It’s over a year since I introduced Bdeep – articles with more depth than the normal run of straight news – to The Bob Dey Property Report website, and nothing’s come of it. Over the intervening months I’ve been working on a number of Bdeep thoughts without producing the final goods.
At last, they’re about to start flowing. This article highlights points made in a 38-page report on a tour of 4 US cities organised by Infrastructure NZ. The link to that report is at the foot of this article. You can comment below, or send me suggestions on email to follow up: [email protected].
Infrastructure NZ took 42 public & private sector infrastructure leaders on a tour of 4 US cities with the same challenges as they meet here, but with different economic, social & environmental outcomes.
One conclusion in the 38-page report the organisation produced on their return: “The US urban growth system shows that New Zealand cities can grow responsively & affordably without large public subsidies. It is the policies we are pursuing which are undervaluing investment in growth and pushing up land prices.”
Another: “The rates-based approach [in NZ] has not only impeded councils’ willingness to invest, it has established a mentality & approach to city growth framed around costs, not around value.”
And a third: “The effect of comparatively higher transport subsidies in a city like Houston than in cities across New Zealand is a willingness to travel further. Longer distances allow residents to access cheaper land, so living costs are not necessarily increased (and may in fact fall). However, carbon emissions are high and long trip lengths have made citizens extremely sensitive to fuel tax increases.
“In New Zealand, the high proportion of funding contributed by private vehicles has distorted transport priorities. Rather than being viewed as a catalyst for economic development & connectivity, transport has become a debate about what mode best reduces congestion. Light rail in Auckland, for example, has been marketed as a solution to gridlock, rather than its real purpose which is urban regeneration, because the funding source is private vehicle users.”
Selwood says NZ cities need flexibility & tools
Infrastructure NZ chief executive Stephen Selwood said on the release of the report (link below) last week: “New Zealand’s urban growth system is broken and must be revised to incentivise cities to grow, and city leaders must be given the flexibility & tools they need to succeed.
“We took 42 public & private sector infrastructure leaders to Portland, Denver, Dallas & Houston – 4 big, fast-growing cities facing the same challenges as New Zealand cities. The US cities may not be able to match New Zealand centres for liveability, but they do know how to grow. Homes are being built, roads & public transport are being delivered and homelessness is down by a third in the last decade.
“The key to US success is an urban growth system which is incentivised to want growth and has the tools & flexibility to overcome challenges.
“The metro areas of the US, including the constituents & governments, benefit from growth. Sales & income taxes complement property taxes. More homes, residents & investment means more revenue for local authorities. Federal & state agencies sweeten the deal with grants & funds to encourage performance.
“America’s thin welfare net doubles the importance of successful urban performance – if cities don’t grow & succeed, homelessness, unemployment & social costs fall much more heavily on local institutions. Cities are not only better incentivised, they have the ability to respond.
“Different revenue streams provide flexibility of funding. Innovative financing is used to transfer the costs of infrastructure to beneficiaries who repay debt over the long term. Regional governments evolve to meet citywide challenges, special purpose infrastructure districts fill resourcing gaps.”
For Mr Selwood, the big difference is that, in New Zealand, central government collects the benefits, through tax, of infrastructure that local councils have to provide: “New Zealand’s urban growth system, by comparison, is poorly incentivised. Central government captures the tax benefits of growth, leaving councils reluctant to invest in costly upfront infrastructure.
“Councils that try to grow have to rely on rates paid by those with homes in order to fund services for those without homes. Debt ceilings constrain finance and hard regulatory instruments become the preferred tool to manage growth.
“Overdependence on urban boundaries & density restrictions has undermined competitive land markets, preventing affordable housing, and there are no price signals to ratepayers about the consequence of council policies. Overall, the American system is far more collaborative, innovative, aspirational & effective at responding to growth.
“We simply must revise our governance responsibilities & funding. It is not working, having a multiplicity of small councils with limited capability manage limited funds for such an important task. We must re-gear local governance so that local authorities benefit from growth and have the tools to respond. A review of local government funding & responsibilities should be launched as part of the review of planning statute and alongside the Tax Working Group.
“In the meantime, central government has to intervene with grants & transfers, like the Provincial Growth Fund and city & regional deals which allocate funding to councils who support economic & urban growth.
“Responsibility for financing costly growth infrastructure needs to shift away from ratepayers. Activities which provide a revenue stream, including water services & toll roads, can be used to finance investment without compromising council borrowing costs. Crown Infrastructure Partners needs to have a wider scope to finance infrastructure delivery and rate future property owners.
“If we combine these measures with emerging urban development authority legislation and get on with delivering attractive new cities & centres, like a satellite city in South Auckland, we can remove planning regulations and allow competitive land markets to deliver housing New Zealanders can afford.”
A conclusion on decionmaking: “The second system-level strength of the US system for responding to & supporting urban growth is its flexibility. Institutions have at their disposal a wide range of tools to overcome funding, financing, planning & delivery challenges as they arise. When existing tools or even the institutions themselves fail to support growth, the US system itself has shown an ability to adapt with new institutions & governing solutions.”
An NZ problem: “Cities experiencing local issues have limited scope to reassign core public services to meet need. Central government must be engaged to effect change. Once committed, central government has very strong capability to address issues, but is compromised when issues are local. Most recently, central government has been politically challenged to respond to chronic Auckland housing & transport issues without providing equivalent funding for regions with lesser problems.”
And 2 US solutions: “Umbrella governments can be established (or expanded) to provide services across different territories. Portland’s Metro and Denver’s Regional Council of Governments have both been established & enhanced to integrate & align across their respective city-regions.”
The second solution, special districts: “Special districts are independent units of local government that can enable programmes or projects to be financed and the debt repaid over time. Repayment is made by ringfencing user charges & special taxes to repay project bonds, and do not require a guarantee from wider taxpayers or councils. They can be established to fund, finance & operate a wide range of local services, including water services, roads, public transport, parks, libraries or recreational facilities.”
And the third solution, revenue bonds: “Revenue bonds are a form of project financing where investors lend against a revenue stream linked to a project. They are distinct from traditional – ‘general obligation’ – bonds in that they are ‘non-guaranteed’, that is, they are not tied to a local council’s overall taxation capability. The specific revenue bond will have a rating from a major ratings agency to estimate investment risk. In the US, no federal or state tax is payable on municipal bonds, which helps to keep financing costs low for public projects.”
But it’s not all perfect over there, as this conclusion on Houston’s weaknesses illustrates: “Houston suffers many of the same externalities from its growth model as Dallas-Fort Worth. Its urban form is likely influenced by fuel tax policy which sees all modes of transport heavily subsidised by land, sales & other taxes. Houston city centre lacks the vibrancy that would normally be expected of a city of 7 million, and residents almost certainly make housing & employment decisions based on a low cost of travel.”
Infrastructure NZ report
Attribution: Infrastructure NZ release & report.