Infrastructure funding is a good question Richard Clark. I do not have a comprehensive answer for how New Zealand should change infrastructure financing to help the housing market perform better. But I do have some interesting financial facts, which indicates New Zealand should consider improving its infrastructure financing.
New Zealand house values are huge -it exceeded $1 trillion in September 2016. The increase in value of the housing stock has also been very large. Most of the increased value is the result of price increases. Increasing house prices are a cost for those hoping to buy into the housing market or for those who are renting (as over time rents follow house prices).
In my opinion it is hard to see what the ‘value’ is for the nation in selling existing houses to each other at ever higher prices. There is no net gain for the nation. There is a real but hard to measure productivity loss effect as capital resources are poorly allocated. Unaffordable housing also affects urban-based labour markets and local business communities. Unaffordable housing causes many public services to be less effective -which may require additional government expenditure to mitigate these effects.
Government expenditure on infrastructure and the total value of New Zealand’s housing related infrastructure networks are relatively small compared to the value/cost of New Zealand’s housing stock.
Local Government has considerable assets -roads, parks, public transport systems, sewerage, fresh and storm water systems…. but these are small in comparison to the value of New Zealand’s housing stock.
Local authorities’ economic contribution to New Zealand, is as follows. Altogether, councils accounted for the following as at 30 June 2015:
Net worth (also known as “total public equity”) $109.7 billion
Operating Income $8.4 billion
Operating Expenditure $8.9 billion
Capital Expenditure $4.1 billion
Value of Fixed Assets $107.9 billion i.e 10.7% of the value of New Zealand’s housing stock.
Central government also contributes to transport infrastructure in New Zealand -paying for the maintenance and expansion of the state highway network. Note Local Government in New Zealand is responsible for the local road network.
Transport and communications expenditure was $2.3 billion in 2015, forecast to rise to $2.5 billion by 2020 (information taken from Core Crown Expense table).
The New Zealand Transport Agency indicates the state highway network is one of New Zealand’s most valuable assets, and is worth $26 billion i.e. 2.6% of the value of New Zealand’s housing stock.
Depending on how we classify infrastructure expenditure. New versus new + maintenance costs i.e. capital expenditure versus capital + operating expenditure. Then there is approximately $15.3 billion spent on infrastructure in New Zealand -being the total of what Local government expenditures and what the Crown contributes to transport. The larger figure is if we assume that all Local government expenditure on capital+ operating costs is for infrastructure related to housing -which seems unlikely.
Although these infrastructure expenditure amounts are big figures, they are relatively small compared to the average of $50 billion a year since 2008 the nation has spent on the increasing value/cost of housing.
It is worthwhile looking through the Core Crown Expense table to see what the Crown spends the nations taxes on, to give a comparison for the relative size of infrastructure expenditure. For instance in 2015 the Crown spent $12.9 billion on education, $15.1 billion on health and $23.5 billion on social security, of which $11.6 billion was New Zealand Superannuation (the pension).
Associated with the housing crisis are effects, such as -homelessness, transient communities, falling home ownership rate, rising wealth inequality….. all of which make education, health and other core public services more difficult to provide. Given this, it seems to me increasing infrastructure expenditure is a reasonable course of action. Especially as this infrastructure expense would be significantly less than the extra spending the nation has ‘wasted’ on housing in recent years.
Investing in infrastructure if it was part of a comprehensive housing reform package seems like a good idea to me.