Mining royalties to finance housing in first regional deals

Analysis: There’s not yet much to see at Bendigo Station in Central Otago, but ASX-listed Santana Minerals has disclosed to investors a gold discovery worth an estimated $10b.
If consented through the fast-track process (and resources minister Shane Jones has already paid a visit) then Queenstown and Central Otago could get a cut of the royalties. They would use the money, along with hotel bed taxes, to fund major investment in housing and public transport.
Theirs is one of five proposed “regional deals” that look to be frontrunners for Simeon Brown’s new central-local government 10-to-30-year agreements.
It was National’s Brown who yesterday announced a framework for ‘regional deals’ with groups of councils, offering them a glimmer of hope to finance much-needed infrastructure. But the plan has New Zealand First’s fingerprints all over it.
At the Local Government NZ conference in Wellington, Newsroom has spoken with the ministers responsible for infrastructure, and with mayors struggling to see how they can deliver on their communities’ roads, water, waste and housing needs – the basics on which the Prime Minister and ratepayers demand they focus.
The morning after Christopher Luxon’s blunt back-to-basics speech, councillors were still reeling as Brown took the stage. He laid out the Government’s plans for longterm deals to deliver on agreed priorities, emphasising that he wasn’t interested in seeing ratepayers’ money spent on extravagant, glossy proposal documents – nor on extravagant ‘white elephant’ initiatives.
(Queenstown Lakes mayor Glyn Lewers dryly agrees he won’t push for a big convention centre for the town, despite the hopes of his business community).
Brown says he will start with five deals, but declines to say which regional groupings will be at the front of the queue for the new investment.
Newsroom has learned the five are likely to be Northland, Tauranga/Western Bay of Plenty, the South Island’s West Coast, Queenstown/Central Otago, and as early as next week, beginning work on a distinct “city deal” with Auckland Council.
None has yet been told that they have been selected, but the minister’s office is expected to send them invitations in coming weeks.
City deals or regional deals, as they’ve operated in the UK and Australia, will support long-term collaboration between central and local government, and the councils will be expected to deliver a return to private investors and the taxpayer. There will be agreed performance metrics, like growth in regional GDP, increases to local GST, income and company tax takes, and reduced costs to central government in bottom-of-the-cliff health and welfare spending.
Most of this has been well foreshadowed. But perhaps the most unexpected aspect is the explicit indication that the Govt could provide regions with a share of mining royalties. As conference MC Kim Hill teased the resources minister Shane Jones yesterday, “drill baby drill!”
“We need to be absolutely sure that we’re making enough money out of the activities of mining,” Jones tells me afterwards. “There are strong criticisms coming my way that the investors aren’t paying their fair share, and society needs a return. In the event that work is completed anytime soon, a percentage of that – and I’m relaxed as to what percentage Cabinet signs off – will be dedicated to the regions where the minerals activity is.”
For some districts, a resurgence in mining will be embraced as an unmitigated good for employment and now, investment in local infrastructure. For others, it may be a slightly embarrassing means to an end.
There’s gold mining in the Western Bay of Plenty and Central Otago, and of course both gold and coal the length of the West Coast.
Newsroom has spoken with the mayors leading all the regional deals: Lewers from Queenstown, Jamie Cleine from Buller, newly-elected Mahé Drysdale from Tauranga, and Vince Cocurullo from Whangārei. They are delighted to discover their informal talks with ministers are likely to turn into formal invitations to put forward their proposals.
Lewers says the strength of the deals will be in their longevity, removing the infrastructure work from the risk and volatility of central and local leadership changing every three years. That, and working in partnership with both central government and their neighbours.
“For us, it makes perfect sense to actually partner up with Central Otago District Council. They’re seeing the same growth pressures as us, but they also bring viticulture, horticulture, and a proposed gold mine that might happen.
“So they’ve got a lot of economic activity activity as well. And the last thing you probably want to be doing is having two growth districts right next to each other, competing over the same accommodation and labour force resource.”
Cleine calls it “a once in a generation opportunity“ that would allow the West Coast’s three districts to make growth-enhancing investments into electricity generation, housing and key transport infrastructure including road, rail, coastal shipping and airports.
Flood protection and other resilience investment is also critical, to provide confidence to the private sector, insurers and funders that the West Coast is open for business, he tells me.
“There is a great opportunity to reinvest mining royalties back into our region to enable upfront infrastructure investment that supports growth of the minerals sector but also longer term growth and transformation of our towns. A royalty return schemes would be a huge benefit to ratepayers.”
In Northland, Whangārei’s Vince Cocurullo is leading the charge, as chair of the mayoral forum. He says many of the region’s priorities are already in progress, like a four-lane highway to Whangārei, the Northport expansion and a third generator at Ngawha.
But a big one for the region will be developing the presence of universities there, as well as Northtec, so that young people can choose to remain at home in Northland to study.
He points to examples like his niece and nephew, who both had to go away to university. He’s confidence the region can develop the skilled job opportunities, and wants to make sure it has the workforce to fill those jobs.
Former Olympic rower Mahé Drysdale, the newly-elected mayor of Tauranga, has been on a steep learning curve since taking the mayoral chains in July – but he’s dug deep.
“Everyone knows we’ve got a housing shortage and so, to enable us to do to deliver houses – that would be our biggest priority.”
Like Queenstown, Tauranga’s debt is sky-high – a net debt-to-revenue ratio of 275 percent, just under next year’s hard cap of 280 percent. The Local Government Funding Agency has indicated it may allow such high-growth councils to borrow up to 350 percent, but Drysdale acknowledges that would be an impost on future generations.
So he’s looking with interest at working a credit buyback tool into the regional deal with neighbouring Western Bay of Plenty. This would offer councils $25,000 for every additional house consent approved above the target. “It’s an incentive to deliver more housing,” Drysdale says.
“It’s been pretty clear that there is no more money from Government. They’re not going to be just handing out money. But we’re saying, okay, let’s get creative and find some new ways of funding, because rates funding for local councils isn’t working.
“We as councils, are ready, and Tauranga in particular. We’re ready to deliver the priorities of the government, but we we can’t do it alone. We need some help.”
The local government minister’s (fairly glossy) draft of the regional deals strategic framework also identifies the importance of housing.
New Zealanders are facing significant affordability challenges, it says. The country ranks amongst the least affordable housing markets in the OECD, with inflation-adjusted house prices rising by 256 percent between 2000 and 2021. It says addressing housing affordability will require strong and aligned central and local government leadership to unlock more land for housing developments, to unlock funding and financing tools for councils, and to develop the right local incentives to encourage housing growth.
That’s a point housing minister Chris Bishop also touches on. Wearing his hats as housing minister, and minister responsible for RMA reform, he reiterates that the Government’s ‘Going for Housing Growth’ policy focuses involves freeing up land for development and removing unnecessary planning barriers, improving infrastructure funding and financing, and providing incentives for communities and councils to support growth.
He says the Government will implement new national directions for housing targets, granny flats, papakāinga, infrastructure and natural hazards, as well as new national environmental standards for heritage.