Good morning all.

The Government lobbed its NZ$1 billion Housing Infrastructure Fund into the debate over Auckland housing supply yesterday, raising a range of questions about its effectiveness and how it might be applied. (See more detail on the announcement in the Hive News Alert below)

Phil Goff welcomed the fund, but indicated it would not be enough.

"The amount itself is not very much when split five ways and will be used quickly," he said.

Len Brown challenged the Government's assurance that the Fund would only be spent on brand new infrastructure, suggesting the potential for the fund to be used on the new 13 km central 'Interceptor' waste water tunnel from Western Springs to Mangere, which is scheduled to begin construction in 2018 at a cost of NZ$950 million.

"In the brownfields areas we need to in effect re-constitute some of our underground water and waste water supplies, so for example the major 'Interceptor', the work going on there through the isthmus area," Brown told Susie Ferguson on Morning Report.

"We would be looking to say to the Government, it is within existing infrastructure, but we're completely re-configuring and re-boring it to enable much greater development," he said.

"We know there's a lot of discussion to be had on how it will be interpreted, the definition of various parts of it. In amongst that, we most definitely want to apply some of this billion to really ensure the development of brownfields activity."

Andrew Little accused the Government of launching "rushed and piecemeal" policy that would not sustainably address the NZ$19 billion infrastructure bill hanging over Auckland.

"Instead of on-lending a billion dollars to Councils, the Government should reform the way infrastructure is funded by adopting Labour’s plan for bond-financing paid back by targeted rates," he said.

James Shaw said the Fund was a subsidy for developers and too focused on building roads between houses, rather than the houses themselves. He also questioned how many affordable houses would be built, given houses built on the fringes tended to be larger and much less affordable stand-alone homes.

"The market typically builds bigger houses that target high-income earners, so the Government needs to put conditions on its loan to ensure affordable housing actually gets built," he said.

David Seymour described the policy as a "paper tiger" that aimed to create a bureaucratic new fund that centralised power.

“A more substantial policy would be a rule that gives Councils a share of the GST collected from new construction projects in their district. That would give Councils the funds and incentives to build infrastructure, without adding the bureaucracy of a contestable fund," he said, referring to the NZ Initiative's recent proposals for new funding techniques to encourage Council to enable development.

There was also debate over the number of new houses that the fund could enable. John Key told reporters it could be tens of thousands, but Brown said it would be more like hundreds or thousands than tens of thousands.

Smith suggests using UDAs to force land-bankers hand

But the more controversial element of yesterday's announcement came in comments from Nick Smith about using the potential powers of compulsory acquisition by Urban Development Authorities (UDAs) to force the hands of land-bankers.

Smith was reported as telling reporters on the fringes of the National Party Annual conference in Christchurch after Key's announcement that Cabinet would consider whether to use the acquisition powers of UDAs to buy back land off land-bankers.

"Obviously the issue of overriding private title for development is a big call, but my view is if we are going to get the quality of urban development, particularly in the redevelopment area where you can often have a real mix of little titles that makes doing a sensible development difficult, in my view it's one of things we'll need to consider," he said.

However, he later told Nick Jones at the NZ Herald that a UDA would not be specifically aimed at land-bankers.

"You can have an area of redevelopment where there may be 50 or 100 titles, and the bulk of the landowners want to be part of the redevelopment, but you can have a small number holding out," he said.

Coming up...

John Key is scheduled to hold his weekly post-Cabinet news conference in Wellington at 4 pm.

Parliament resumes on Tuesday for the second week of a two-week session before a four-week mid-Winter recess.

NZIER publishes its June quarter Survey of Business Opinion (QSBO) at 10am on Tuesday.

Quotable Value is expected to publish its June housing value estimates on Tuesday.

The Reserve Bank of Australia is scheduled to make its monthly cash rate decision at 4.30 NZ Time on Tuesday. All economists expect it to hold the rate at 1.75%, but with an easing bias.

Tweets of the day:

Rob Hosking after John Key told the National Party conference on Sunday morning: 'I hope all the young Nats were in bed nice and early. ALONE.'

Further evidence National Govt has strayed too far from their roots.

David Slack on the Government's Infrastructure Fund.

A great day to be an impatient land banking developer.

Twitpics of the day:

A US real estate advertisement: 'Moving to Canada?'

