Council contributions a 'rort'

Development "contributions" to local government can add up to $30,000 for a residential section in some districts and are a big reason for the excessive cost of housing, according to a report by the business groups Local Government Forum and Property Council.

Property Council chief executive Connal Townsend said the fees were a "rort" involving tens of millions of dollars, which were factored into prices and passed on to buyers. They were in effect a tax of tens of thousands for new-home purchasers.

"Many councils don't want to raise rates, so they try to squeeze income from development contributions [instead] to pay for works that should have been done in the past but were not," he said.

Mr Townsend said past court cases showed that approach was illegal, but it "remains common practice".

The report, Taxing Growth and Development, says there are "major problems" with the practices of councils in levying development and financial contributions from developers.

Local Government New Zealand had not been sent a copy of the report yesterday, so could not comment in detail.

However, a spokesperson said development contributions were used around the world.

"It is a way for councils to get funding which is necessary to meet the demand of new development," the spokesperson said.

"Why should existing ratepayers pay for the cost of enhancing infrastructure, to meet the needs of developers, such as sewerage systems?"

Local Government NZ said it would comment further once it looked at the report.

There are two streams of levies facing developers. Development contributions were brought in under the Local Government Act in 2002 and most councils impose them when land is subdivided or developed.

They are mainly used to fund capital spending on water, wastewater, stormwater, transport, and parks and reserves.

Financial contributions are levied under the Resource Management Act to pay for facilities such as parks and reserves, to offset some of the environmental effects of developments. The contributions could be appealed against to the Environment Court under the Resource Management Act to see if councils were "getting it right", Mr Townsend said.

But the appeal process for development contributions was "noticeable for its absence under the Local Government Act", he said, and the Property Council wanted an appeal right brought in.

Under the old financial contributions, councils found it hard to budget how much they would get because developers would appeal against the process.

The development contributions aimed to "get around that and give much greater certainty" for councils, Mr Townsend said.

"But many local authorities used that to utterly rort the system and essentially take money they were not entitled to as a development contribution."

For example, in a case taken by Neil Construction and other developers against North Shore City, the council agreed to refund more than $10 million in development contributions taken in accordance with a 2004 policy, which the High Court found to be an "error of law" by including extra infrastructure not related to the developments, such as a bus station.

Local Government Forum chairman Charles Finny said development and financial contributions had been growing rapidly. "Development contributions are expected to raise $3.9 billion, or 5.3 per cent of all council revenue during 2006-16. For some councils with rapidly growing populations, the figure is up to 20 per cent," he said. "Contributions of around $30,000 for each residential section are common in some districts. They are a major reason for the excessive cost of housing."

The Local Government Forum includes Business New Zealand, the Electricity Networks Association, Federated Farmers, the Business Roundtable, Chambers of Commerce and the Retailers Association.

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