Council developer fee hike could add ‘millions’ to projects
The city’s proposed development contributions regime could add hundreds of thousands of dollars, even millions, to project costs, a leading Hamilton developer warns.
The comments from the developer, who requested anonymity for commercial reasons, follow the council‘s release of its draft 2024-25 DCS for consultation.
Developers pay the fees to help provide for the infrastructure required to support growth.
Some of the higher suggested increases in dollar terms include an extra $48,000 in DCS per three-bedroom unit for some residential projects in Peacocke, and more than an extra $40,000 per 100sqm for commercial developments in Peacocke.
Using those figures, a 10-home project could attract another $480,000 in DCS while a 2500sqm commercial development could face another $1 million-plus in costs. those sorts of numbers could be more for even bigger projects, the developer said this week.
It could mean significantly more borrowing costs at a time of high interest rates, as well as the potential for higher house prices and lease costs, and lower growth and decreased business viability.
The developer’s comments follow warnings this week from the Property Council, which includes many of Waikato’s largest developers.
Its central regional chair Morgan Jones said in a statement: “The math is simple - the higher the cost to develop and build, the higher the cost of purchasing a home.”
The council’s funding and analytics manager Greg Carstens acknowledged the developer’s point about the potential impact of the suggested higher charges.
But he said the council still needed to enable growth through providing infrastructure. The DCS proposals reflected its own higher costs, increased interest rates and the need to provide for water services after Three Waters was scrapped.
Asked in an interview whether there were any estimates of how the higher DCS could affect growth, Carstens said: “That’s actually the hard question.“
No firm predictions had been made on the overall impact of higher DCS on the number of build projects in the city.
Council advice was that DCS made up 5%-7% of a development’s costs. “It’s not a big number but it’s still a number that matters,” said Carsten, but added that in some cases the profit impact of change might be marginal. If DCS weren’t raised as suggested that could lead to ratepayers more directly picking up infrastructure costs. “So there’s no perfect solution here.” Developers would need to make a call on a case by case basis if higher DCS affected their project’s viability.
“It will just depend on circumstances.” Carstens agreed extra DCS could prevent some projects going ahead or add to house prices and lease costs for end users.
But he said: “If the DC is a $1 million it will be a really big development.
“[The DCS] will still be a similar portion of the overall cost.”
He stressed that the extra DCS were not about helping the council offset its day-today operating deficit.
“The DC revenue does not [generally] affect the operating deficit.
“It goes to servicing debt incurred for development, to fund the council’s capital expenditure.”
However, Carstens said DCS can help reduce the operating deficit to a “minor degree” by reducing interest costs on debt.
But they were primarily about paying for capital expenditure and reducing development-related debt.
Meanwhile, a report to the council’s strategic risk and assurance committee next week warns lower than anticipated development in the short-term could have a “material” impact on DCS revenue.
It notes significant drops in both residential and non-residential development this financial year. There’s a prediction residential consenting could fall another 10% in the next 12 months and “economic uncertainty and a difficulty securing finance is making development projects difficult to get underway”.