Have a great week and look out below for the details of Sunday's Infrastructure Fund announcement and my Weekend Column on the meaning of Brexit.

cheers

Bernard

4 July 2016

Hive News Alert: Govt creates NZ$1 bln fund for infrastructure for housing; UDAs planned too
Opinion: A New Deal

Hive News Alert: Govt creates NZ$1 bln fund for infrastructure for housing; UDAs planned too

The Government has announced the creation of a fund that many were hoping for in the May Budget and was seen as the 'missing link' in last month's National Policy Statement on Urban Growth.

John Key today announced the creation by the central Government of a NZ$1 billion Housing Infrastructure Fund to pay for water and roading infrastructure in high growth areas to accelerate house building.

The contestable fund would be available for councils in Christchurch, Auckland, Hamilton, Tauranga and Queenstown to build infrastructure, but they would either have to repay the funds or buy back the infrastructure once it was built and home owners were paying rates. The Government would create the fund by borrowing up to NZ$1 billion.

Key told the National Party's annual conference in Christchurch the announcement would ensure more houses were built faster in areas that needed them the most.

“The contestable fund will be open to councils in high growth centres – currently Christchurch, Queenstown, Tauranga, Hamilton and Auckland – and help bring forward the new roads and water infrastructure needed for new housing where financing is a constraint," Key said.

“We want more houses built so first home buyers can get a foot on the property ladder, so people who work hard can reward themselves with a place they are proud to call home and so tenants have more options for good rental properties," he said.

The Government was criticised after the May Budget for not addressing the infrastructure funding roadblocks to more housing developments, particularly in Auckland where the Auckland Council is up against its borrowing limits. The Government announced a National Policy Statement (NPS) on urban growth last month, which aimed to encourage Councils to free up land for more housing supply, but it did not address the problems some Councils have in funding the roading and water infrastructure needed to prepare that land for housing developments.

The NPS highlighted the current stand-off where the Government called on Councils to free up land and the Auckland Council pushed back by saying it could not fund the extra infrastructure needed. Today's announcement aims to break through that log-jam.

More details on Fund

Bill English and Nick Smith later issued their own statement giving more detail on the Fund.

English said the Fund would help bring forward the new roads and water infrastructure needed for new housing where financing was a constraint.

“The Government will invest up front to ensure the infrastructure is in place. But councils will have to repay the investment or buy back the assets once houses have been built and development contributions paid," English said.

Smith said the fund would only be available for substantial new infrastructure investments that supported more new housing, not to replace existing infrastructure.

“To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available. Ideally, they will have agreements with developers on these issues," he said.

“Funding may also have other conditions attached, such as faster processing of resource consents. All of this will require close collaboration between central and local government.”

English said infrastructure financing was one of the three key constraints to building houses, alongside land supply and consenting requirements.

“Councils have strict debt limits which means some lack the headroom to invest in infrastructure now and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions," English said.

English said the creation of the fund would require the Government to "temporarily" borrow up to NZ$1 billion, which would increase net debt until it was repaid. Smith and English said in a question and answer document issued with the announcement that the creation of the fund would not affect the Government's capital allowance.

Any impact on the OBEGAL measure for the Government's surplus would depend on the nature of the infrastructure projects agreed, they said.

"Because it is intended to be repaid within 10 years, the fund is not expected to impact on the Budget capital allowance," they said in the Q&A document.

UDAs also planned

Smith said the Government was also considering establishing Urban Development Authorities (UDAs) to help further speed up the supply of new housing.

UDAs had streamlined powers to override barriers to large-scale development, including potentially taking responsibility for planning and consenting and other powers, Smith said.

They were recommended by the Productivity Commission last year, including the potential for UDAs to have the power to compulsorily acquire land.

Smith and English said in the Q&A document that options for managing the funds were being worked through with Councils and that existing models were being considered.

"With roads, for example, we've already accelerated priority Auckland transport projects through NZTA. We could use a similar model for roading projects under the new fund. Another option is a special purpose vehicle along the lines of Crown Fibre Holdings, which was created to manage the roll-out of Ultra-Fast Broadband," the said.

The Government planned to call for applications later this year.

"In the meantime, councils can start identifying projects to put forward," they said.

Longer-term, councils would need to find new ways of funding infrastructure through existing funding tools or potentially coming up with new ones, Smith and English said.

