Envirolink - Ensuring the proposed urban development authorities leave a positive economic and social legacy

In late February the New Zealand Government released a discussion document on proposed new legislation to allow publicly-controlled urban development authorities to be set up to enable “nationally or locally significant urban development projects to be built more quickly”. Under that proposal, those urban development authorities could be granted a wide range of powers and either lead the redevelopment of areas of land or act as the ‘regulator’ of private developers actually undertaking the development.

The idea of using urban development authorities in New Zealand has potential both to address a range of issues the country is grappling with (housing supply, replacement of aging infrastructure, provision of new infrastructure to accommodate growth) and to facilitate the adoption of innovative technologies and new ways of working, living and moving around.

Done right they would leave a lasting and positive legacy.

Done wrong they could leave a combination of ongoing debts, low quality building stock, maintenance and operating issues for infrastructure and services, environmental damage, barriers to adopting new technologies and a trail of embittered relationships.

The best way to ensure that they are done right is to deal with the difficult issues relating to urban development authorities now, starting with making a submission on the Government’s discussion document (by 5pm on 19 May 2017).

Urban development authorities can create a significant positive legacy. In the United Kingdom, use of equivalent organisations, such as the English Partnerships redevelopment of the Greenwich peninsula and Cardiff Bay Development Corporation’s regeneration of the Cardiff waterfront (while not issue-free) gave new purpose and new life to run-down industrial areas.

However, done wrong urban development authorities have the potential to leave chaos. To increase the chances of a positive legacy and manage the risks of a negative one, the Government will need to work carefully through the tricky issues relating to urban development authorities with input from people with a wide range of skills, experience and interests.

A few of the tricky issues that need to be grappled with are discussed below.

Who bears the liability for ongoing debt?

Under the proposals some urban development authorities would be created with a built in expiry date (the Order in Council establishing them would provide that they would cease to exist on a set date). For others the Minister responsible for the proposed legislation could be able to wind-up an urban development authority once the project’s strategic objectives had been successfully delivered.

If everything goes well this could happen smoothly. But what will happen if promised facilities or infrastructure aren’t delivered, large amounts of debt have been taken on and the private developers involved no longer (legally) exist?

The Government’s current proposal is that if it begins to have concerns about how things are going it could remove an urban development authorities’ powers, appoint an alternative urban development authority or replace all or some of the authority’s board. All useful powers to have but are they enough?

This scenario also has potential implications for the Government’s proposal that, as compensation for land taken, local land and business owners could be paid in the form of an equity stake in the development project. As the discussion document says this would give those owners the opportunity to receive the land value uplift from the project. However, if things go wrong, could it leave a patchwork of land and business owners as the effective shareholders of a debt-ridden entity?

The document indicates that there is a possibility that if there is significant debt and other financial liabilities attached to infrastructure at the time an urban development authority is wound-up, local authorities could agree to take on the debt and liabilities. Given the need to carefully manage local authorities’ debt levels, this may not be practical and what happens if local authorities don’t agree?

The discussion document specifically asks for suggested solutions for how to address the risk of a third-party infrastructure provider becoming insolvent.

How do we ensure that infrastructure and services handed-over at the end of the development project work with the rest of the system and are affordable to run?

Under the Government’s proposals urban development authorities could be given powers to create, remove or alter a wide range of infrastructure – including public transport services. Once the urban development authority was wound up, generally, the infrastructure and services would be transferred to the relevant council or network operator. While the entities having infrastructure assets transferred to them wouldn’t pay to receive assets they would be responsible for the ongoing operation and maintenance of the transferred assets and services and, at the end of its economic life, the renewal of that infrastructure.

The current proposal is that any infrastructure built in urban development authorities’ areas will need to meet the system performance requirements, and levels of service, of councils’ and utility providers’ existing or planned networks. However, there are also indications in the discussion document that the Government might want to revisit that.

Also, what will happen if a public transport service established by the project just isn’t viable?

It is also unclear what incentives there would be for an urban development authority (which probably would not be in existence for any more than 20 years) or a private developer to consider long-term issues such as the ‘whole of life’ costs of assets or to try innovative approaches to the delivery of infrastructure and services.

What community infrastructure and cultural facilities will developers be required to provide and what happens if it looks like they won’t be delivered?

The discussion document proposes that, “in exchange for benefitting from the proposed development powers, the profits that private sector development partners seek can be offset by public good outcomes that the Government can require form the development project”.

Careful thought will need to be given to what kinds of public good outcomes can be required from private developers and what will happen if it looks like those facilities aren’t going to be able to be delivered or will be significantly delayed.

How will it all work if the land proposed to be redeveloped is significantly contaminated or impacts on the coastal marine area?

The discussion document is silent on both of those issues

There will be solutions to these tricky issues

The key will be to identify them now rather than when problems have actually emerged.

The Resource Management Act enables consent authorities to require bonds to be given for the performance of the conditions of consents with those bonds being able to be registered as interests on the relevant land. Where urban development authorities are regulators rather than developers would they have the power to require bonds? Where the urban development authority is the developer should the Government be able to require a bond?

The urban development agency legislation could specifically require urban development authorities to consider the ‘whole of life’ costs of infrastructure assets and pilot innovative approaches to the delivery of infrastructure and services. The legislation could also specifically require urban development agencies to consider the ongoing economic viability of any new services (such as public transport services) proposed to be created for urban development areas before those services are put in place.

There will be other, potentially more innovative, solutions. The challenge is to identify them now to ensure that urban development authorities do leave a positive legacy.

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