Some of Auckland’s development community are stuck amidst a perfect storm.

Lightning-fast intensification, fuelled by Unitary Plan changes, has water infrastructure in parts of the city straining to keep pace.

Resource-consented developments are being stalled at engineering approval stage (EPA), due to lack of water capacity. Small-time developers are being asked to pay huge sums of money (sometimes over a million dollars) to facilitate water upgrades.

And seemingly illogical calculations are leading to massively inflated stormwater fees, driving up the costs of small, free-standing homes.

The Unitary Plan opened up backyards and created a new type of developer – mums and dads wanting to invest in their family’s future. But some of these investors are now fearful about what the future holds, as developments are stopped in their tracks, and properties sit empty.

Confusion reigns

Vamsee Kanagala is a new developer who has been badly affected by water/wastewater constraints.

In 2020, he bought a property in Papakura, with the aim of building five affordable townhouses. He spent around $150,000 on resource and building consents, which were granted in 2022.

Veolia (the company contracted by Watercare to manage water/wastewater infrastructure in Papakura) gave initial approval for the development in 2020.

But post-Covid, they changed their decision, citing constraint issues. To proceed, they stated he would need to pay hundreds of thousands of dollars for a water upgrade.

“There is no way I can afford it. Veolia will take ownership of the water line after it is developed, and keep money generated by it,” he says.

He is left in limbo – unable to recoup the costs accrued and unable to develop his property.

Kanagala’s story is microcosm of Auckland’s water woes. Those affected are having resource and building consents granted, only to have projects declined later due to capacity issues. They are stuck with properties they cannot develop and losing thousands.

“Developers are being blindsided, having invested huge money, only to find their land is undevelopable, and now face capital loss as a result of ‘red zoning’,” says prominent Auckland property accountant, Matthew Gilligan.

“Even if they have a current resource consent, their project may not be able to go ahead.”

Another developer (who does not wish to be named) has had a similar experience. He bought a property in Papakura in 2022 and received resource and building consent in mid-2023 for four affordable homes.

“I spent nearly $160,000 on consents,” he says. “They specified that water and wastewater was available.”

But in late 2023, just three months after having resource consent approved, Veolia notified him water was not available. Their solution? Pay for a $1 million-plus pipe upgrade.

They suggested he partner with other developers to cover the cost. A meeting was arranged; but he claims that half the developers in attendance subsequently dropped their projects, unable to afford the upgrade.

The situation is still unresolved. “My resource consent expires in November – I still have no conclusion. I have spent my life savings on this project, but it looks like it won’t go ahead. I have no idea what I am going to do.”

We contacted Veolia, but at the time of writing, we have not had a response.

Wider issues

Watercare are responsible for Auckland’s water/wastewater outside Papakura. They did not publicly acknowledge any constraint issues until late last year.

Earlier in the year, developers started receiving what they now call “Dear John” letters from the organisation, stating their resource-consented projects could not go ahead.

Kirsty Merriman is an administrator of the Subdivision NZ Facebook page, which has around 15,000 members.

She says she was tipped off from within the network that this may occur; and shortly after, started to notice developers, real estate agents and civil engineers voicing concern over their declined projects.

“It all kind of hit at once,” she says.

Merriman questions why these constraints were not made public earlier.

She has documentation from 2022, after the government put forward a national policy statement around intensification, in which Watercare identifies 50,918 sites subject to limitations related to the provision of water and wastewater services.

The document stated there would be no chance to address these capacity issues in the next 10 years.

“[They] claimed they were concerned about capacity constraints, and proposed map overlays [showing areas that were affected]. Why didn’t this happen?”

Dynamic situation

New Zealand Property Investor magazine met with Watercare and Auckland Council representatives in mid-January, and voiced the developers’ concerns.

Watercare chief strategy and planning officer, Priyan Perera, says he sympathises with the developers affected, and is committed to bringing more transparency to the consent process. Late last year, Watercare released a map online, which showed areas of Auckland currently experiencing capacity issues.

Additionally, Watercare have developed an online portal where developers can gain more insights into possible constraints.

“[We want to] provide as much information and certainty as we can to the applicants.”

“It’s of no-one’s interest for us to not even look at it and just go, ‘whatever, good luck mate’,” he continues.

But developers who’ve already had resource consent granted, and projects subsequently declined, want to know why this has happened.

Perera explains that the availability of water and wastewater is dynamic, and the situation can change quickly.

Council liaises with Watercare at the resource consent stage to determine availability, which is then documented on the resource consent, but this is not an iron-clad guarantee.

“Some people obtain the resource consent and may not action that for a number of years.

“People can get building consents and sit on those for a period of time. And the conversation about capacity becomes even more complex, because you’ve got some consents that have been granted and approved, but people aren’t actioning it.”