"This is a short to medium term fund to enable the acceleration of new houses in high-growth areas rather than an on-going subsidy to councils," they said.

We'll have more reaction and detail on this in tomorrow morning's email.

cheers

Bernard

Opinion: A New Deal

All over the developed world the masses are revolting and not in a friendly or productive way.

The Brexit vote was clearly a howl of protest by often poorer and older and less educated Englanders who felt insecure, impoverished and alienated from the richer Londoners preaching about the benefits of globalisation.

These Brexiteers essentially said they'd had enough of being told that the free movement of goods, services and capital across borders would make everyone richer and happier in the long run. After 30 years of removing trade barriers and welcoming in migrants, they finally said 'enough' when the powers-that-be told them one more time that remaining open and connected to the markets of the world was good for everyone.

Donald Trump's supporters are doing exactly the same and there are clones of Trump and Brexit campaign leader Nigel Farage all over the developed world, ranging from Marine Le Pen in France to Geert Wilders in the Netherlands and Pauline Hanson in Australia. Winston Peters is in many ways our version of the same populist phenomenon, campaigning against globalisation and migration.

On the face of it, they're wrong. Globalisation has made most of the world richer for most of the time and there's no denying the wealth of much our new world of cheap imported goods, free online services and easy travel around a vibrant fabric of cultures.

This chart from former World Bank economist Branko Milanovic shows exactly how incomes across the world have fared over the last 20 years, ranging from the poorest on the left to the richest on the right. You can see the broad bulk of the middle have seen their real incomes rise 20% to 80% over the period from 1988 to 2008. Hundreds of millions of people in China, Eastern Europe and Emerging Asia have been lifted out of poverty and into the middle classes. Those at the very richest end of spectrum in places like China and America have also done well, but even their income growth hasn't been quite as strong as for those around the middle of the spectrum.

But the chart also shows an alarming gap between the 70th and 90th percentiles, which is where the Brexiteers and Trumpites live. These are those workers (often men) on lower to middle incomes from the rust belts of the North of England and the North and Mid-West of America who have seen their real incomes fall. Their comfortable and increasingly prosperous lives of the 1950s, 1960s and 1970s were upended by the dismantling of the Berlin Wall in 1989 and China's accession to the World Trade Organisation in 2001. Salt was rubbed in the wounds by a range of reforms and austerity that chewed away at the fabric of the post-war social safety net of subsidised education, health care and benefits for the sick and unemployed.

Where once a high school education with decent numeracy and literacy was enough to get a decent job to support a family, now it takes a tertiary education and a whole range of skills to earn a comfortable living. Many of those in manufacturing have been cast aside, unable to retrain and forced to work in lower wage and less prestigious occupations. Many more in the likes of Britain and the United States have been forced to pay for University education and expensive healthcare that their older generations received in subsidised form.

The Brexiteers and Trumpites are now revolting, which often means blaming the 'others' -- those in the governing elites and those arriving from other places. It is ugly and counter-productive because the people who will be hurt the most in the resulting political turmoil are the poorest and most marginalised. The irony of the Brexit decision is those poorer areas in the North of England that voted to leave will the first hurt in any British recession and the first to miss out on European Union subsidies.

The arrival this week of new household wealth figures for New Zealand reinforced that these underlying changes in the global economy that have made many wealthy, but have left others behind over the last 20-30 years. The top 10% of New Zealand households own half of the wealth, while the bottom 40% of households owned 3% of the wealth. The poorest 5% were actually under water because they owed more than than they owned. New Zealand was more unequal than Luxembourg, Britain and Australia in these figures, although not as unequal as the United States or the Netherlands.

John Key and Bill English brushed this off as "nothing out of the ordinary" and in line with what has happened for 30 years around the world. That may be true, but it doesn't provide an answer to the masses in the developed world who are revolting.

At some point, the governing elites of mature and globalised economies like ours will have to come up with a new deal to redistribute some of the bounties of globalisation to stop these revolts. In the dry language of the markets, the costs of allowing middle England, America and New Zealand to miss out will outweigh the benefits of doing nothing.

That new deal will have to involve some sort of redistribution of income and wealth, and the rebuilding of the welfare state. The alternative doesn't bear thinking about. Just imagine how productive and wealthy our economies would be with a President Trump and a Prime Minister Peters. Or worse, if democracy does not survive the resulting stresses.