Council Development Contribution charges being reined in

Grant Hewison 166X210                 The Government is planning to make changes to the Local Government Act 2002 in order to rein in council development contribution charges as one measure to improve housing affordability.
  • By Grant Hewison, member of ADLS’s Environment and Resource Management Law Committee

Development contributions and their cost

Council development contributions are a charge on developers that allow councils (such as Auckland Council) to recover some of the capital costs they incur when building or expanding infrastructure required for new developments. In 2011, local authorities levied $142M in development and financial contributions.

The Government is worried that development contributions have trebled nationally over the past decade and have gone up more than any other cost component of a new house. “These charges now average $14,000 per section but can be as high as $64,000 per section,” Housing Minister Dr Smith has said.

Development contributions for new houses in Auckland generally range from $12,575 to $21,885 (with a median charge of around $16,000). These figures do not include Watercare Services Ltd infrastructure growth charges, which can be the same cost again, in some areas of Auckland.

Before the Government’s announcement, the Auckland Council had projected that their revenue from development contributions would more than treble from $69M (in the 2011/12 financial year) to $221M by 2016/17.

Proposed changes

Although the Government has been concerned about the increasing cost of development contribution charges, it has decided they should not be removed nor capped. However, improvements are to be made to the Local Government Act and the way development contributions are applied.

Local Government Minister, Chris Tremaine, says that the aim is “to make development contributions provisions, and the way in which they are implemented, fairer, better focused, more transparent and more workable.”

The Government has announced six main areas of change to the development contributions regime:

(a) introducing new purpose and principles provisions concerning development contributions into the Local Government Act 2002;

(b) clarifying and narrowing the range of infrastructure that can be financed by development contributions;

(c) improving the transparency of territorial authorities’ development contributions policies;

(d) encouraging greater private provision of infrastructure through the use of development agreements;

(e) introducing a development contributions objection process with decisions made by independent decision-makers (development contribution commissioners); and

(f) clarifying legislative provisions to make them more workable and easier to use.

The three most significant of these changes are: narrowing the range of infrastructure that can be financed by development contributions; the introduction of a development contributions objection process; and encouraging direct provision of necessary infrastructure.

Narrowing the range of infrastructure

One issue the Government is concerned about is that the range of infrastructure for which development contributions are being charged is currently too wide.

Development contributions are being used by councils to help pay for cemeteries, art galleries, botanic gardens, aquatic centres, ports, airfields and storage/archive facilities.

The proposed changes will limit the types of community infrastructure for which development contributions can be charged.

These will be narrowed to infrastructure that services local neighbourhood needs, including: community and neighbourhood halls; play equipment located on neighbourhood reserves and public toilets.

Community-wide infrastructure will not be included and will have to be paid for from general rates or other broad based revenue sources.

Councils will not be able to charge development contributions for recreational facilities or reserves on commercial and industrial developments, where these do not involve the creation of new dwellings. But they will still be able to charge for network infrastructure such as water and roading.

Development contributions objection process

Currently, the only way development contribution charge can be formally challenged is to seek a judicial review or declaratory judgement in the High Court. Taking action in the High Court can be expensive and time consuming for developers, who typically have tight financial margins and timeframes within which they operate.

This is no doubt the main reason why there have only been five reported High Court decisions relating to development contributions since their introduction in 2002.

To address this, new legislation will require procedures to be introduced into development contribution policies so that developers can request a reconsideration of the development contributions being charged.

The reconsideration process is intended for matters that can be resolved relatively quickly and simply (such as correcting erroneous figures or resolving misunderstandings around the design or location of a development).

Where a developer is dissatisfied with a council’s reconsideration of their development contribution, they will also have the right to lodge an objection with the council for review by an independent development contribution commissioner.

In addition, they will have the right of direct referral to a commissioner without first having to seek reconsideration by the council.

Objections will be able to be made in respect of a council:

• failing to properly take into account features of the development that increase or decrease the demands on infrastructure;

• charging a developer for infrastructure that will not be used by people in the area being developed; and

• incorrectly applying its development contributions policy.

The decisions of the commissioners on review will be final and binding. Objections will not extend to challenging development contribution policies themselves, but actions by way of judicial review remain available for these types of challenges.

The Government proposes to establish a single national register of development contribution commissioners. The reasonable costs of an objection will be able to be recovered from an objector by way of a fee.

Encouraging direct provision

Although the Local Government Act 2002 is relatively enabling, it does little to encourage councils to look at options for greater private provision of infrastructure or public-private partnerships.

On the other hand, there is increasing interest from the private sector for the provision of in-subdivision infrastructure as well as trunk infrastructure.

As a consequence, the Government plans to introduce new provisions to encourage and provide for councils and developers to enter into binding agreements for the private provision of infrastructure.

These will be called development agreements. They will cover matters such as:

• the timing and phasing of infrastructure provision;

• the ownership, vesting and maintenance of infrastructure;

• dispute settlement mechanisms;

• ownership and transfer of land between the council and the developer;

• any monetary transactions; and

• enforcement of the agreement.

Local Government Reform Bill

The law change to the development contribution regime will be included in a Local Government Reform Bill which will be introduced into Parliament later this year. 

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