The Government business case says Aucklanders can afford to pay an additional $1,000 annual levy or rate towards the 10-year project to build light rail from the airport.
Pacific fashion designer Ellena Tavioni has dressed Jacinda Ardern; she's dressed the Duchess of Cambridge. Her store on Onehunga Mall, between the commuter railway line and state highway 20, shows off racks and racks of vibrant handmade prints.
Now, with plans for light rail running through the suburb, Tavioni is uncertain about the store's future. The community never asked for the light rail as well as road and heavy rail, she says. She worries customers will struggle to access their store during eight or more years of digging and construction – and she fears having to pay a levy for that construction.
"It appears to be primarily a service for those in the Auckland CBD travelling to and from the airport," Tavioni says.
The Government plans to clip the ticket on "super-profits" made by property-owners whose land gains value when its new neighbour moves in. Up to $3 billion of the light rail project will be funded through a “value capture” rate or levy on landowners near the new rail corridor.
"All government charges to landlords are already being passed on to tenants and the value capture levy won’t be an exception," Tavioni warned.
The Government should fully fund the new rapid transit, she said. "It’s their idea, they can take all the financial risks, just like we do in the private sector with our ideas."
"One thing I'll just guarantee: No one will be worse off as a result of this, everyone will benefit, including people who own property." – Michael Wood, Transport Minister
Certainly, she said, those businesses disrupted by the construction should not then face an added penalty of a value capture levy, she said. "We’re all happy with the way things are – we are not asking for this service."
Transport Minister Michael Wood says the "initial high level estimate" is that about $2 to $3 billion of the projected $14.6b airport-to-CBD railway construction cost will be captured from developers and other property owners.
"We think this is important. It's fair that those who benefit contribute," he tells Newsroom. "The main focus is on those who might come in and make windfall gains from this project."
Wood says the plan to levy property-owners – especially those who buy property near the new light rail corridor – is a first for New Zealand.
"But it's relatively commonplace in big infrastructure projects of this kind offshore, where you know that the investments that you're making – particularly mass rapid transit – will significantly increase the value of land in the surrounding corridor."
The so-called "value capture" funding will be enforced through the Funding and Financing Act 2020.
Based on overseas models, Wood suggested two leading alternatives: either taking a cut of realised gains on property sales, or levying a small, targeted rate on properties along the route, that benefit.
"We just have to work both through and work out what's going to be best," he said. "One thing I'll just guarantee: No one will be worse off as a result of this, everyone will benefit, including people who own property."
An indicative business case, made public under the Official Information Act after the announcement of the light rail plans, suggests that rate could be as much as $1000 a year.
"A high-level affordability assessment suggests that an additional $1,000 annual levy or rate for properties within station catchments would remain within a 5 percent affordability threshold," it says.
The business case acknowledges ratepayer affordability and acceptability are important considerations in implementing different taxes, levies and rates, particularly in the lower socio-economic portions of the corridor.
One option, for those who can't afford to pay, would be to let them defer payment of their annual levy until they sell their property, then for the Government to claw it all back.
The document says capturing value from landowners may impact on the incentives to develop new housing projects. "This needs to be considered in the context of Auckland-wide patterns of intensification. The impact on development will depend on the proportion of value captured and how the market prices this in."
Officials would assess how much the "value capture" levies caused increases to land prices, and how that affected the increase in the gross floor area of new housing.
"I think everybody would understand that where is a significant private benefit like this, some sort of contribution would be appropriate. But that doesn't take away from the fact that the Government will need to be the main investor." – Grant Robertson, Finance Minister
They aren't flying entirely blind: they can look back at the groundbreaking Milldale housing project, near Ōrewa north of Auckland. Around $50 million was raised for the infrastructure of that 9000-house project through a special purpose vehicle. Landowners pay an annual "infrastructure payment" to fund this borrowing – $650 for an apartment or $1,000 for a house, over the next 30 years. Auckland Council collects these payments through the rating system, on behalf of the special entity.
The light rail business case says prices achieved on the Milldale transaction indicate that the levies were not priced into land markets, and did not materially deter development. "To ensure the development incentive is not unduly constrained, funding tools will not target the development margin for developers – that is [they] will focus on super-profit through land value uplift."
