How to fix NZ's Infrastructure Woes

A quick assessment of New Zealand's infrastructure investment priorities reveals a need for $120-$180 billion over the next 30 years to improve water services, $50 billion to triple the electricity supply and meet the 2050 net-zero carbon target, $100 billion or more for transport infrastructure and $17 billion for new hospitals over the next 10-15 years. This hefty price tag stems from decades of under-investment, evolving public expectations and insufficient funding for maintenance and replacement efforts.

The state of New Zealand’s water infrastructure is a glaring example of the consequences of under-investment. Issues such as wastewater mixing with stormwater and boil-water notices—like the recent two-month advisory in our premier tourist destination—have tarnished the nation’s clean, green reputation. This situation not only affects the local population but also damages the tourism industry, a vital part of New Zealand's economy.

Healthcare is another sector in dire need of improvement. Long waiting lists for operations and extended wait times in emergency departments highlight the system's inefficiencies. Infrastructure is not the only reason for this situation in health, but it is certainly not helping. Many of the country’s 80 hospitals, often 40 years old or more, are now outdated and unable to meet modern medical standards.

Public expectations have evolved, further driving up costs. The push for treated water to be discharged to the land rather than rivers, lakes and sea has increased the cost of managing wastewater typically by a factor of three to five, with the massive amount of land that needs to be bought. Often the relative environmental benefits and costs of different options are not openly and clearly set out, leading to choices that may not be the best for all New Zealanders.

Historically, infrastructure was not adequately depreciated and insufficient funds were set aside for its maintenance and rebuilding. This has left the nation doubly behind where we need to be, with aging infrastructure unable to keep up with rapid population growth and rising service level expectations.

We have a history of not charging the full cost of growth infrastructure to the owners of the land that benefit from that infrastructure, with ratepayers picking up the tab as a consequence. Another awful byproduct of this approach is that we incentivise sprawl.

Growth should finance its own infrastructure and councils need to implement accurate charges. One common misconception is that higher, more accurate infrastructure charges in new developments will increase housing prices. The empirical evidence is clear; accurate charges reduce the price of raw land in the absence of ratepayer subsidy to reflect the true value of uninfrastructured land –they do not put house prices up.

Another reason for high infrastructure costs is the prevalence of "bespoke-ism." Just as Mr Ford didn’t start a car company 120 years ago to make every car look different, our infrastructure projects need standardisation. Take the water sector: it’s bogged down with numerous unique pump station designs, leading to inefficiencies in parts, maintenance, and health and safety. By standardising and aggregating projects, we could improve efficiency.

New Zealand's infrastructure challenges require innovative and collaborative solutions. By embracing creative financing, ensuring equitable funding, standardising projects and attracting third-party investment, we can address our infrastructure deficits and build a sustainable future, but we need to take the following steps: 

First, central and local government must be politically motivated to work with the private sector, recognising that third-party investment is essential to bridge the funding gap in New Zealand's infrastructure needs.

Second, engaging with international investors is crucial. For instance, a global renewable energy group already investing in Australia sees significant opportunities in New Zealand. Tripling the renewable energy output over the next 25 years is a realistic goal with the right investment and prioritisation. Central government needs to actively court third-party investment from private investors and overseas pension funds, showing that New Zealand is open for business—much like Australia is doing with its recently-announced one-stop shop for investors.

Third, councils need to be clear and robust in prioritising projects from extensive to-do lists. They may have billions of dollars of projects on their to-do lists and simply can't afford to deliver them all at once. They must focus on projects that deliver the best value and outcomes, ensuring that investments make a significant difference.

Fourth, local and central government need to look at how we can aggregate better. Forming multi-council water entities is one way to do this, where a group of councils may have several wastewater renewal projects lined up over the next 15 years, for instance. This gives them bargaining power in contracting for all those plants, and a big opportunity for standardisation. Ditto for central government health. We should be building 10 to 20 new hospitals over the next 15 years or so. A scalable model that removes be-spokeism would deliver value to taxpayers and certainty to potential investors.