It’s a policy the “think tank” has been advocating since 2013 and which the government has not committed to pursue.

The research note, titled Revenue Share for Housing, explores options for councils to receive a portion of tax revenue from new housing developments, addressing New Zealand’s persistent housing shortage.

NZ Initiative senior fellow and research note author, Nick Clark, says by redirecting, for example, just 1.4 per cent of its tax revenue, central government could boost local council budgets by 11.3 per cent.

“This relatively small shift in funds could create a powerful incentive for councils to say ‘yes’ to new homes.”

He says the concept is simple: when new houses are built, the government shares some of the resulting tax revenue with the local council. This creates a cycle where more housing leads to more funding for local services and infrastructure.

While previous governments have been reluctant to implement revenue-sharing due to concerns about fiscal impacts, research demonstrates benefits could far outweigh the costs, Clark says.

“There are several ways to structure revenue sharing. The analysis shows that some methods are more effective than others at encouraging housing development. The key is to ensure a clear link between new homes and increased council funding.”

The research suggests that basing payments on new building consents or completed builds could provide the strongest incentives for councils. Importantly, any new revenue sources should not substitute for stronger fiscal responsibility in local government.

“We’re excited to see revenue-sharing on the government’s agenda,” Clark says. “This policy has the potential to significantly boost housing supply across New Zealand, addressing one of our most pressing national challenges.”

Strong incentives

The research note has been welcomed by Local Government New Zealand (LGNZ).

“It shows that with the right settings, the government could provide strong incentives for housing growth and reduce the burden on ratepayers,” LGNZ says.

The report also highlights an opportunity to share a portion of GST on new non-residential buildings, which would incentivise economic growth without burdening ratepayers.

Housing and population growth come at a high cost to councils and communities, which must fund new infrastructure to support new residents and developments. Local growth generates GST and taxable income, which are collected centrally. LGNZ says it supports growth paying for growth.

Providing a share of GST on all new residential buildings, in line with the costs councils incur for supporting development, will be an effective tool for incentivising growth and reducing the burden on ratepayers, it says.