The government has announced it is making five key changes to its funding and financing toolkit.

The new and improved infrastructure funding will include the following.

1. Replacing development contributions with a development levy system, which enables councils and other infrastructure providers to charge developers a proportionate amount of the total cost of capital expenditure necessary to service growth over the long term. Separate levies will be maintained for each infrastructure service, with levy zones expected to cover a pre-defined urban area. Levies will be calculated based on overall growth costs and expected levels of growth.
2. Establishing regulatory oversight of development levies to ensure charges are fair and appropriate by restricting local authority discretion about various matters, such as setting the methodology used to allocate project costs.
3. Increasing the flexibility of targeted rates by allowing councils to set targeted rates that apply only to new developments and enabling targeted rates and levies to be used together where projects benefit existing residents and provide for growth.
4. Improving the effectiveness of the Infrastructure Funding and Financing (IFF) Act, particularly for developer-led projects. This work is being led by parliamentary under-secretary Simon Court.
5. Broadening existing tools to support value capture and cost recovery by enabling the IFF Act to be used for major transport projects (such as those led by NZTA).

“These are big changes, but they will be worth it,” housing minister Chris Bishop and local government minister Simon Watts say.

“Shifting to development levies will give developers more certainty around costs and give councils more flexibility to recover the actual costs of growth. The changes will increase transparency and reduce administrative complexity for councils.

“Most importantly, they mean that councils can properly cover the costs of housing growth,” Watts says.

Detailed design work around the new system is underway in advance of legislation being introduced to parliament in the second half of 2025, enacted in mid-2026 and to begin in 2027.

Developers need certainty

Meanwhile the Property Council New Zealand believes it is a move that will pave the way for more commercial viability and the construction of much-needed homes across the country.“With housing affordability becoming an increasingly pressing issue, this reform could go a long way in ensuring that development is not unnecessarily hindered,” Leonie Freeman, Property Council chief executive says. She says development contribution fees have a significant impact on growth, both positively and negatively.

“Development contribution fees have the power to either drive or hinder growth. Recently, some councils have raised these fees by an astonishing 289 per cent, pushing the total cost to approximately $100,000 per home, ultimately adding to the final purchase price for buyers. These increases are unsustainable and limit the ability to address the growing housing shortage.”

For years, the Property Council has advocated for a more consistent and transparent approach to these fees.

“For too long, development contribution fees have lacked consistency, been used to fund infrastructure unrelated to the development area, and remained entirely at the discretion of councils. This has led to unpredictable and, at times, unjustifiable costs for developers and, ultimately, homebuyers,” Freeman says.

The new system promises to focus on ensuring development contributions are spent directly on infrastructure tied to the specific development areas.

“We’re encouraged that the new system aims to ensure development contributions are dedicated to infrastructure spending related to the area being developed. In the past, we’ve seen fees collected in Drury used to fund projects like the Devonport Library – an approach that simply doesn’t add up.

“Our members need certainty to develop. They need a system that guarantees consistent pricing and application across the country, where levies collected from a development are reinvested into the same area. A system that is transparent and well-regulated. “

The Property Council will continue to monitor the rollout of the new system, advocating for measures that prioritise long-term benefits for communities and the housing market.