Insights
MAY 19 2017
All Insights

Urban Development Authorities – Submission on MBIE Discussion Document

Executive summary

(i)             We welcome the opportunity to comment on this proposal to introduce a legislative basis for Urban Development Authorities (UDAs), and commend MBIE on the work it has done in outlining the issues for discussion.

(ii)            In general terms, we support the idea of UDAs.  In our view, they could be an important means of delivering much-needed development (especially in the Auckland area).

(iii)          In order to deliver those outcomes as effectively and efficiently as possible, the UDA legislation should be modelled on the Housing Accords and Special Housing Areas Act 2013 and the Housing Project Office in particular, by establishing a single UDA for all of Auckland with specific areas / projects to be identified on a case by case basis.  Adopting that model would:

Ø  assist stakeholder buy-in, as it would pick up on a well-understood precedent;

Ø  be consistent with the objectives of local authorities;

Ø  utilise the skills of private developers and not crowd them out of the market;

Ø  more effectively allocate the UDAs’ resources;

Ø  expedite the delivery of residential projects;

Ø  increase the potential for social outcomes in private developments;

Ø  address the problem of infrastructure funding; and

Ø  ensure the feasibility of development throughout a property cycle with alternative funding models.

(iv)           We have some concerns that the current proposal will have unintended consequences and achieve the opposite result by driving out developers and failing to deliver projects.

(v)            We would be very happy to discuss these issues with MBIE further, if that would assist.

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1.             Introduction

1.1          We welcome the opportunity to provide this submission on MBIE’s Discussion Document dated February 2017 (MBIE DD) on Urban Development Authorities (UDAs).  We commend MBIE for the careful thought it has given to the complex issues which arise in this area.

1.2          We have consulted with a number of developers and other parties interested in the UDA proposal, and have prepared this submission in light of those discussions.  We have given some brief answers to the specific questions in the MBIE DD in the Schedule. 

1.3          Our contact details for this submission are as follows:

Jeff Walters (021) 831 335 jeff.walters@acllaw.co.nz Andy Glenie (021) 568 923 andy@acllaw.co.nz  

1.4          We have no objection to this submission being made public.

2.             Housing Accords and Special Housing Areas Act 2013

2.1          The general thrust of our submission is that the UDA proposal should be modelled on the best example of a recent legislative solution for urban development, the Housing Accords and Special Housing Areas Act 2013 (HASHA) and the Housing Project Office (HPO) (HASHA Model).

2.2          Adopting the HASHA Model would have a number of key advantages.  In particular, it would mean that all stakeholders would be able to consider a model based on a clear and known precedent. This would focus debate on a tried and successful regime with a significantly reduced risk of unwanted and unforeseen consequences.  It would shorten the time frame for implementation and require significantly less political capital than the wider proposal reflected in the MBIE DD, which outlines a very broad and far-reaching set of tools for expediting urban development. 

3.             Planning

3.1          The MBIE DD outlines a complex and inevitably time-consuming two stage process for identifying, notifying, consulting on, and ultimately designating development opportunities.  The complexity of that process would contribute to delivery delays. The cost would be an unnecessarily large disincentive to using the UDA. Having more than one UDA in Auckland seems likely to:

(a)           result in doubling up of administrative resource and costs;

(b)           be challenging in terms of finding appropriately skilled staff and leaders and increase the likelihood that the majority of staff in any UDA are learning on the job as opposed to being able to draw on past experience.

3.2          Further, the consent of the relevant territorial authority would be required (given the veto powers).  We doubt that the territorial authorities would welcome an UDA overriding their district plans, especially in Auckland.  Stakeholders have now spent five years working with the (now) Auckland Unitary Plan Operative in Part (Unitary Plan).  Adopting the HASHA Model would have the advantage of building on the Unitary Plan rather than overriding it.

3.3          The HASHA allows special housing areas to be designated for the purpose of fast-tracking the development of housing.  It provides that resource consent and plan changes can be processed concurrently, in a shortened timeframe, with limited public notification. 

