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Development levies system: Technical Questions and Answers
This page is intended to primarily provide support to councils and developers in understanding the development levies system, under the proposed Local Government (Infrastructure Funding) Amendment Bill.
Development levies vs. development contributions
What is a development levy?
A development levy is a charge on a development to help pay for the infrastructure needed to support growth. Infrastructure services leviable under the new development levies system include water supply, wastewater, stormwater, transport, reserves, and community infrastructure.
Under the proposed system, charges would reflect expected growth and the aggregate forecast cost of providing infrastructure capacity to that growth across a defined levy area. The purpose is to ensure developers pay a proportionate share of the long-term capital cost of servicing growth. Separate levies would be calculated for each of the six infrastructure services.
What is a development contribution?
A development contribution is a charge that councils currently use to recover the growth-related cost of providing infrastructure to service new developments. Effectively, councils can only recover the growth costs where they have planned and costed infrastructure projects. Councils have told the Government that the system does not always recover the full growth-related cost, often leaving the shortfall to be met by ratepayers.
Why is the Government replacing development contributions?
The current development contributions system often doesn’t recover the full cost of infrastructure needed to support growth. As a result, a portion of these costs are passed on to existing ratepayers.
Development levies are designed to improve how infrastructure is funded and financed to support housing and urban growth. They will provide councils and water organisations with more flexible and predictable funding tools to support increased housing supply, while ensuring growth pays for growth.
The new development levies system is part of the Going for Housing Growth programme. The programme objective is to improve housing affordability by significantly increasing the supply of developable land for housing, both inside and at the edge of our urban centres.
What are the main differences from the existing development contributions regime?
- Charges will be set based on the aggregate cost of providing infrastructure capacity for growth across levy areas, rather than cost to provide capacity for development in a specific location.
- Legislation will provide direction for councils to set separate levy areas where there is substantial variation in forecast infrastructure costs between development locations. This is a different approach from the exposure draft bill, which was based on councils setting broad levy areas with discretion to set high-cost overlays.
- Councils will have increased flexibility to adjust the provision of infrastructure to respond to demand.
- Under the new system both core Crown (Ministers and their departments) and Crown entities will be required to pay development levies. Under the current regime, only Crown entities are required to pay development contributions.
- The new system will be independently regulated by the Commerce Commission.
What are the key features of the development levies system?
- Separate levies that are charged for each specific infrastructure service, such as water supply, wastewater, and transport.
- Legislation will provide direction for councils to set separate levy areas where there is substantial variation in forecast infrastructure costs between development locations. This will support price signals for efficient development and reduce the extent of cross-subsidisation.
- Having a small number of levy areas will provide flexibility for councils to respond to growth patterns and deliver infrastructure more effectively than under the current development contributions regime.
- Developing a prescribed methodology that councils and infrastructure providers must follow to determine aggregate growth costs and standardised growth units.
- Consideration of different models of infrastructure delivery, including support for first-mover developers and recovering council costs for infrastructure owned by another entity.
Will the levy area settings reflect local settings?
The criteria for setting levy areas will be based on where there are substantial differences in forecast infrastructure costs. Factors that will impact the forecast costs include existing infrastructure capacity, physical geography and topography, and expected development patterns. Councils will be required to ensure they can responsively supply infrastructure according to where demand emerges and to support practicality and administrative efficiency when they set their levy areas.
The design of levy areas will depend on local factors that can vary significantly (e.g., size of urban areas, configuration of infrastructure networks, and forecast infrastructure cost differences between development locations). Councils’ local circumstances will inform how they set their levy areas.
Why are councils allowed to charge for infrastructure so far into the future?
Major infrastructure assets are planned and delivered over decades, not just within a 10-year planning window. Councils told us that limiting cost recovery to short term projects would likely lead to costs not being fully recovered, pushing them on to ratepayers. This does not mean councils can charge whatever they like. Long term assumptions will be constrained by:
- a nationally consistent levy calculation methodology
- requirements to link costs to expected growth
- independent regulatory oversight.
Regulation
What role will the Commerce Commission play?
The Commerce Commission will be the independent regulator for the development levies system. This is intended to build trust and confidence across councils, developers, and communities.
The Commerce Commission will:
- set detailed methodologies for how development levies are calculated;
- monitor operation of the development levies system through information gathering and analysis using an information disclosure regime;
- be able to set additional requirements or rules; and
- have a compliance and enforcement role.
We have heard clearly from stakeholders that regulation is needed to build trust and confidence across councils, developers, and communities. The Ministry for Cities, Environment, Regions and Transport (MCERT) is the steward of the local government sector and the new development levies system.
How will the Commerce Commission be funded?
The Government has provided $30 million through budget 2026 to fund the establishment of the Commerce Commission as the independent regulator from 2026 to 2030. After the establishment period, and consistent with the approach for other regulated sectors, the cost of the Commerce Commission regulating development levies will be recovered from the primary beneficiaries of the regulation which are the developers.
When will development levies calculation methodologies be published?
The Commerce Commission will be empowered to produce the detailed methodological requirements for calculating development levies through the Local Government (Infrastructure Funding) Amendment Bill (Bill). The Commerce Commission began work developing calculation methodologies in mid-2026 and will begin formal consultation on a draft proposal after the Bill is passed. The Commerce Commission will be required to publish the first detailed levies calculation methodologies within nine months of Royal assent of the Bill.
Crown payments
Will the Crown have to pay development levies?
Yes, both the core Crown (Ministers and their departments) and Crown entities will have to pay development levies in the new system. Crown-funded developments, such as schools and hospitals, also place demand on council infrastructure including on water and transport networks.
