People love to hate on development contributions because of how eye-wateringly expensive they are.
Ranging in the tens of thousands of dollars, they can wreak absolute havoc on project feasibilities, and, in a hot market, are often blamed for further driving up the cost of housing.
But the problem I have with development contributions isn’t the cost.
(On the contrary, I think it’s a smart and appropriate way of funding critical housing infrastructure.)
My problem with development contributions is how they’re applied, managed, and communicated. The system needs to change to reflect a better understanding of development economics and ensure fairness and transparency.
Here’s my take on what that could look like.
1. Reducing or removing council restrictions on developable land.
Development contributions reflect the real-world cost of building new housing infrastructure—including roading, pipes, and parks, among other things.
The way they’re designed is intended to pass those costs onto the people who benefit most from demand for new housing, i.e. existing homeowners (or land-bankers) whose land values skyrocket as a result of rezoning or intensification. It’s a form of value capture for the benefit of the community.
The idea is that developers will factor in the added cost when working out what they’re willing to pay for land—thus reducing the windfall to landowners, rather than risking the cost getting passed on to homebuyers.
When the supply and demand equation is balanced, it works well. In this environment, developers are price takers. They know what they can sell a home for and work backwards to find a price they are willing to pay for a piece of land.
But when demand outstrips supply—pushing up not just house prices, but land prices as well—developers become price makers. And that’s when development contributions risk flowing through into already high house prices.
This is why Councils restricting developable land is plain dumb. The supply of land is critical to achieving the right economic behaviours and, ultimately, to affordability.
2. Making sure contributions are predictable and differentiated.
One of the biggest flaws with development contributions is how they’re applied.
Part of the problem is that councils' methods of enacting changes are generally unpredictable and poorly signalled, which—from a developers’ perspective—make them extremely risky and volatile.
Then, the ‘one-size-fits-all’ approach to contribution setting completely fails to take into account the different costs and dynamics associated with different types of development.
Take infill vs. greenfield developments, for example.
With the former, the infrastructure is already (essentially) established, while for the latter, you’re starting from scratch—so why should the contributions be the same?
What makes it worse is that councils often subsidise greenfield developments, which require entirely new infrastructure.
It’s totally backwards.
And, by imposing high development contributions on infill housing, councils are completely undermining the economics of intensification:
- People prefer bigger plots of land when it’s cheap—i.e. they're able to afford the quarter-acre dream. That comes at the cost of intensification.
- Homeowners are more likely to hold onto full sites than sell or subdivide.
- High contributions make it hard for higher-density housing to stack up financially, even in areas with existing infrastructure.
3. Ensuring transparency around where the money is going.
In theory, development contributions exist to fund new housing infrastructure (or upgrades to existing infrastructure) specific to the project they’re being charged on.
In reality, you pay all this money, and there’s no way of knowing where it goes. Instead of being ring-fenced for their intended purpose, contributions just get sucked into the council's bigger pot of funds.
It means contributions for a project in Te Atatū could end up being spent on footpath upgrades in Papakura. Or, worse, it’s just a form of “lazy tax” that helps funds all sorts of government inefficiencies—distorting the market and slowing housing supply in the process.
(As an aside, Auckland Council's $263,000 spending on four sets of concrete steps to Milford Beach illustrates how poorly councils invest in “infrastructure.” And don’t get me started on the insanity of traffic management.)
In short, the system could do with a significant overhaul to ensure development contributions are better aligned with infrastructure needs.
Development contributions should enable growth, not restrict it.
In order to serve their intended purpose—effectively supporting a growing population—they need to be differentiated, transparent, ring-fenced, and take a long-term view.
- Differentiated: higher for greenfield and lower for infill.
- Targeted: reflecting the actual cost of new infrastructure, not blanket charges.
- Transparent: councils need to show how the money is spent—not just pool it with general funds.
- Ring-fenced: Ideally, funds should be set aside specifically for infrastructure investment, not general costs (or worse, used to paper over operational inefficiencies)
- Long-term: councils should provide long-term visibility on contribution policies (5-10 years in advance) to allow developers and landowners to plan ahead, and changes should be phased in gradually to avoid disruption.
In my opinion, there’s also a compelling argument for the introduction of some form of land tax to encourage productive land use and disincentivise land banking.
The goal with that would be to enable landowners to still benefit from rezoning, but in a way that ensures they contribute fairly to the public growth costs and which doesn’t compromise the economics of delivering new homes.
But that’s a topic for another day.
Moral of the story: High development contributions can work—but only if they're well designed.
If we want to unlock affordable, high-density, future-focused housing, we need a system that supports it, not one that chokes the market with blunt, one-size-fits-all taxes.