Local Government Information Series: Analysis of 2007/08 Development Contributions

The Department of Internal Affairs engaged SPM Consultants Limited to conduct a review of 2007/08 development contributions in order to assess the variability and levels of development contributions in use, and to undertake a preliminary analysis of the actual costs charged through the use of residential development contributions. The project did not consider the particular merits of individual development contribution policies; the methodology councils use to calculate demand; the actual costs for non-residential development; the relationship between actual costs and the total cost of new housing; or information about RMA contributions.

1. This report describes the taxonomy developed to categorise and describe development contributions and the associated cost impacts. It describes the process of data extraction and collations necessary to gather the required information, and explores the trends and variations in development contribution costs within councils and between different local government sectors. Following an initial review of the development contributions policies, contributions were categorised for analysis as reserves, network infrastructure (transport, watersupply, wastewater, and stormwater), and community infrastructure (parks infrastructure, community services, and other).
2. The review found that over half of all territorial authorities (44 out of 73) have an operative development contributions policy. All but two of these also have a financial contributions policy in some shape or form. The most persistent trends are for the larger territorial authorities and those with the highest growth rates to have development contributions policies. The smaller Councils and those with low or negative growth rates are much less likely to have a development contributions policy. Wairoa District Council is the only territorial authority with no contributions policy at this time.
3. While there are some trends across the local government sectors from metropolitan, to provincial, to rural, this is considered to be a coarse trend that mimics size and growth rate. With two exceptions, every council with more than 20,700 households as at 2001, or growth of more than 26% over 20 years, has adopted a development contributions policy. The two councils who are exceptions to this finding have made policy decisions based on their own unique circumstances.
4. There is a wide variety of descriptions and groupings of the contribution activities. In some cases the descriptions are clear and the contributions aligned with the asset types, but in other cases the grouping and / or naming of asset types makes it difficult to classify and compare contributions. There is frequently a schedule of charges depending on the location or catchment of the development. These vary in number from zero to 37, with numbers of 15 - 19 not uncommon for each activity. Two territorial authorities have total median contributions greater than $20,000; four have total median contributions in the $15,000 - $19,999 range; and 11 have total median contributions in the $10,000 - $14,999 range.
5. Based on the information available, the 73 territorial authorities are expecting to collect total revenue of $73.3 billion during the period from 2006 - 2016. During the same period only $3.87 billion, or 5.3% of the total, is expected to be collected as development contributions. Only 31 of the 44 councils with development contribution policies forecast contributions revenue, with the remaining 13 either not forecasting it or classifying that revenue in other ways. Significantly, seven of the councils with no development contributions policy actually forecast development contribution revenue.
6. Only 22 of the 44 territorial authorities with development contributions policies choose to collect contributions for reserves. Rural councils are much more likely to have financial contributions policy for reserves, while similar proportions of the metropolitan and provincial councils have migrated to development contributions to fund the growth of their reserves. The fixed charges and $/m² rates for reserves in metropolitan councils are typically much higher than in other sectors, reflecting the higher land values and increased costs in acquiring additional open space for reserves.
7. Within the Auckland region Franklin District Council has the highest median contribution followed by Auckland City Council and then North Shore City Council. The impact of utility provider Watercare Services Limited, which provides water and collects waste water for some of the seven Auckland councils is also significant. Watercare Services Limited carries the capital cost of growth but recovers this through the operational charges to the territorial authorities and local network operators. This anomaly makes it difficult to collect the cost of growth as a development contribution.
8. The review also explored a range of additional issues identified for consideration by the Department of Internal Affairs:
9. The majority of council do not specifically distinguish between residential sections and household equivalent units.
10. All councils with operative development contributions policies use a Household Equivalent Unit (HEU), Household Unit Equivalent (HUE), or some similar term as their principal unit of demand for residential development contributions.
11. The majority of councils with a development contributions policy also charge contributions on at least some types of non-residential development.
12. The majority of policies use area to relate the size of proposed developments to the HEU.
13. There are potential issues arising from excessive dependence on development contributions for future income particularly if the contribution income is substantially less than expected, significantly later than expected, or if the policy was invalidated and contribution refunds needed.
14. There is generally too little information provided in the development contributions policies to determine whether there is any variation between what is actually charged and what is supposed to be charged.