Review of council development fees

Last updated 05:00 18/02/2013

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Council development levies are pushing builders towards constructing bigger, less affordable homes because of the one-size-fits-all approach of councils, Housing Minister Nick Smith says.

Last year the Productivity Commission identified the irony that despite rising house prices and falling owner-occupancy in New Zealand, the average size of houses was booming, from less than 150 square metres in the 1950s, to more than 200 square metres in 2010.

The Government has announced a review of the way development levies - supposed to account for the added cost on local infrastructure - are charged, with Dr Smith claiming the current system discourages affordable housing in favour of expensive homes.

"There are some quite perverse outcomes around the way that the development levies are structured that contradict the desire to get more affordable houses," Dr Smith said.

Developers were being charged "exactly the same whether you're building $700,000, six-bedroom homes, or whether you're trying to build an economic, two-bedroom home for a retired couple", he said.

"That incentivises the developers to build large, expensive homes, rather than providing houses of the more affordable range."

The review would consider whether the Government should force councils to charge levies proportionate to the size of the homes being built, with Dr Smith claiming "logically" a large home would place more strain on sewerage, water and stormwater services than a smaller home.

Development levies were only one factor in a wider bias for de velopers to building bigger homes, which also included a general lack of land supply, and planning rules requiring "big sections".

"The reason that development levies are interesting is that they have risen [in cost] by more than any other component in the whole picture, 360 per cent in a decade is much too much."

Philip King, spokesman for Fletcher Building New Zealand's largest construction company, said the company took into account a range of factors when building homes for sale. When the price of land was high, there was a natural bias towards building more expensive homes.

"With smaller, lower cost housing, when the land value is high, you're basically under-capitalising the value of the property, relative to the land."

Mr King said development levies were a factor pushing developers towards bigger houses, however it was one of many and to lower the cost of housing the Government may need to subsidise land.

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- The Dominion Post

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