Could Municipal Utility Districts assist with housing provisions

 

It was picked up last night that the Neo Liberal think-tank – The New Zealand Initiative put forward three ideas to address the supply question of housing affordability in both Auckland and wider New Zealand. One of the ideas – the Municipal Utility District was mentioned and is worth exploring for the NZ Context.

From the NZ Herald:

Taxpayers should cover development costs – report

By Adam Bennett 6:00 PM Monday Nov 18, 2013

Think tank the NZ Initiative is proposing the taxpayer – rather than developers and home buyers – pay councils for providing water and sewerage services to new houses as part of a suite of measures to improve home affordability.

In its third report on the issue of housing costs, the think tank also proposes the cost of building new infrastructure be spread over years rather than loaded onto the upfront price of new homes and recommends greater private sector involvement to allow that to happen.

…

You can read the first two options which I don’t necessarily believe in over at the Herald site. The third option though caught my attention.

 

The think tank’s third key proposal is to allow private companies to compete with councils for the provision of infrastructure through a new planning regime.

The think tank proposes legislation allowing the formation of Community Development Districts modelled on Texas‘s Municipal Utility Districts. Under the regime, any land not specifically earmarked for environmental or even tribal uses could be set up as an area for development where the Resource Management Act would apply only lightly and where private sector interests borrow to construct infrastructure normally provided by councils.

Those private interests would then have the statutory ability to levy taxes on home owners within those areas to recover their costs and make a profit.

“This would serve to pay off the infrastructure costs over the life of a house and not capture it in the upfront price of a new home”, Mr Krupp said.

“If councils don’t have recoup these costs upfront asking price and have an alternative means of funding it, we think that there’s a direct impact on the upfront asking price of that house.

“Each of these proposals we think could make a difference to the cost of a house by improving incentives so that councils are pro-development.”

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Emphasis on the word “could” there…

 

Municipal Utility Districts for new greenfield developments are nothing new especially in Texas. And the idea is not entirely new either. I first mentioned MUD’s as a possible alternative in my submission to the now operative Auckland Plan in 2011.

As for what a MUD is, it is outlined here in this Macro Business piece: Look to Texas to solve Australian housing supply

Quoting from that piece and as in my Auckland Plan submission:

In the suburbs of Houston, developers often assemble parcels of 5,000 to 10,000 acres, subdivide them into lots for houses, apartments, shops, offices, schools, parks, and other uses, and then sell the lots to builders. The developers provide the roads, water, sewer, and other infrastructure using municipal utility districts, which allow homebuyers to repay their share of the costs over 30 years. At any given moment, hundreds of thousands of home sites might be available, allowing builders to quickly respond to changing demand by building both on speculation and for custom buyers…

Houston developers allow homebuyers to pay off infrastructure costs over 30 years, impact fees or development charges require up-front payments often totalling tens of thousands of dollars. The difference is crucial for housing affordability: since development charges increase the cost of new housing, sellers of existing homes can get a windfall by raising the price of their houses by an amount equal to those charges, thus reducing the general level of housing affordability.

Furthermore the article illustrates what a Municipal Utility District is:

Here’s a break-down of how the MUD system works:

• Utilities are installed and maintained by the companies (electricity, telephone etc) since they receive the revenue.
• The developer has to install the roads.
• Large subdivisions are allocated areas for parks and schools.
• The developer installs the sewerage and water and gets it back from the Municipal Utility District.
• MUD is a special-purpose district that provides public utilities (such as electricity, natural gas, sewage treatment, water, and waste collection/management) to the residents of that district.
• MUDs are formed by a vote of the area, and represented by board of directors who are voted on by the local people.
• The MUD borrows money via the bond market to pay for building (via the developer) and operating (via the MUD) these services. The MUD bonds are then repaid via taxes on the home owners of around 1% of the home values per year.
• Schools are also built and funded via bonds and repaid via the same taxes on the homeowner.

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As I said earlier the MUD is a concept worth exploring if it can help with both infrastructure and housing affordability provisions. Catch is how do we get Council and Government to explore the Municipal Utility Districts objectively. Yes it is a Neo-Liberal idea but it might be very well what Auckland need for her upcoming Greenfield developments once the Unitary Plan is a go.

 

Despite being a Social Liberal I will not dismiss MUD’s – yet. This is because I echo the call as first mentioned in Transport Blog (also two years ago) for liberalising our planning in Auckland to get on top of more affordable urban development. That particular blog post can be seen here: http://transportblog.co.nz/2011/10/23/taking-a-fresh-look-at-planning-regulation/

You can see my original Auckland Plan submission below. My only qualm is why has it taken a Think Tank this long to mention MUD’s when it was first mentioned this end two years ago… 😛

 

Auckland Plan 2011 submission