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Brief Counsel

Quick nip and tuck for development contributions regime

16 August 2013

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Development contributions will not be removed or capped as a result of the government review following the Productivity Commission inquiry into housing affordability.

But they will be given a legislative nip and tuck in the Government’s next Local Government Reform Bill, expected to be introduced later this year.

We run quickly through the proposed changes.

Problem identification

Development contributions can be charged by local councils to recoup some of the capital costs of providing infrastructure services to support new property developments. They can only be charged on growth-related infrastructure investment – not on quality upgrades, maintenance or operational costs.

Currently they average $14,000 per section but can be as high as $64,000 and are a source of frustration to property developers because it is often unclear how the charges are calculated and to what they can legitimately be applied.  There is also limited ability to challenge the reasonableness of the amounts charged.

Policy response

New purpose statement

A new purpose statement will be incorporated into the Local Government Act (LGA) to explain that “development contribution provisions exist to help territorial authorities recover a fair, equitable and proportionate portion of the capital costs of infrastructure that is required to service growth”.

This will be supported by six principles to guide territorial authorities in the application of development contributions - need, efficiency, equity, accountability, transparency and certainty.

Tighter definition of infrastructure

The LGA lists three types of infrastructure – network, reserves and community. 

  • The “community infrastructure” definition will be narrowed to the types of infrastructure that service local neighbourhood needs – e.g. community and neighbourhood halls, play equipment on reserves, and public toilets.  Amenities which are not on the list because they serve wider populations (e.g. art galleries, aquatic centres, botanic gardens) would have to be funded from rates, user-charges or other revenue sources.
  • Councils will no longer be able to charge development contributions for reserves on commercial and industrial developments where these do not result in the creation of new residential dwellings. 
  • The provisions relating to network infrastructure – roading and the three waters – will be unchanged.

Greater transparency

Councils will be required to provide more detail regarding the content of their development contribution policies.  This must include: a schedule of the projects that contributions are being charged for; the expected cost of each project, and the proportion of that cost that is being funded from development contributions.

Encouraging more private provision through development agreements 

Although the LGA provides for these arrangements now, it enables rather than encourages them.  The amended Act will provide a specific framework for councils and private developers to enter binding agreements.  Such agreements must specify the parties to the agreement, the land to which the agreement relates and the details of the infrastructure to be provided or funded by each party. 

They may also contain information regarding the timing and phasing of the infrastructure build, the ownership, vesting and maintenance of that infrastructure, the means through which disputes will be resolved, the transfer of land between the territorial authority and the developer, the nature and amount of any monies payable and how the agreement will be enforced against breach.

Local authorities will not be able to require a developer to provide infrastructure of a type, nature or scale greater than would have been provided for through development contributions, unless the developer volunteers to do this.  Neither can a territorial authority refuse a building consent on the basis that a development agreement has not been entered into. 

New objection process

Developers will have a new right of objection to development contribution charges.  Objections will be heard by independent “development contribution commissioners” whose decisions will be binding on both parties.  There will be no right of appeal except through judicial review.  The details of this process will be worked through as the legislation goes through the House, so could be an issue for submission to the select committee.

Chapman Tripp’s earlier commentary on the review is available here.

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