November 2017
Investment in the infrastructure required to support a growing population comes with significant risk for local authorities. Failure to get it right means that ratepayers are funding that growth. That was a key finding from recent work undertaken by Morrison Low. Furthermore, our view is that many councils rely on the additional rating benefit from development to meet the ever increasing service level expectations of their communities.
Revenue from development contributions, coupled with the additional rating benefit from growth properties, is theoretically capable of recovering the investment in growth infrastructure over a relatively short period of time. However, our analysis shows that when real world uncertainty and risk is factored into the equation the likelihood of the investment being recovered is significantly diminished. Moreover, the additional rating benefit from growth properties is rarely allocated toward the repayment of these costs.
This poses challenges for councils in managing and paying for the infrastructure that supports growth and in making sure the right people pay for the growth.
One of central government’s key interests in urban growth is the relationship to housing affordability. Simple market economics tells us that in order to make houses more affordable wages must go up or prices must go down. The message from central government is that the housing crisis is best solved by increasing supply. This comes with significant cost to councils. New infrastructure is required and often in areas that were previously uneconomic to develop. With a new government focussed on building 10,000 new homes, the associated infrastructure requirements are only going to increase.
Councils can’t control the external economic climate that impacts the rate of growth, so what can councils do to manage these costs and risks? In this first article on the subject, we consider two interesting questions?
For more information contact Stuart Cross