3.4          We suggest that a single Auckland-wide UDA modelled on the HPO be established with the power to fast-track the development of housing and mixed use areas (with a residential component).  Qualifying development proposals would need to meet criteria, such as minimum dwellings numbers, height/storey controls, and minimum levels of affordable housing.

3.5          We also suggest that UDAs have a role similar to that of the HPO.  The HPO consisted of representatives from Council-controlled organisations such as Auckland Transport and Watercare Services, and employees from the Council’s resource consent, parks and recreation, planning and stormwater units.  As a result, the HPO was able to provide resource consent and master planning services in a unified manner.  UDAs ought to take a similar collaborative, problem-solving approach to consent and planning for urban development throughout Auckland.   Such an approach would be likely to help lift performance levels at Auckland Council, as they did as a result of the introduction of the HPO by establishing a benchmark of best practice.  The HPO was focused on outcomes.  It could require Council entities to make decisions and it attracted high quality solution-orientated planners.

4.             Developers

4.1          We suggest that it would be helpful to clarify that UDAs should not act as developers, and should instead have a high level supervisory and consenting role.  That would accord with their role as public bodies, overseeing development in the long-term interests of the community.

4.2          New Zealand has a number of creative, experienced and skilled developers.   It is vital that these developers be actively involved in Auckland’s urban development and not be inadvertently crowded out by public bodies.

4.3          If UDAs were legally able to act as developers, a number of risks and problems could arise.  For instance:

(a)           UDAs could have difficulty accessing quality personnel (given labour shortages and limits on what a public entity can pay).

(b)           Government agencies by their nature are generally reactive rather than proactive when it comes to markets. Decision-making by committee does not lend itself to time-critical commercial decisions. Structural change and innovation are more closely associated with the private sector than the public sector.  For example, we have seen many public sector led developments which chose the wrong typology and end up with intensification over diversity and quality environments.

(c)           The private development sector has far more at stake in every project than its public sector counterparts. This ensures a greater level of analysis, focus and commitment to ensuring that a successful outcome is delivered.

(d)           The wide scope of UDA objectives could mean that UDAs become quickly bogged down and as a result may fail to deliver or rush procurement processes leading to poor outcomes.

(e)           Procurement comes at a high cost and bidding on multiple projects is not feasible.

(f)             UDAs could develop a political overlay which could interfere with timely delivery of much-needed housing. 

4.4          A UDA acting as a developer would likely contract directly with builders.  Builders do not have the same skill set as developers and they deliver a narrower set of solutions than those produced by developers who are focused on the delivery of maximum value (rather than lowest cost) from project identification, through design, consenting and build and delivery to market. Further, the UDAs effectively compete against developers but do so on an uneven playing field due to:

(a)           easier access to Crown and/or local authority land;

(b)           a lower cost of funds;

(c)           the ability to regulate or legislate competitive advantages to themselves as regards to planning, infrastructure, affordability measures etc. An example of this is the development-friendly zoning granted to Hobsonville Land Company. It is highly unlikely that a private developer would have secured a similar zoning in their own right;

(d)           the consequences of a UDA operating at a financial loss are far less of a driving motivation for a public body than a private entity.  Conversely, private bodies are not constrained by the same degree of internal compliance as public bodies which gives them the ability to make decisions quickly and focus more closely on what is best for project.

5.             Land

5.1          We suggest that the new legislative regime aim to replicate the HASHA and HPO in the first instance, then add further key tools to enable timely project delivery.

5.2          One significant frustration for developers is the inability to deal with unreasonable adjoining land owners to enable access to public services.  While there are some statutory processes with respect to drainage (e.g. Land Drainage Act 1908), it would be useful if the UDA had the power to compel co-operation from adjoining land owners generally and to determine fair compensation.  (In Tamaki, Creating Communities Limited has needed to reach negotiated agreements with more than 30 neighbours where neighbours have been uncooperative and at times even mercenary in their demands.  This comes at significant cost in terms of time and money).  The key issue is that neither Auckland Council, nor any of its Council Controlled Organisations regard enabling or facilitating local service connections as core business.  At the very least:

(a)           Giving the UDA a mandate to facilitate local infrastructure connections, engage with landowners and public bodies for the purpose of enabling the efficient and effective expansion of local infrastructure would assist to remove a significant development bottleneck. 