Officials admit the funding regime designed for the Auckland light rail project may set a precedent for the delivery of future projects, around regional and local beneficiaries paying an equitable share, investigation of alternative funding tools, capturing value from different beneficiary groups.
Accordingly, it should not rely on Crown funding. This may have implications for the public transport operating model and current approach to National Land Transport Fund funding.
And of course, it's not clear how much the cost of the project may blow out. The business case allows $3b for inflation, increased supply and construction costs, and more. "The size, scale, and uncertainty over final scope of the project means that there are several inherent risks associated with the cost estimates that have been prepared," the report admits. "This includes estimates for indexation, eg base interest rate, construction escalation, foreign exchange for various scope components [such as] rolling stock."
There is potential for further un-costed blowouts, caused by unknown utility and geotechnical risks, implementation risks, refinancing risks, and over-optimistic revenue expectations. There is also a risk around announcing details like the route and station location, that property-owners and developers can get their windfall then, before the value capture levy is set in place.
Michael Wood said the Government's next step would be to consult around the funding and financing options, before breaking ground on the construction project next year. He endorsed the implementation unit's suggestion that the tram-line could open in 2030/31.
Finance and Infrastructure Minister Grant Robertson said value capture regimes differed around the world – and this one was still to be locked down. "Sometimes they are run by local governments, sometimes they are run by central government or indeed the elements of central government that might be in charge of the project. That's the design process.
"We think it's only fair to people to have a clear understanding that if they are involved in this project, that if they own property around it, that this is one of the ways that we will be funding it."
He was emphatic that New Zealand taxpayers would not pick up the whole bill. "We need to make a commitment to not allow infrastructure deficits to grow," Robertson said.
"These are very sizeable numbers. As the Minister of Finance, I took a look at their report. And I could easily have just said, no, we're sorry, we're only going to go for the cheaper option. New Zealand's been doing that for far too long. And that's what's left us with the infrastructure deficit we've got.
"I think everybody would understand that where is a significant private benefit like this, some sort of contribution would be appropriate. But that doesn't take away from the fact that the Government will need to be the main investor."
"If I look at it from the viewpoint of being both a ratepayer and a taxpayer, if I'm contributing to the development of really valuable infrastructure, and somebody else is making a windfall profit out of that infrastructure, I'd expect them to contribute their share to it." – Phil Goff, Auckland Mayor
And speaking after the announcement, Mayor Phil Goff reiterated that council rates would not pay for the light rail project, either, though they would pay to connect the light rails stations and infrastructure to the rest of Auckland's urban transport and community infrastructure.
"If I look at it from the viewpoint of being both a ratepayer and a taxpayer, if I'm contributing to the development of really valuable infrastructure, and somebody else is making a windfall profit out of that infrastructure, I'd expect them to contribute their share to it. So I absolutely support the concept of value capture."
After the experiences of the City Rail Link construction, in which some CBD retailers went bust with years of construction limiting customers’ access to their stores, the Government is promising a “significant support package” for affected businesses.
"If roads are blocked from accessing our store, then we are pretty much finished. Eight years of no access will definitely put off customers." – Ellena Tavioni, Tav Pacific
Ellena Tavioni said they would prefer that access wasn't restricted in the first place.
"If roads are blocked from accessing our store, then we are pretty much finished," she said. "Eight years of no access will definitely put off customers. Serious shoppers like to drive to shopping destinations to avoid hand carrying multiple bags on public transport.
"The least government can do is make sure access to businesses are not blocked. I’m sure it is in their interest that none of the sources of their tax revenue is decreased because of something silly like poor planning!"
She said there were clear public benefits from the light rail: fewer cars on the roads, less air pollution. But a few private businesses and landowners should not pick up the tab for the entire community.
"If the Government can’t get their return on train fares alone, then they look at the other benefits: a cleaner environment, more travel efficiency for all New Zealanders and tourists, hopefully more tax revenue from increased shoppers."
Those public benefits were why the Government should fully fund the project. "All those affected by the construction should never be penalised through levies, especially after putting up with eight years of disruption."