This establishes a consistent approach across public and private development and means those who generate costs pay their fair share. It also provides for predictable and transparent funding and planning signals.
What impact will this have on the Crown?
The Health and Education system will likely face the most significant impacts, as other Crown agencies already contribute towards local infrastructure costs.
Ministers and agencies will need to manage levy costs through absorbing costs within existing baselines and or seek additional funding through future Budget processes. Deciding now to include the Crown within the development levies system provides time for agencies to assess the impact and identify opportunities to manage future projects fiscal impacts.
How will the Crown manage the transition?
To support the transition to the Crown paying development levies, Health New Zealand (Health NZ) and the New Zealand School Property Agency (NZPSA) will be exempt from development contributions during the transition to the new development levies system. This will provide clarity and certainty for central and local government during the transition.
Increased infrastructure delivery by Crown Entities has exacerbated the current inconsistency between core Crown being exempt and Crown entities being required to pay development contributions. For example, a health facility delivered by Health NZ would be required to pay development contributions, while the same facility delivered by the Ministry of Health would not.
Next steps
When will the legislation be introduced?
The Local Government (Infrastructure Funding) Amendment Bill is being prepared for introduction in the first quarter of 2027. Introducing in early 2027 will enable the implementation of development levies to align with broader local government and resource management reforms.
When will development levies be implemented?
Councils and water organisations will have discretion on the implementation of development levies between the time the Commerce Commission issues a levy calculation methodology and 2030.
What are the next steps following introduction?
The Bill will progress through Parliament including the Select Committee process. The Bill is expected to pass in late 2027. Alongside the parliamentary process, the Commerce Commission will develop the levy calculation methodology and information disclosure requirements.
The Commerce Commission will begin consulting on the draft levy calculation methodologies after the Bill has passed.
Will there be further opportunities for input?
Stakeholders will have opportunities for further input during:
- consultation on the calculation methodologies for development levies and disclosure requirements; and
- a select committee process once the Local Government (Infrastructure Funding) Amendment Bill is introduced.
Developers
What does the development levies system mean for developers?
Development levies will support freeing up land for development, which will make it easier for developers to acquire developable land. Development levies are also intended to provide developers with greater certainty and stability about how much councils will charge for the growth-related costs of infrastructure. This will support developers to factor in infrastructure charges when acquiring land for development and reduce financial risks from unexpected infrastructure charges.
Where developers have pre-purchased land, there is a risk that the shift to development levies leads to increased charges and has a negative financial impact on those developers. The scale of this risk will vary between different council areas and development opportunities.
Will development levies increase costs for developers and push up house prices?
The overall approach of ‘growth pays for growth’ will support councils to free up land for urban development, reducing the costs of new housing supply. Over time, we also expect developers to factor in development levy charges into the price of land purchases.
Councils will have discretion to phase in any increase in charges to manage risks for developers who have pre-purchased land but not yet progressed with development.
Councils
What does the development levies system mean for councils?
Councils will be able to better recover the growth costs of infrastructure. This will put less pressure on the need for rates to cover any shortfall.
When and how will councils transition to the development levies system?
The timeframe for establishing development levies aims to align with the implementation of the new resource management system. Councils are expected be able to begin to charge development levies (after having adopted Development Levies policies) from 2029.
Will small councils be forced to implement development levies?
No. There is no requirement for any council to collect development levies. However, it is an available funding and financing tool that will enable councils to better fund the infrastructure needed to support growth.
Can councils use development levies for ongoing operational funding?
No. Councils will not be able to charge development levies for operational costs.
What happens if a levy is collected but the development doesn't go ahead?
The legislation ensures that a territorial authority must refund to the consent holder a development levy paid if a consent lapses or the development does not proceed.
Local Government Reform
How does the development levies system fit with RM reform?
While resource management reforms aim to free up land for development, it is critical these reforms are accompanied by improvements to infrastructure funding and financing.
How do the proposals for development levies relate to the Infrastructure Funding and Financing Amendment Bill?
Recent changes to the Infrastructure Funding and Financing Act were designed to improve its usability for a range of infrastructure projects. Alongside the shift to development levies, these changes will provide councils, developers and other infrastructure providers with a flexible funding and financing toolkit to respond to growth pressures and deliver infrastructure to land zoned for housing development.
How will rates capping affect councils’ ability to provide infrastructure to support urban growth?
The development levies system aligns with the overall approach of ‘growth pays for growth’. These changes will help councils recover the costs of growth from new developments, rather than growth placing pressure to increase rates. The Government is working to ensure rates capping doesn’t dampen council investment in infrastructure to support urban growth.
How do Fast-track developments fit with the current development contributions regime?
Fast-track developments can sometimes be approved before councils have planned the infrastructure needed to support them, or across more than one council area. This can make it difficult for councils to recover the full growth-related cost through the current development contributions regime.
The Government has proposed amendments to the Local Government Act so councils can set development contributions that reflect the actual size and infrastructure needs of a fast-track development. This is intended to reduce the risk that existing ratepayers have to cover those costs.
How does the Fast-track approvals process relate to the development levies system?
The development levies system will support councils to manage infrastructure costs in a more flexible planning environment, including Fast-track developments. In the new system charges will be set based on the aggregate forecast cost of providing infrastructure capacity for growth across a levy area, rather than the cost to provide capacity for development in a specific location.
Key aspects of the legislation will include:
- allowing councils to recover capital costs incurred by another party; and
- allowing councils to undertake a bespoke levy assessment for developments within a levy area that seek resource consent