(b)           Providing the UDA with these powers would send a message to land-bankers and those obstructing development for commercial gain that they cannot use brinkmanship tactics as there are alternative mechanisms to achieve sensible and fair outcomes.  Even if the UDA was limited to a facilitation role it would serve to curb the worst excesses of such behaviour.

5.3          Usually, the Public Works Act 1981 issues which arise are fairly limited as they tend to involve locating pipes in parts of property which are not able to be efficiently used for development (driveways and side yards), or enabling access across land that is already identified as a transport route (driveways and service lanes).  The acquisition of an interest in land in these circumstances tends to have very little impact on the landowners concerned.

5.4          Similarly, it would be useful if the UDAs could compel other government entities to work with developers to achieve solutions to development problems.  A common area of concern is unreasonable requirements imposed by local authorities in relation to reserves.

5.5          Similarly, it would be helpful if the UDAs had the power to review council engineering standards and agree acceptable standardised departures.  The standards have been designed to suit large scale greenfield subdivision, and have a high degree of contingency.  In a brownfield scenario they are often impossible to implement and need to be argued on a case by case basis with success often dependant on the quality and mood of the council engineer. Examples include freeboards to services, build-overs, and driveway gradients.  For example, it is considered practically impossible to build in Titirangi under the current rules.

5.6          We have some doubts that the political realities will permit UDAs to be given the power to compulsory acquire private land for new private residential use.  In Auckland, the large scale acquisition of land for the new rail and road infrastructure is not being effected without complaint.  However, MBIE could look at amending legislation to allow for land held by government entities to be amalgamated and made available for development purposes subject to compliance with iwi settlement terms.

5.7          We understand that no change is proposed to the compulsory acquisition of land for residential purposes other than State housing.

5.8          We submit that the UDA should be able to compulsory acquire land for public works. We also recommend that UDAs have the power to acquire land not being utilised by other government entities for the purposes of amalgamating parcels of land.

6.             Infrastructure

6.1          New developments will require additional infrastructure to support the resulting urban growth.  We propose that the cost of such infrastructure should be borne through targeted rates by all persons that benefit, or will benefit, from the new infrastructure.  Targeted rates should be calculated by amortising the costs of the infrastructure over the estimated life of the asset.   This feature should also have the benefit of reducing pressure on house price inflation

6.2          The targeted rates should apply to future land which will utilise the infrastructure as this will discourage land banking and accelerate development.   Further schemes for associations to levy and maintain the infrastructure should be considered.  In this regard, the on-going costs are not dissimilar to body corporate rates that are charged in a unit title development in addition to normal rates.  As such, purchasers should be able to adjust to the concept.  Further, we would expect these costs to be accounted for in the purchase price, making the rates more palatable.  Credits against general rates and development contributions should also apply.

7.             Funding

7.1          In the current market, land value is high yet housing prices look to be stabilising or decreasing.  This is likely to deter developers from undertaking urban developments as it would be uneconomical to do so.  To negate this, we propose that the Government could be required to absorb land holding costs (in whole or in part).  This would encourage development and allow developers to commence developments in segments.  By making urban development more feasible for developers, more developers will be willing to undertake the much-needed development work.

7.2          The development business involves developers embarking on projects now whilst taking a bet on what the market conditions will be like in three years’ time when they exit the project.  In the current market with land highly-priced, and holding costs rising, developers are preparing for the next downturn, and being cautious about their exposure.  The Crown is in a position to help manage this risk by being open to innovative partnering arrangements with developers.  Variations on the Northern Glen Innes structure would be a good example i.e. deferred sale on the basis of recovery of book value through guaranteed minimum price plus discounted purchase plus social and affordable outcomes plus profit share, plus cap developers on profitability.  The US (Portland) offers examples of land transfer at negligible cost to achieve the right social outcomes and feasibility.  Melbourne Towers is another example of sensible cost allocation to achieve a variety of housing needs both private and social.

