Hamilton City Council expects 40% lift in build fees despite hiking charges

Tuesday, 2 April 2024

The council received close to $160 million from developers in the past five years and is budgeting to get nearly $220 million over the next five years, despite higher fees.

The city council is budgeting for development contributions to increase nearly 40% over the next five years to just under $220 million, despite concerns higher proposed fees from 2024-25 could hit growth.

A DC is a charge on developers to help meet the cost of infrastructure networks such as for water, wastewater, stormwater, reserves, community infrastructure and transport activities.

Figures supplied in response to an official information request show the council received more than $157 million in revenue from DCs between 2019 to 2023.

Greg Carstens, city council funding and analytics manager.

That compares to a budgeted $218 million collectively over the next five financial years, outlined in the 2024-34 long term plan which is currently out for consultation.

In 2023 the council received $35.3 million, slightly higher than the $34.8 million it received in 2022.

2021’s revenue was significantly lower at $23.6 million, while 2020 saw the council receive $34.3 million. In 2019, it received $28.9 million.

By contrast, DCs of $30.4 million were budgeted for next year, followed by annual sums of $32.9 million, $43.2 million, $55.3 million and $56.8 million, funding and analytics manager Greg Carstens said. That makes just over $218 million in total.

Assured Property chief executive John Kenel warns DC increases could be passed on to buyers and tenants.

The council’s plans to hike DCs by more than 100% in some instances has left developers shocked by the fee increase, with a warning it could add hundreds of thousands of dollars, even millions, to project costs.

It raised questions about whether the higher DCs could hurt developers and rein in growth.

Failure to achieve budgeted DCs revenue could theoretically affect the ability to stay within the council’s key debt to revenue ratios - a measure which can affect creditworthiness.

Carstens said it was projected that for every $6 million in DCs below budget there could be a one percentage point reduction in the headroom between debt and the top of the ratio.

There’s concern higher DCs could affect the viability of housing developments.

The Property Council - an industry group including many of Waikato’s largest developers - has said it was deeply concerned about the proposed DCs rises saying a better solution was needed to address Hamilton’s “funding gap“.

Hamilton developer John Kenel warned DC increases would ultimately be passed on to buyers and tenants.

“Currently we're paying about $18,000 per townhouse development contribution in Hamilton East. It's going to $41,000 and Hamilton West to $47,000.

“We're officially in a recession, which means people are suffering, businesses are suffering, you know everyone's struggling and the council is raising the fees by more than 100% when people are already on their knees.”

Also, a recent report to the council’s strategic risk and assurance committee has warned lower than anticipated development in the short term could have a material impact on DCs revenue.

There had been a significant drop in both residential and non-residential developments this financial year, with the report predicting another 10% drop in the next 12 months.

“Economic uncertainty and a difficulty securing finance is making development projects difficult to get underway,” the committee was told.

An Insight Economics report to the council has suggested the proposed DC increases could theoretically have a “relatively minor” impact on total developer costs of between 3.2% and 0.1% in the cases it looked at.

That was despite increases of more than 100% per three bedroom equivalent home in places.

But it said a council simulation indicated the draft new DCs could potentially affect development in the city’s infill areas.

“For developments that were already on the cusp of viability, these higher DCs could mean the difference between some projects proceeding or not,” said Insight Economics managing director Fraser Colegrave.

But that assumed developers would absorb the cost of extra DCs rather than pass them on by raising prices.

Also, while considered in isolation extra DCs weren’t particularly significant, “when considered cumulatively with other recent cost increases … their potential impacts are amplified”.

Higher interest rates were highlighted by Insight Economics as a factor that could erode development viability.

Peacocke was noted as one area where proposed DCs hikes may “materially reduce” viability.

Previously, Carstens has acknowledged potential impacts from the suggested higher charges but said the council still needed to enable growth through providing infrastructure.

The DCs proposals reflected the council’s own higher costs, increased interest rates and the need to provide for water services after Three Waters was scrapped, Carstens said.