Slipper-wielding PM struggles to offload $1 billion

An interesting subterranean spat has been playing out between central and local government.

had helped drive developers out of affordable housing and into building only for the wealthy.

The evidence from post-quakes Christchurch is that New Zealand is capable of building a great deal of affordable housing very quickly in a crisis. As a result, Christchurch house prices are static compared with Auckland’s.

In Auckland the supply shortage has been self-induced, welcomed by existing property owners for the ‘‘wealth effect’’ of higher house prices, and has proven achingly slow to deal with.

While new supply is now starting to emerge, Auckland still needs a lot more houses. With a lot more houses comes the need for a lot more infrastructure, which is where an interesting subterranean spat has been playing out between central and local government over recent months.

Back in July last year, the Government reacted to the calls from fast-growing cities – mainly Auckland but also Tauranga, Hamilton, Queenstown and Christchurch – for assistance to pay for the roads, sewers and water services that underpin any new housing development.

This was ‘‘only for substantial new infrastructure investments that support more new housing’’, not plans already on the books.

Fast-forward to the first of this month and a little-noticed government statement suggesting a rather feeble appetite for all this free money.

It encouraged councils ‘‘to be more ambitious in their final proposals’’, saying that ‘‘only a small number of the 17 proposals received … would result in projects being advanced earlier than previously planned’’.

So what’s the problem? In short, the problem is that the targeted councils, and Auckland in particular, baulked at taking funds that are not a grant, but a loan.

Auckland has worked hard and still has work to do keeping its balance sheet in shape to maintain an AA credit rating. But according to the slipper-wielding Prime Minister English earlier this week, the whole thing has been an exercise in bluff-calling.

‘‘The real challenge is whether councils actually do have projects waiting for infrastructure funding,’’ English said.

‘‘The initial indications are that they don’t but I think everyone’s sharpening their pencils now because there’s still a billion dollars sitting on the table.

‘‘So really we’re just testing them against the claims that were made about their funding constraints and finding that a very constructive discussion.

‘‘I think we’ll learn a lot more about what the constraints are and they’ll learn more about how to get things happening faster.’’

To the claim that credit rating concerns were behind the slow uptake, English replied: ‘‘There’s a lot of discussion over financial structure, but those can be resolved.’’ The resolution appears to be to allow councils such as Auckland to establish special purpose vehicles to receive the funds off-balance sheet.

Central government officials recommended against that approach when it first arose last year, but new Finance Minister Steven Joyce now appears to recognise that nothing will happen unless an impasse on financial structure is reached.

Meanwhile the Auckland Council has gone back to its plans for major infrastructure in new housing areas in the south, north and northwest of the city to work up a clearer picture of how many and what sort of houses will be built there over the next five years.

Who knows – if it all works, perhaps Auckland house prices will be falling thanks to oversupply by the time of the 2020 election. But don’t bet on it. –Businessdesk