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SCHEDULE - QUESTIONS FOR SUBMITTERS

On the proposal in general:

 

1.             We agree with the overall proposal to enact new legislation.  However, we propose that this new legislation be modelled on previous successful statutory and regulatory structures, namely the HASHA and HPO with expanded powers for UDAs.

2.             We would like to see the UDAs focus on:

(a)           managing planning processes;

(b)           providing solutions to access services and land necessary for developments; and

(c)           co-ordinating the relevant government entities.

Questions on individual proposals:

Framework – Core Components (Proposals 1 – 10)

3.             We agree with proposals 1 to 4.

4.             We do not agree with proposals 5 to 10.

5.             We propose that rather than having a project by project approach, with allocation of different tools, that a single UDA be established in areas where urban development is a challenge with similar powers as provided by the HASHA. 

Framework – Scope (Proposals 11 – 14)

6.             We agree with proposals 11 and 12.

7.             We do not agree with proposals 13 and 14.

8.             We propose that a UDA be established for an entire region rather than for specific developments.

Framework - Application (Proposals 15 – 20)

9.             We agree with proposals 15, 18 and 20 in so far as it applies to areas rather than developments. 

10.          We do not agree with proposals 16 and 17. 

11.          We propose that a UDA be established for an entire region rather than for specific developments.

Framework - Benefits (Proposal 21)

12.          We agree with the proposal as presented.

Process – Establishment stage (Proposals 22 – 71)

13.          We do not agree with the proposals as presented.

14.          We do not agree that the proposed establishment process is necessary.  UDA should simply be established for an entire region.

Land assembly – Market based negotiations (Proposals 72 – 74)

15.          We agree with proposals as presented.  It would be useful if the UDA could have a variety of options to amalgamate and deal with land.

Land assembly – Compulsory acquisitions (Proposals 75 – 80)

16.          We agree with the proposals as presented.

Land assembly – valuations (Proposal 81)

17.          We do not agree with the proposal as presented.

Land assembly – Assembling public land (Proposals 83 and 84)

18.          We agree with the proposals as presented.

Land assembly – Dealing with lesser interests in land (Proposals 85 –  87)

19.          We agree with the proposal as presented.

Land assembly – Amalgamations and subdivisions (Proposal 88)

20.          We agree with the proposal as presented.

Reserves (Proposals number 89 –  96)

21.          We agree with the proposals as presented.

Planning land use and consenting (Proposals 97 – 104)

22.          We do not agree with the proposals as requested.

23.          While we propose a fast track for the current planning legislation, we do not propose that it be overridden.

Planning, land use and conservation – consenting and enforcement (Proposals 105 – 111)

24.          We agree with proposal 105 to the extent the planning and consenting laws are delegated to the UDA.

25.          We do not agree to proposals 106 to 111.  We do not agree the current planning legislation be overridden.

Infrastructure – General matters (Proposals 112 – 122)

26.          We agree with the proposals as presented.

Infrastructure – LWK with local government planning (Proposals 123 and 124)

27.          We do not agree with the proposals as they are presented.

28.          We do not agree the current planning legislation should be overridden.

Infrastructure – Performance requirements and standards (Proposals 125 and 126)

29.          We agree with the proposals as presented.

Proposals Infrastructure – Winding up the development project (Proposals 127 –  131)

30.          We agree with the proposals as presented.

Funding and financing (Proposals 132 –139)

31.          We agree with proposals 132 to 137.

32.          We do not agree with proposals 138 and 139.

33.          We propose that all land that will connect to an infrastructure asset on a potential household equivalent basis should be levied.  This will discourage land banking.  The rate should be based on the factual cost to construct and maintain the asset.  As such, it will not be known at the time of any initial consultation.

Funding and financing –Cross border funding issues (Proposals 140 –  145)

34.          We have no objection to the proposals as presented.

Section 10 - Other matters

35.          We submit that the Government should limit its scope for this proposal.  However, we would like the Government to address the other matters in due course.