Incentives on the agenda

Published in Insights, The New Zealand Initiative’s newsletter, 16 April 2021

Between a policy idea and its political take-up, many years can pass. But that makes it even more satisfying when it eventually happens.

No one could be more thrilled about National’s housing policy package than I am. One of its key proposals derives from research I did in London more than 15 years ago and which the Initiative has refined over the past decade.

Back then, Professor Alan W. Evans, a senior urban economist, and I worked on a policy project to improve Britain’s housing affordability. We argued that planning reform was not sufficient to achieve this goal.

Based on our international research, we recommended a ‘social cost tariff’ worth £500k (approximately $960k) per hectare. This payment should incentivise communities to develop housing areas and compensate them for infrastructure costs.

Though the idea is straightforward, the political implementation is not. Local government does not have the best reputation, neither in the UK nor here. And central government rarely wants to give up power or money, no matter whether it is London or Wellington.

Still, under Prime Minister David Cameron, the British Government moved in this direction with its New Homes Bonus scheme. However, the funding was much more modest than we had proposed – just under £10k per house.

When I came to New Zealand in 2012, the situation was familiar. Unaffordable housing, weak councils, and lack of infrastructure funding are features Britain and New Zealand share.

Once again, I argued that financial incentives for councils are crucial to solving the housing crisis. The objections I encountered were the same I had heard before.

Still, the economic logic behind the idea is compelling. Once councils got compensated for new development, they would find it easier to convince residents that development is positive.

Right now, residents have little to gain from new housing. Instead, they must put up with more congestion, extra competition for public services, and higher rates to pay for their new neighbours’ infrastructure.

It took countless research reports, speeches, presentations, interviews, and columns to establish that councils need better financial incentives. And finally, with National, a major party has accepted them.

National proposes $50k per extra dwelling above a 5-year building average. Whether that is enough is a good question. For some councils, the figure may be closer to $100k for each new build.

We hope that the Labour government builds on this concept, forming and implementing a maybe even better version of its own.

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