resources by better targeting of the financial incentives for sustainable building frameworks. The trick is making sure councils align with the aspiration of good developers and use green rating frameworks to deliver real value for ratepayers and building owners alike.