‘Shock’ as new build fees set to soar

Monday, 18 March 2024

There are concerns higher DCs could hurt new homes development and bump up their prices (file photo).

New fees to bolster a cash strapped council’s coffers are set to add tens of thousands to new homes and commercial builds, sparking ‘shock’ from developers and fears they could stifle growth in the tough economic environment.

Hamilton developers face steep rises for development contributions (DCs) to the city council - that includes hikes of well over 100% and tens of thousands of dollars in some cases.

Bigger DCs, which pay for infrastructure like water services, can add substantially to the cost of commercial, housing, industrial and retail projects.

But the council says it needs more to cover its own significantly higher infrastructure costs for developments.

The highest suggested residential DCs increase in dollar terms for 2024-25 compared to this year is more than $48,000 (+83%) per three-bedroom housing unit equivalent in part of Peacocke, while infill area increases of up to $26,000 (125%) are suggested.

Council data for areas where a lot of the industrial, commercial and retail development occurs also show some big jumps in suggestions for next year.

Industrial charges in Te Rapa are generally due to about double - they’d be 30% higher in Ruakura and 20% higher in Rotokauri, the council said. One table comparing next year’s proposal and 2021-22 showed industrial DCs per 100sqm in Te Rapa at more than $5500 extra at over $15,000.

Commercial charges in the central city and broader brownfield areas are up by around 80% and are 20% higher in Rototuna. Another table showed two Peacocke areas are due to have DCs of more than $40,000 extra per 100sqm compared to 2021-22.

Hamilton City Council funding and analytics manager Greg Carstens says higher proposed DCs are driven by costs associated with three waters services, more expensive materials and higher interest on borrowing.

Retail charges in the central city and broader brownfield areas are due to be up by around 90%, and 30% in Rototuna. The data indicated infill areas in Chartwell and St Andrews could have DCs of more than $11,000 extra per 100sqm compared to 2021-22.

Clapson Construction owner Keith Clapson said higher DCs would add to pressures on developers but said of the council’s move: “It doesn’t surprise me - they’re trying to scrape money together from anywhere and everywhere.”

Higher proposed DCs come on top of the council’s suggested stiff residential rate rises for the next five years and big new confirmed increases for fees and charges in 2024-25.

The DCs and rates rises are covered in new consultation documents approved by councillors last Thursday.

Funding and analytics manager Greg Carstens told the meeting proposed DC rises were primarily driven by an increased programme for three waters services under new rules, higher material costs (up 20-30%), and extra interest on borrowing.

Mayor Paula Southgate voted for consultation of the proposals but is also worried about how higher DCs could dampen city growth.

He acknowledged fears higher charges could potentially stymie development, hit housing supply, and economic and jobs growth.

Councillor Sarah Thomson is concerned higher DCs could hurt the feasibility of projects, particular for people who’ve recently bought land at high prices.

Recent discussions with the Property Council about the proposed changes had produced some “shock” and a “gulp” factor, Carstens said.

Economic development chairperson Ewan Wilson says the council needs to be careful not to disincentive big projects in the CBD.

Mayor Paula Southgate said the DCs increases would also come as a bit of a shock to some smaller developers the council hadn’t talked to yet.

She was concerned about a “tipping point” where higher DCs could significantly affect growth.

Strategic growth committee chairperson Sarah Thomson worried higher DCs could affect building project feasibility, particularly for those who’d recently bought land at high prices.

Kāinga Ora’s Waikato regional director Mark Rawson is keen to see more “efficient” ways to fund development of homes in Hamilton..

DCs needed to to reflect the cost of infrastructure as much as possible but she didn’t necessarily support all the suggested changes.

Economic development committee chairperson Ewan Wilson - involved in trying to get a $120 million hotel development to the CBD - said the council needed to avoid disincentivising central development with future DCs.

“I’m mindful that such moves could effect major hotel projects [and] could negate or limit significant developments in the CBD.”

Foster Group director Leonard Gardner wants to find out more about the proposed new DCs but says any additional costs can make it harder for projects to happen.

A spokesperson for state agency and leading Hamilton home builder Kāinga Ora said it needed to evaluate the proposals before commenting.

But Waikato regional director Mark Rawson said earlier he wanted new funding mechanisms for development.

Clapson believed higher DCs would definitely hit residential building activity.

Some developers were finding it tricky to build because of reduced buyer interest in the current economic climate.

Any higher DCs - as well as higher fees and charges - would add pressure.

“It will further slow the recovery down a bit and increase the price of houses.”

Leonard Gardner, director at construction firm Foster Group, hadn’t heard of the proposed DCs increases and would seek more information.

“DCs are just a component but it is an important part of costs. Additional costs just make it harder to make things happen.”

A number of “positive” DCs policy suggestions were highlighted.

Changes for remissions (which help target particular areas for growth) had CBD development remissions retained for three more years - albeit with a big drop in the percentage applied.

There was an extension for 100% remission on CBD buildings six storeys or higher.

A new proposal is for 100% remission for some developments on Māori land and for papakāinga (communal buildings) on any land.

A text from Brian Squair, former chairperson of the Waikato branch of the Property Council, said of the papākainga plan: “Given the need for alternative models for community housing one wonders if this remission could be extended to other forms of co-housing.”

Standardized stormwater components of DCs, regardless of residential subdivision size, were a good idea in principle but could discourage smaller projects, he said.

“We need to be encouraging all scales of [residential] development.”