All Change, Please

What the new government in New Zealand means for infra, by Stephen Selwood, chief executive, Infrastructure New Zealand

A newly elected centre-left coalition of the Labour, Greens and New Zealand First parties has immediately signalled a change of direction for private capital in infrastructure.

The previous National-led conservative government successfully developed New Zealand’s design, build, finance, operate, maintain (DBFOM) outcomes-focused PPP model. It rolled out the first transport, schools and prison PPPs and had announced the first hospital PPP.

The new government has ruled out a PPP for Dunedin Hospital and it is not clear that PPPs will be considered for any social infrastructure.

Uncertainty now surrounds the viability of this PPP market given the country’s small size and limited pipeline.

However, it is much more accurate to say that the opportunities for private capital have shifted, rather than slowed.

The new government has prioritised urban development and, especially, delivery of new housing.

New homes need roads, water, public transport and community facilities. The bodies charged with delivering these services in New Zealand – local councils – are under-resourced and fiscally constrained.

Private capital will be required to unlock land and infrastructure for housing and to build new homes.

The economy in New Zealand is strong and people are willing to pay. There is large and urgent demand for market housing, there just aren’t the homes available in the range that Aucklanders, in particular, can afford. The country’s biggest city is short of 40,000 homes and is currently building half the 14,000 needed annually. The main issue is the cost of land in the built-up metropolitan area, but also significant is the absence of modern home manufacturing techniques.

Private investment, which enables development at scale by unlocking and servicing Auckland’s plentiful land and which underwrites major housing prefabrication facilities, is required.

Interestingly, the new government looks not only open to this idea but motivated to enable it.

The big challenge before officials and the market is, “how?”

The allocation of development risk, financing responsibilities for major infrastructure and new funding tools will all be up for review over coming months.

Major opportunities can be expected for domestic and international partners with the capability to deliver and a long-term investment horizon.