Projects may get to the engineering approval (EPA) stage (which follows resource consent) before constraints are identified.

Megan Tyler, Auckland Council’s chief of strategy, says it is important that developers do not view resource consents as authorisation of a project.

“The way the planning system works in New Zealand, resource consents don’t actually authorise anything.”

She explains that once council receives a resource consent application, the team talk directly with Watercare to establish current constraints.

“At that resource consent stage we can say, ‘Yes we believe there will be adequate capacity for water and wastewater’.

“[But] the actual ability to go and develop comes through the physical connection into the system; this is where we are sometimes hearing or seeing there are constraints.”

(Merriman finds these contentions problematic. “No developer would consider building homes if their infrastructure report/due diligence showed constraints,” she says.)

Perera also explains that it is common for developers to contribute to water/wastewater upgrades.

And while Merriman agrees, she says this should not run into the hundreds of thousands.

“All new buildings contribute the fixed infrastructure growth charge, now at $25,000 per dwelling irrespective of size (unless a minor unit).

“New homes are also asked to pay for general public upgrades of lines that service multiple sites in addition to this charge.”

Differing expectations

A leading Auckland developer (who works closely with council and does not want to be named) is also troubled by the council’s contention they can say “no” at the EPA stage, after resource consent is granted.

“To get to the stage of lodging an EPA a developer has bought the site; checked the Watercare online portal; spent $50,000-$100,000 on professional fees (including council fees). They believe they can then say ‘no’?

“The result of this is carnage across many parts of the city as developers refuse to take the risk of dealing with Watercare.”

Merriman agrees. “Take that attitude and no-one will develop. Do they know that hundreds of thousands will be spent prior to this, then the council can play around again (charging hours) with a decline?”

She says that this is happening in Papakura, where several sites have been stalled, and no development has taken place in the last 18 months.

While Watercare empathises, it says it is not currently in a position to make assurances around availability prior to the EPA.

“Unfortunately, we have to go through the processes we’ve got because we’re not in a position yet, across the industry, to be able to provide that sort of information [earlier].”

He says that developers should understand this is part of the risk inherent in developing property.

“The conversation around risk is important; any development is a risk. You make assumptions about ground conditions or floodplains and things like that, you know, floodplains are changing as well.

“Maybe this is another way to [focus the possibility of water constraints] in people’s minds.”

Perfect storm

Another water-related issue is proving problematic for investors. Legacy rates used to calculate the stormwater component of development contributions (the fees covering the future infrastructure needed as more homes are created) have been identified as no longer fit for purpose.

These ‘fixed standard rates’ refer to the impervious surface areas (concrete floors, drives) of free-standing dwellings. The rate is based on a size of 292m², which was seen as reasonable when established prior to the Unitary Plan. But when zone changes allowed multiple free-standing properties to be developed on single sites, this average no longer made sense.

If a developer creates six free-standing 70m² homes on one site, each of these will be assessed at the fixed standard rate of 292m².

So rather than paying a fee based on square meterage of the six properties (420m², including driveways and paths) developers are required to pay 292m² per dwelling – a square meterage of 1,752m². This can be many times larger than the site itself. The upshot? Stormwater fees that cost tens of thousands of dollars more that they logically should.

Merriman is currently embroiled in her own dispute with council, over stormwater charges for accessible homes she is developing on Auckland’s North Shore.

Using the fixed standard rate for each dwelling (292m²) the council is trying to charge her stormwater for 1,947m² … her site is just 1,138m².

“They’re essentially charging me infrastructure fees for my neighbours’ properties – it makes no sense. I’ve spent several months trying to get council to explain their calculations.

“Despite my development including stormwater detention tanks that reduce water runoff and having council approval for only 683m² of impervious surfaces, they insist on charging me for nearly twice my actual site area. The extra cost will affect the pricing of these wheelchair-accessible homes.”

New developer Ankit Tarway is experiencing a similar issue. He had approval for five dwellings on 819m² of land, with a consented impervious surface area of 373m². But rather than being charged for 373m², he’s being charged for 1,460m² – about four times the actual impervious surface area.

It’s adding tens of thousands to his project costs; if he is to make a profit, the costs will need to be passed on to potential buyers. He is also appealing this decision.

Council says that stormwater contributions will be reassessed later this year. But Merriman says the issue developers are experiencing highlights a bigger problem: a ‘one-size-fits-all’ approach that penalises compact developments.

“The smaller the house the bigger the proportion of the public infrastructure they pay. A two-bedroom affordable dwelling will pay the same amount as a large sprawling five-bedroom home,” she says.

The implications are serious.

“This incentivises large, low-density, single-level sprawl that is cheaper to build, not compact two-level homes that are in-filled. We need to make in-fill development viable to create more affordable housing, not burden it with excessive charges.”