Tauranga City Council is going head to head with the Productivity Commission's recommendations on affordable housing, saying they will further increase housing prices instead of lowering them.

The Productivity Commission is an independent Crown entity set up to assist the government with policy development on major social and economic matters.

It's been seeking information on housing affordability from councils and has produced a draft report that Tauranga City Councillors and staff largely disagree with in the light of the city's experience of high growth rates over the last 10 years or so.

The council's calling the commission's main recommendation that more land be opened up for development imprudent and unlikely to affect housing affordability.

'TCC is of the view that the commission has failed to fully understand the ramifications of its recommendations for councils to release more land for development,” the council's reply states.

Developers and council simply cannot afford to invest tens-of-millions of dollars in developing ‘new' land for housing because of the high cost, the high level of risk, and the long lead times before there is any payback.

If that funding issue cannot be resolved, then bringing more land into development will not actually increase the land available for immediate and affordable housing development. Before people can build houses on paddocks, millions have to be spent putting in water, sewerage, power, communications, and roads and drainage.

Releasing more land for development will not necessarily reduce the price developers pay for the land.

Land prices will be influenced by whether the land is serviced, with local services to the site boundary normally the domain of individual developers.

The experience of Tauranga City Council is that having more new housing areas on the go to give market choice also does not make sections cheaper.

It means it will take longer to recover the costs of the infrastructure over a wider area – which increases the cost of capital for bulk infrastructure, and those costs flow back into increases in development contributions for developers and higher council debt.

Doing it cheaply by using on-site services such as septic tanks or package treatment plants and roof/bore water supply and cheap roads without kerbing and channelling will also not work.

It is Tauranga's experience that residents begin pressuring the council to provide a better level of service.

It is considered highly unlikely that residents will collaborate themselves pay for higher levels of service.

While lower service standards and start-up costs are fine in theory they soon create issues in a growing city. Retrofitting is always more expensive.

In those instances the commission is ignoring work already done on that subject concerning the council's proposed eastern Papamoa development at Wairakei.

The MWH paper concluded current engineering water supply and wastewater disposal methods and low impact design methods of stormwater treatment and disposal are economically effective, efficient, and environmentally sound for a large urban area.

At present Tauranga cannot open up any more land for development as the commission recommends, because it cannot pay for it.

TCC cannot increase development contributions or rates to pay for the infrastructure that would be required.

In simple unequivocal terms and as a growth experienced council, TCC is attempting to reduce its debt and opening up more land for development will have the opposite effect.

TCC research finds that land prices are likely to be only about 25 per cent of the total cost of delivering a section to market, which means the commission's assumption that housing affordability problems can be resolved through developers paying less for land, is highly questionable.

The council says a fundamental issue of the price paid for land by developers compared with its value as rural land.

'There appears to be a fixation with generating capital gain windfalls from land rezoning,” the council reply states.

'A farmer can get more for his land growing houses rather than crops, resulting in the loss of productive land and urban land speculation.

Why should land valued at $60,000 per hectare for productive use suddenly be worth $600,000 because it has changed zoning from rural to urban?

'There has to be a serious market correction against such land speculation to assist in the delivery of more affordable housing packages,” says TCC to the commission.

The report was prepared by council environmental planning, strategic planning and building services staff and signed off by deputy chief executive Christine Jones.

It was unanimously approved by councillors, but with comments that Tauranga's sage advice may be ignored.

Mayor Stuart Crosby says the Tauranga City Council staff who prepared the reply are the best placed to do so in the country.

'Even the development community say we know more about development than they do, and when you read the original report on affordable housing it appears to be some kind of urban myth – ‘open up the urban boundaries and she'll be right',” says Stuart.

'I believe they will hopefully be listened to because we have the experience, as has Hamilton, Auckland, Queenstown district and Lakes; we have suffered the real hard financial consequences of growth.

'The fact that we have a high debt, even the minister (new Housing Minister Nick Smith) acknowledges that those cities that have high rates of growth have consequences, high debt paying for the infrastructure to service that growth.

'I think it's really important central government decision makes have a good comprehension of the realities of growth.

'It does take time for those realities to kick in.

'It can be ten or 15 years by the time you get into renewals, that you understand the true cost of growth. I believe we have done it better than anyone else.”