Financial innovation beats Kiwibuild
Published in Insights, The New Zealand Initiative’s newsletter, 16 November 2018
The Government has copped much criticism lately for its Kiwibuild policy, including from our chair Roger Partridge writing in Insights two weeks ago. So it is only fair to praise Housing Minister Phil Twyford when he deserves it.
This week’s announcement of a new government infrastructure partnership north of Auckland is indeed praiseworthy.
Crown Infrastructure Partners, Fulton Hogan, and Auckland Council have teamed up to deliver $91 million worth of new residential infrastructure at Wainui. Funding will be organised through a Special Purpose Vehicle, for which long-term fixed-rate debt has been raised from the Accident Compensation Corporation.
All this sounds technical, and it is. However, the bottom line is simple: This financial construction enables building 9,000 homes. Their future owners have to pay for their infrastructure with an extra rate worth between $650 and $1,000 per year.
There are several advantages to this scheme. First, it speeds up building new homes. On its own, Auckland Council would struggle to afford the infrastructure investment for projects like this. By taking that burden off the council, more housing projects can get off the ground – and sooner.
Second, instead of paying for the infrastructure upfront into the purchase price, buyers will be able to take on a smaller mortgage and pay for the infrastructure over time.
Third, by outsourcing infrastructure finance, New Zealand will develop a new market segment for infrastructure assets. These will be attractive investment options.
Fourth, the private provision and management of infrastructure could also result in improved efficiencies, especially if special purpose vehicles are shouldered by private capital.
Twyford is right when he calls the project an example of innovative new approaches to financing infrastructure. He is also correct in saying this funding model can be used in other high growth areas to help build more houses more quickly.
We appreciate the Government’s leap into private infrastructure finance all the more because the Initiative first proposed it in our 2013 report Free to Build.
Besides, the construction of 9,000 homes is more than 26 times the number of buyers who have qualified for Kiwibuild so far. It’s a pity that complex finance initiatives do not make for great photo opportunities with the Prime Minister.
Regardless, this initiative deserves support and praise. We want to see more of it.