Budget 2026: $400m Incentives for Growth Fund to pay councils to consent more homes

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Councils will be given cash bonuses for each home they give planning approval to under a $400 million Budget 2026 fund the Government hopes will lift the housing supply.

New houses typically cost councils money upfront as they often have to pay for infrastructure - roads, pipes, parks and more - long before they make cash back through rates from new residents.

The Government’s new Incentives for Growth Fund tries to flip that by paying councils for each home that receives a building consent in their district.

It would work by initially paying a flat amount based on the average value of a new home, with payments then increasing as council consent approvals hit tiered target levels.

The first payouts start in April 2027, with up to $100 million a year on offer through to 2030.

Infometrics chief executive Brad Olsen called the policy a “really interesting proposition”, though he flagged the details would be important and called on it to be made permanent rather than just a four-year fund.

Oliver Hartwich, executive director of business think tank The New Zealand Initiative, said he had lobbied for the idea for more than a decade.

“Councils have spent years treating growth as a problem to manage,” he said.

“The Incentive Fund changes the calculus. When more consents mean more revenue, councils will find ways to issue them.”

Under the fund’s structure, councils would get 0.25% of the average construction cost of a typical New Zealand new-build home for every house they give planning approval.

That payment level would continue until the council had approved enough new homes within a year to grow its housing stock by 1%.

The rate would then double to 0.5% for the next batch of consents — those that lift growth into the 1-2% band — and jump again to 1.25% per home for anything beyond 2%.

A council with 10,000 existing homes would need to approve more than 200 new ones in a year to start unlocking the top per-home payment.

Hartwich praised the initiative but said the $400 million was a much smaller amount than what his think tank had pushed for.

The NZ Initiative had earlier instead called for the Government to make a 50/50 split with councils in which each would share equally in the GST collected on residential building consents.

He claimed that would have delivered more than $1 billion a year, or about 6% of total council revenue, while the current fund amounts to 0.6%.

“The Government’s incentive fund will help, but it will not transform council behaviour the way our GST share would have,” he said.

He said the Government did not have the spare cash to set up a bigger fund right now, but payments should grow in coming years as more money became available.

Olsen said the new scheme sounded “sensible” but his team would be running the numbers on it soon and that would give an idea of how much “tinkering around the edges” might still be needed.