ROGER PARTRIDGE: The hidden reason houses cost too much

New Zealand’s housing crisis has causes everyone recognises – RMA restrictions, building consent delays, infrastructure that cannot keep pace with growth and building costs. All are real. But there is a deeper problem almost nobody mentions: for councils, population growth is an unwelcome burden.

Deputy Prime Minister David Seymour signalled last week that the 28 May Budget may finally begin to fix that. Speaking on Herald NOW, he indicated that councils may receive a share of GST from housing construction activity. It is a policy the New Zealand Initiative has been advocating for more than a decade. If it happens, the effects on housing supply and housing affordability will be profound.

To understand why, consider what happens when a development occurs. Whether it is a new subdivision on the fringe or an apartment block rising in an existing suburb, the council bears costs that developer contributions only partly offset. Upgrading trunk infrastructure to handle the extra load – the arterial pipes, the roads, the sewage capacity. Those costs fall on ratepayers immediately. Meanwhile, rates payments from new housing arrive slowly.

The real-time revenues from population growth – GST on new spending, PAYE and company tax from increased economic activity – flow straight to Wellington. Little wonder that governments of both stripes have generally championed high immigration. More migrants means more taxes, making it easier for the Minister of Finance to balance the books.

The short-term gains are Wellington’s. The short-term costs – the roads, the pipes, the schools, the stormwater – fall on councils and ratepayers. Is it any wonder councils drag their feet? This is not obstruction. It is arithmetic.

The principle behind the GST-sharing idea is well established. Switzerland, despite absorbing immigration rates comparable to New Zealand’s, has maintained broadly stable housing affordability for decades.

The explanation lies not in planning laws but in fiscal structure. Swiss cantons and communes levy their own income taxes. Local growth means local revenue. So they welcome development rather than resist it – just like Wellington does here.

New Zealand cannot simply import that model. Switzerland’s system works because it is competitive. The canton of Zurich alone has more than 100 municipalities, each setting its own income tax rate. Because residents can vote with their feet – moving to a lower-tax neighbour if their council overreaches – municipalities must compete for them, keeping local taxes low.

Auckland has one council serving 1.7 million people. A local income tax here would be a charge levied by a monopoly – generating revenue without competitive pressures to keep tax rates low.

As a proxy for Switzerland’s municipal taxes, The New Zealand Initiative’s 2013 report Free to Build proposed something different: a Housing Encouragement Grant benchmarked to the estimated GST on each new home. A direct fiscal reward for saying yes.

For a $400,000 house-and-land package – the going rate in 2013 – the consenting council would receive $60,000. The simpler the formula, the harder it is to game. Fix the planning rules by all means – but without fixing the incentives behind them, the rules will keep losing.

Once an idea that raised eyebrows, GST-sharing has quietly become orthodoxy. ACT brought it to Parliament as a Member’s Bill. The 2023 National-ACT coalition agreement committed both parties to investigate the idea. Chris Bishop, as Housing Minister, floated GST-sharing as part of his housing agenda.

Yet, the Coalition Government’s first two budgets have passed without delivering it. Now, apparently, the third will.

Local Government New Zealand has calculated that sharing 50 per cent of GST from 2024 building consents would have generated $1.3 billion for councils – enough to fund their entire rates increases for that year. Payments must be automatic and formula-based, tied to consents issued or completed builds – not a contestable fund Wellington can redirect at will, and not a substitute for fiscal discipline.

Earlier this month, Winston Peters proposed sharing mining royalties with the regions that bear the costs of extraction – the same logic, applied to a different industry. He was right about mining. That principle may finally be arriving in housing, too.

GST-sharing is not the whole answer. A council with the right incentives but the wrong planning framework is still stuck – and for three decades the Resource Management Act has made development slow, costly and uncertain. The government’s Planning Bill is its replacement.

But both levers need to pull in the same direction. GST-sharing gives councils a reason to say yes. The Planning Bill must give them the room to do so.

For more than a decade, one part of the fix was sitting in plain sight. Councils were not hostile to growth. They were responding rationally to a system designed in Wellington. Change the system, and the answer changes.

On 28 May, we find out whether the third time is housing’s lucky charm.

This column was first published in the NZ Herald on 23 April 2026. Roger Partridge writes at Plain Thinking