Funding growth in 2026: What councils should be wary of

Local Government in New Zealand, and the funding of infrastructure, is poised for a busy year in 2026.  Key to this is the planned replacement of Development Contributions with a new Development Levies system proposed through the Local Government (Infrastructure Funding) Amendment Bill (LG Infrastructure Funding Bill).  The LG Infrastructure Funding Bill is part of the Government’s Going for Housing Growth agenda (Pillar 2: funding and financing), alongside the Infrastructure Funding and Financing Amendment Bill (IFF Bill) and related reforms to refocus councils on core services through the Local Government (System Improvements) Amendment Bill (LG System Improvements Bill).

On paper, the aim of these Amendment Bills is simple: fix the infrastructure funding bottleneck so housing can be delivered faster, and potentially cheaper.  In practice, the package will reset incentives, risk, and accountability across Local Government.

What the new Amendment Bills propose

1. The LG Infrastructure Funding Bill – Development Levies would replace Development Contributions with a more standardised, zone‑based structure, set through clearer methodology, and overseen by an independent regulator (with the Commerce Commission signaled “in principle”).  Development Levies would be separated by infrastructure class (three waters, transport, reserves/community infrastructure), and calculated from total growth costs and expected growth within defined levy zones; although councils could add localised top‑ups where servicing costs are higher.  The Government’s consultation exposure draft is already out, with submissions running through to 20 February 2026.
2. IFF Bill – Parallel reforms in the IFF Bill broaden the Infrastructure Funding and Financing Act’s (IFFA) remit, streamline IFF Levy approval (not to be confused with Development Levies), and extend eligibility to transport (NZTA/KiwiRail), and future water service delivery organisations.  There is an explicit intent to increase uptake of the alternative funding model provided through the IFFA, given only two such projects have been delivered since its enactment.  The Government is clear: it is focused on removing affordability tests for certain greenfield proposals, simplifying mandatory considerations, and enabling deferrals/value‑capture to make the IFFA a practical tool.
3. LG System Improvements Bill – Layered over the top is the LG System Improvements Bill, which re‑writes the purpose of Local Government to emphasise “good‑quality, cost‑effective” local infrastructure and services, Local Government’s core services, and imposes tighter transparency and performance reporting; all framed as a cost‑of‑living response and a push back against expanding bureaucracy.

The Development Levy promise: clarity, consistency, and growth

There is no denying the current Development Contributions regime has drifted into complexity and inconsistency across, and even within, councils.  Local government has long been constrained by the limitations of Development Contributions under the Local Government Act and the inability to fully require growth to pay for growth.  Developers likewise complain about sharp increases and unpredictable application, and sector groups have asked for independent oversight to curb discretion and ensure funds track with growth infrastructure in the area they are raised.  The Government’s package responds directly to those concerns and tries to deliver a uniform national approach to funding and enabling growth.

For Local Government finance – A zone‑based Development Levy with a standardised methodology and independent regulator might reduce risk, make revenue more defensible, and dampen political heat in annual and long-term plan cycles.  Not to mention relieving the burden on ratepayers to top-up the shortfall in funding growth infrastructure.

For Local Government planners – Aligning Pillar 2 funding with Pillar 1 planning reforms (competitive urban land markets; 30‑year capacity; easier greenfields development) offers a joined‑up narrative that growth will pay for growth.

The reality: displaced risk, softened affordability checks, and tighter central control

1. Standardised Development Levies can still result in geographic winners and losers. A zone‑based approach that uses expected growth and total growth costs will live or die on zone definition, project scoping, and growth forecasts.  If the regulator’s methodology sets a base Development Levy that under‑recovers in high‑cost fringe areas, councils will lean on top‑ups, which will re‑politicise local differences.  Conversely, if the base over‑recovers, councils will face pressure to discount to keep development and growth viable.  Either way, councils remain the obvious frontline target.
2. Affordability oversight shifts away from Ministers toward buyers and councils. Under the IFF Bill, ministerial affordability assessments are pared back for greenfield IFF Levies supported by developers and existing landowners, on the theory that buyers “self‑assess” when they opt in.  An elegant theory, but for councils it risks downstream political accountability when households discover the total IFF Levy stack on top of rates, targeted rates, and service charges.
3. Deferrals and value capture expands, but the governance load lands on councils. The IFF Bill opens deferrals and widens scope for value capture.  This is intended to make funding more flexible and encourage development, especially in “out‑of‑sequence” growth areas.  Although potentially helpful, every IFF Levy stack on top of rates, targeted rates, and service charges (plus Development Levies) will also increase the complexity of council revenue narratives, and the risk of double dipping must be tightly guarded against.  Councils will need sound internal reconciliation to defend programmes and avoid misallocation.
4. Purpose “refocus” narrows political room to manoeuvre. The LG System Improvements Bill removes the “four well‑beings” and elevates cost‑effective core services.  That framing, plus proposed rates restraint, will make it harder to argue for place‑making, environmental enhancement, and community amenities that are not readily classed as “core”, even when those investments are precisely what sustain long‑term growth quality, community engagement and council reputation.  Add to this, history has shown us that a change in purpose does not necessarily change behaviour, and risks missing the deeper fiscal sustainability problem.

