The Government has now announced the latest raft of changes to be introduced to New Zealand’s infrastructure funding and financing toolkit, as part of its Going for Housing Growth programme (Housing Growth). The Housing Growth reforms will comprise three-pillars, all designed to increase access to affordable housing by incentivising development and removing barriers to urban growth.

Pillar 1 of Housing Growth, announced in July 2024, focused on legislative and regulatory changes aimed at freeing up land and reducing planning barriers to new developments (as discussed in our earlier article Government gives housing the green light). Pillar 2, announced in late February 2025, comprises five key changes intended to make New Zealand’s infrastructure funding and financing toolkit more flexible and better suited to respond to growth pressures. In this update we work through several of the proposed changes, and outline our initial thoughts.

Housing Growth - Three Pillars

1. Freeing up land for urban development including removing unnecessary planning barriers

2. Improving infrastructure funding and financing to support urban growth

3. Providing incentives for communities and councils to support growth

Replacing development contributions with development levies

Development contributions, currently charged to developers as an upfront sum for specific planned infrastructure projects when resource and / or building consent is granted, will be replaced by a new development levy system.

This change is an acknowledgement by the Government that the existing development contributions regime is complex, and has tended to under-recover the true costs of growth from the development community. This is in part because the statutory framework requires detailed asset management and financial planning before any particular class of infrastructure can be included in a development contributions policy. There have also been several court decisions in which councils have been found to have breached the complex statutory requirements applicable to development contributions policies, and the circumstances in which contributions can be required from developers.

The new system will instead allow councils and other infrastructure providers to charge developers a levy, which is set as a proportionate amount of the total cost of capital expenditure necessary to service growth over the long term in a designated levy zone. Separate development levies will be maintained for different infrastructure services, covering drinking water, wastewater, stormwater, transport, reserves and community infrastructure. A standard base levy will apply for each infrastructure service in each levy zone, and will be calculated based on overall growth costs (including past and anticipated expenditure) and expected growth.

The new development levies will be calculated based on the average cost of providing each infrastructure service for planned development, and then applying that to all development that occurs across the area. Under the current system, development contributions can only be spent on specific assets identified in the council’s development contributions policy, with the policy identifying both the total costs and the “growth cost” of that asset that will be funded by development contributions. This change should provide more flexibility, by allowing councils to charge development levies to fund assets that are not yet identified but are needed to service development within the levy area. This is also intended to reduce the under-recovery that occurs when infrastructure is provided for “unplanned” development, a key issue highlighted in the materials released by the Government alongside this announcement.

Development levies will be subject to regulatory oversight to ensure councils are setting appropriate charges in accordance with prescribed methodologies.

The development levy system will be available from 2027 onwards (and we expect it will be extended to water service providers, in place of development contributions), but councils will have discretion to phase in any transition to higher charges under the system to manage the impacts on local development.

Targeted rates for new developments

The Government has also announced changes that will enable councils to set targeted rates to be set and applied only to new developments, when a new rating unit is created at the subdivision stage. These targeted rates can be used alongside development levies, but may be particularly attractive to smaller councils in lieu of managing a development levy system.

Amendments to the IFF Act

Following the delivery of two successful pathfinder projects under the Infrastructure Funding & Financing Act 2020 (IFF Act), legislative amendments will also be introduced to streamline the proposal process under the IFF model and better enable the model to be utilised for greenfields development.

The amendments will be focused around the following three objectives:

Expanding uptake and use cases	Streamlining levy development and approval	Increasing certainty and confidence
broadening the scope of the IFF Act to extend to a wider range of infrastructure projects, including greenfields development and projects led by NZTA or new water organisations enabling levy deferrals to support the use of the IFF Act for value-capture enabling IFF Act levies to be used to finance payment of development levies	simplifying the levy proposal and approval process to reduce barriers for levy applications streamlining levy information and endorsement processes to remove duplicate or unnecessary requirements limiting council discretion to block certain developer-led proposals	clarifying protected Māori land provisions ensuring that IFF Act levies and development levies can be used alongside each other, provided that no ‘double dipping’ arises technical and remedial changing to ensure the IFF Act model is fit-for-purpose

Next steps

Work on the Pillar 2 changes is already underway, with legislation expected to be introduced in September 2025 and enacted by mid-2026. We suspect that councils and other infrastructure providers will be keen to move to a more certain, and less contestable, development levy model as soon as it is available, and so providing for an easy transition to this model (including template methodologies for the allocation of project costs) will be welcomed by these sectors.

Get in touch

Please contact one of our experts if you would like to discuss any of the proposed changes.

Special thanks to Katie Daly for her assistance in writing this article.