Development Levies: What They Are, How They're Calculated, and When It's Worth Asking Questions

If you've recently received a building consent or are planning to build a new home, you may have been surprised to receive a Development Levy notice from your local council.

Sometimes these levies amount to tens of thousands of dollars.

For many homeowners, it can come as a shock and prevent Code of Compliance being signed off.

So what exactly are Development Levies, why do councils charge them, and is there anything you can do if you think the amount doesn't reflect your project?

What are Development Levies?

Development Levies are charges imposed by councils under the Local Government Act 2002.

The principle is relatively straightforward.

As towns and cities populations grow, councils need to invest in additional infrastructure such as:

• Parks and reserves

• Roads and cycleways

• Community facilities

• Water and wastewater infrastructure (depending on the local authority's arrangements)

• Cemeteries and other public assets

Rather than expecting existing ratepayers to fund all future growth, the legislation allows councils to recover a proportion of those costs from developments that create additional demand. The portion changes for each city, in Hutt City for example they use Development Levies to cover about 7% of their Capital Expenditure as per their 2026 Policy.

In principle, it's a reasonable concept. Growth should contribute towards the infrastructure needed to support that growth. The system continues to evolve as Governments seek better ways of funding growth infrastructure while allocating costs more directly to the areas requiring investment.

How are they calculated?

Every council adopts its own Development Contributions Policy.

Rather than calculating the exact impact of every project individually, most councils use standard assumptions and average the costs out across larger areas.

For residential developments, this is often based on a Household Equivalent Unit (HEU).

A typical example might be:

• Existing dwelling: no Development Contribution.

• Additional dwelling: one additional HEU.

• Three new townhouses replacing one house: two additional HEUs depending on the site.

  
  

This provides consistency and keeps administration relatively straightforward.

Why do people become frustrated?

There are two reasons we encounter frustration. The first is many councils don't advise or advertise their Contribution Levies up front, or transparently, so there is no way of knowing what the costs are until they tell you after submitting a consent application.

An unexpected $20k is upsetting, and unexpected $60k often puts the projects viability at risk.

The second is the application of Development Levies or charging a full HEU rate versus the scope of the project which leads to concern and a challenge process with councils.

The difficulty is that not every project creates the same demand, nor is able to demonstrate the benefit of the contributions. In recent years the Property Council has advocated on behalf of Developers that due to a lack of oversight Development Levies have increased by well over 200% in some areas and the proceeds have funded projects in lower paying catchments within cities. So the policy is not perfect.

Imagine these two scenarios.

Project A

A large extension to an existing home including:

• Second garage

• Additional bathroom

• Home theatre

• Larger living areas

Development Levies: Nil (usually)

Project B

A modest self-contained studio for elderly parents sharing:

• The same driveway

• The same ownership

• The same services

• The same family

Development Contributions: potentially one full Household Equivalent Unit (usually).

Both projects may house the same number of people.

Which for me is the most interesting aspect of Development Levies. How abruptly they can apply!

A large extension with additional living areas, bathrooms and parking may attract no contribution at all.

A much smaller ancillary unit for ageing parents may attract tens of thousands of dollars because it crosses the threshold of becoming another Household Equivalent Unit.

On one of our Lower Hutt projects, the inclusion of a small wash hand basin in what had otherwise been an ancillary bedroom tipped the proposal into a different assessment category, triggering approximately $18,000 in development levies.

That's one expensive basin.

The point I'm making is the physical change to the property may be modest. The financial consequence may not be. That is ultimately a policy decision rather than an engineering calculation, and one that is likely to attract increasing debate as multi-generational living becomes more common.

What do Development Contributions cost?

Some towns and cities are very proactive with advising their costs, others particularly with higher costs are less upfront.

One aspect that does seem to have a disproportionate effect on fees is the proximity to waste water stations and the quality of existing infrastructure. Where councils have a heavy program of capital works many of them utilise Development Levies to fund capacity shortfalls.

Some councils we work with that have their levies published:

Council	Typical residential contribution
Wellington City	$18k–39k + GST
Porirua City	$33k–60k + GST
Ashburton	$11k–24k + GST

So small projects in the high-cost catchments can often have Development Contribution costs adding up to or exceeding $1,000/m².

Can you challenge Development Levies?

Before challenging an assessment, check whether your council has a formal reconsideration process and note the time limits. Many councils require requests to be lodged within a relatively short period after the notice is issued.

Most Councils generally send out a 1 HEU invoice and provide a statutory reconsideration process as part of their Levies invoice.

That doesn't automatically mean the charge is wrong, but it does allow applicants to question whether the council has correctly applied:

• its Development Contributions Policy

• the Local Government Act requirements of fairness and balance

• the facts of the particular development

Not every objection will succeed, and some councils charge you an objection fee to object.

However if you feel the costs are a bit high, you can apply some sense to the process.

Councils generally make assumptions about the average demand created by a typical household, including water consumption, wastewater generation, traffic movements and demand on community facilities.

For example Wellington City has provision in their policy that discusses:

• Water supply 780 litres per day

• Wastewater 585 litres per day

• Stormwater 250 m2 ISA

• Traffic and roading 10 trips per day (by all traffic modes)

• Reserves 20m2

Which for small units is often excessive so the fees are scaled down to approximately 0.67 of an HEU for small residential units in Wellington.

Each council will be different.

So if you can easily explain you are unlikely to need this much capacity, such as a single occupant dwelling, small roof area, or no vehicle provision and a bus stop outside, there may be an opportunity to demonstrate that the assumptions underpinning the assessment do not accurately reflect your proposal.

I'd also consider it is reasonable to ask whether your proposal creates the level of additional infrastructure assumed by the assessment as well, particularly where the development is ancillary to an existing household and the actual increase in demand appears significantly lower than that assumed by the assessment.

So, my advice is if the assessment appears inconsistent with the policy or doesn't accurately reflect the proposal, it is often worth seeking professional advice.

What questions are worth asking?

Rather than simply arguing that the fee is "too high," it is usually more productive to ask questions such as:

• Has the council correctly classified the development?

• Does the proposal genuinely create the level of demand assumed?

• Has the Development Contributions Policy been applied correctly?

• Does the assessment reflect the statutory principles contained within the Local Government Act?

Sometimes the answer will still be "yes."

Sometimes it may not.

The bigger policy question

Development Levies exist for a good reason.

Communities need infrastructure, and the population needs to pay for it.

The challenge is finding the balance between a system that is simple to administer and one that reflects the actual impact of individual developments.

The standardised approach provides consistency, but in some circumstances, it may produce outcomes that appear disproportionate to the actual impact of a development.

A more flexible approach may produce fairer outcomes but requires greater judgement and administration.

Neither approach is perfect.

As housing patterns continue to evolve, with more multi-generational living, ancillary accommodation and flexible ways of using our homes, this balance is likely to become an increasingly important conversation.

My advice

If you're planning a project that may attract Development Contributions:

• Understand the likely charges before lodging your consent.

• Read your council's Development Contributions Policy.

• If you receive an assessment that doesn't seem to reflect your proposal, seek advice before assuming the amount is fixed.

• Remember that councils also have statutory reconsideration processes where appropriate.

Development Contributions aren't really about architecture. They're about how we measure the impact of growth.

As our housing choices become more diverse, with ancillary accommodation, intergenerational living and smaller secondary units becoming increasingly common, the question is no longer whether growth should contribute to infrastructure.

The question is whether our methods of measuring that growth have kept pace with the way New Zealanders now choose to live?