Where do the incentives actually point?

When taken together, the package points toward:

• more greenfield developments, with easier funding/financing pathways and levies that assume buyer opt‑in and affordability;
• constrained council discretion in levy setting and spending; and
• performance and cost discipline expectations, compressing rates growth, and prioritising a narrow focus on “core services.”

For Local Government, the risk is that Central Government secures the appearance of growth funding certainty and enabling growth, while councils absorb delivery risk, community backlash, and integration complexity across water, transport, and community infrastructure pipelines.

Five pressure points councils must address now

1. Zone definition & pipeline alignment – Get ahead of zone design by building transparent growth‑cost models, and 10 – 30 year pipeline maps, now.  If councils do not define the true marginal cost of growth (by area and asset class) within their districts, someone else will and that may not align with the council’s network realities.
2. Affordability narratives – With softened ministerial affordability checks for certain IFF Levies, councils must own the whole‑of‑household story: rates, Development Levies, top-up levies, targeted rates and service charges.  Publish clear, scenario‑based profiles so elected members, and the community, are not blindsided at long-term/annual plan hearings.
3. No‑double‑payment controls – Design internal cost‑allocation rules and dashboards that prove the same cost is not recovered twice (IFF Levy vs Development Levy vs targeted rates).
4. Governance of deferrals/value capture – If you use IFF deferrals or value‑capture, set out trigger events, revaluation points, and risk reserves.  Do not let optimistic uplift assumptions drive thin contingencies, otherwise your balance sheet (and the ratepayer) will wear the shortfall should conditions turn.
5. Purpose and “core services” test – Take stock of planned community amenities against the new purpose and core services drafting.  Decide which to (a) retain, (b) rebadge as infrastructure outcomes, or (c) defer.

The big unresolved question: who arbitrates fairness?

The Government has floated the Commerce Commission as the Development Levy regulator, “in principle.” If confirmed, councils will be navigating a competition‑style regulator with a strong economic method lens.  This may improve consistency but will also privilege methodology rigor over local nuance.  Councils should push hard through consultation and the Select Committee for a regulator remit that balances method with practicality, and that recognises the complex multi‑objective nature of local infrastructure (resilience, environmental outcomes, social equity), and Local Government; not just housing growth throughput.

How councils can shape the Amendment Bills before it shapes them?

1. Submit, with evidence. The exposure draft for the LG Infrastructure Funding Bill is live and open for submissions until 20 February 2026. Use LTP data, growth models, and capital programme evidence to argue for zone definitions, levelling methods, and top‑up rules that reflect network reality.
2. Insist on integrated safeguards. The LG Infrastructure Funding Bill and the IFF Bill must carry explicit provisions and guidance preventing over‑recovery/under‑recovery and double payment.  Seek mandatory public reporting of levy use by project, zone, and asset class.
3. Protect community outcomes. In respect of the LG System Improvements Bill, advocate for wording or guidance that permits councils to continue investing in their communities and what their communities want, whilst shaping infrastructure where it demonstrably underwrites growth quality and resilience.

Final word: growth pays for growth, but accountability still lands locally

The Government is rightly tackling the funding bottleneck across Local Government and the usability gap in the IFFA.  Councils should welcome tools that further unlock delivery across their districts.  But the balance between a centralised method over local knowledge and legitimacy is a fine one.  If zones, levies, and funding baskets are set without robust local evidence, councils will face a disaffected community when bills arrive, services falter or growth is ad-hoc.

The path forward is not passive compliance.  It is method literacy, pipeline realism, and a relentless focus on affordability narratives.  If we do that well, the Amendment Bills can be shaped into a workable system where growth genuinely pays for growth, and councils aren’t left holding the bag when spreadsheets do not align with neighbourhoods.

The Government’s push to overhaul how growth is funded may promise clarity and consistency, but behind the headlines lie deeper shifts in risk, accountability, and local decision‑making that councils cannot afford to ignore.

If you’re grappling with Development Levies, IFF structures, or how these reforms will affect your funding, affordability narratives or long-term planning, reach out to Cori Barkle in our Property and Infrastructure Team.