“Growth pays for growth”: New Zealand’s shift to development levies explained

The recently introduced Local Government (Infrastructure Funding) Amendment Bill, currently before Parliament, provides the first clear direction. If enacted, it would replace New Zealand’s existing development contributions system with a new development levies framework, one of the most significant proposed changes to infrastructure funding settings in recent years.

Development contributions, and what the Bill is seeking to address

When new homes, commercial buildings or subdivisions are developed, they create additional demand on local infrastructure – roads, water and wastewater systems, stormwater networks, reserves and community facilities. Development contributions allow councils to recover a share of the cost of providing that infrastructure from the developments creating the demand.

Managing Director Clayton McKenzie, comments “For developers, the key issue is not simply whether charges go up or down. The real issue is certainty. Infrastructure costs can materially affect land value, feasibility and project timing, so the earlier those costs can be understood, the better the development decision-making becomes.”

The current system was designed for a planning environment where councils had a high degree of control over where and when growth occurred. Today’s development landscape is very different, with growth occurring rapidly across multiple regions and more land becoming available for development. The Government’s view is that the existing framework no longer provides the certainty or flexibility needed to support this environment.

Our summary is that the Bill seeks to address several aspects of the current system:

• Development contribution charges vary significantly from council to council, creating inconsistency for developers working across different regions.
• Because charges are tied to specific infrastructure projects, they can be difficult to forecast accurately at the early stages of project planning.
• The current framework has also made it harder for some councils to recover the full cost of growth infrastructure in a timely way.

The new development levies system aims to provide a more consistent, transparent and flexible approach to infrastructure funding – one that the Government describes as being designed around a clear “growth pays for growth” principle. Many of the questions we receive from clients reflect the same issues the Bill seeks to address. Development contribution charges can vary significantly between councils, making it difficult for developers operating across multiple regions to compare opportunities. Clients also regularly ask how early contribution costs can be accurately estimated, as uncertainty at the feasibility stage can materially influence land acquisition decisions and project viability.

How the new system would work

Currently, each council calculates development contributions using its own methodology, tied to the specific infrastructure a particular development is expected to need.

The proposed system takes a different approach – pooling infrastructure costs across a defined geographic area, or levy zone, and applying a consistent charge for each service type.

Most developments within a levy zone would pay the same rate, regardless of which specific infrastructure their project happens to require.

Councils would retain some discretion to set higher charges in areas with particularly high infrastructure costs, but an independent regulator, potentially the Commerce Commisionthe Commerce Commission – would oversee those decisions to ensure charges remain fair and proportionate.

What it means for home buyers and communities

Development costs flow through the supply chain and are ultimately reflected in the price of new homes and commercial premises. The reform is designed to make those costs more predictable earlier in the development process – though many factors impact pricing (not just levies).

The new framework is also intended to help infrastructure keep pace with growth. Councils that have struggled to fund infrastructure delivery under the current system should find it easier to recover costs under the new framework. This impacts the people living and working in new communities who depend on services being delivered on time.

What it means for developers

From our perspective, the greatest potential benefit is increased certainty earlier in the development process.

One of the most common challenges we help clients work through is understanding infrastructure costs before committing to a site purchase. Under the current system, contribution estimates can change as projects evolve or as council programmes are updated. If implemented as proposed, a levy zone model may allow developers to better understand likely infrastructure costs much earlier, providing greater confidence when assessing land acquisitions, preparing feasibility studies and securing project finance.

The reforms may also simplify decision-making for developers working across multiple council areas by reducing the variation between local authority funding approaches.

That said, there will inevitably be trade-offs. Because infrastructure costs would be shared across an entire levy zone, some developments may contribute towards infrastructure they do not directly benefit from, while others may pay less than they would under the current project-specific approach. How equitable this proves in practice will largely depend on how levy zone boundaries are ultimately established.

The proposed oversight role of the Commerce Commission would also introduce a more transparent mechanism for reviewing levy charges where developers consider them disproportionate.

Looking ahead

As the Bill progresses through Parliament, further detail will emerge around levy calculations, transition arrangements and implementation timeframes. Current indications suggest there may be a transition period before full implementation.

For developers planning projects with delivery timeframes extending into the latter part of the decade, it will be increasingly important to understand how the proposed reforms could influence project feasibility, funding assumptions and delivery programmes.

At McKenzie & Co, we’re already helping clients navigate these discussions as they assess land opportunities, model development costs and plan future projects. While the legislation is still progressing, understanding the direction of travel now can help avoid surprises later.

If you’d like to discuss what the proposed development levies reforms could mean for your project, the McKenzie & Co team is available to help.

Disclaimer: This article provides general commentary on proposed legislation at the time of writing. It is not legal, planning or financial advice and should not be relied upon as such. The legislation remains before Parliament and may change before being enacted.