Innovative finance approaches to real estate development and Public Private Partnerships (PPPs) have been increasingly used in the property industry – but could they hold the key to solving New Zealand’s infrastructure and housing crisis?
Professor Graham Squires, from Massey University’s School of Economics and Finance, is working on a project with the United Nations Human Settlements Programme (UN-Habitat) and University College London, as part of Urban Maestro. Urban Maestro expects to contribute to the global urban debate and the realisation of United Nations Sustainable Development Goals by enhancing practices of urban design governance within Europe and beyond.
Professor Squires’ recently published expert paper for Urban Maestro suggests innovative finance could prove very beneficial to the property industry, when viewed as complementary to traditional forms of finance.
“The intense pressures from accelerating growth worldwide require innovative funding approaches to support sustainable development. This is certainly very true in New Zealand, with a difficulty of investing in infrastructure at scale and being open to the use of partnerships that mix public and private finance.
“Intellectual innovation as imagination and ideas are one way forward to sustainably fund and finance better quality infrastructure and housing for all stakeholders. More practical innovations generated by Public Private Partnerships can then be realised using more sophisticated risk-bearing packages. These financial packages are then more suitable for the greater good, not just a siloed public or private good,” Professor Squires says.
A PPP is a public service or private business venture that is funded and operated through a partnership between the public sector (either central or local government) and one or more private sector companies. PPPs are recognised as a key element for delivering modern, high quality public services and promoting competitiveness.
“With criticism of public sector overspend, some recommendations in re-thinking finance are the introduction of equitable due diligence in public finance as is carried out in private business. There is a call to involve rigorous expert scrutiny, not just at the point of purchase, but also throughout the life cycle of public sector finance projects,” Professor Squires says.
Innovative finance for PPPs in real estate development will be critical to developing quality infrastructure and homes for New Zealanders, he adds. “More sophisticated partnerships enable more agile and adaptable financial packages, and as a result generate a supply of affordable housing for both public and private interests.
“New Zealand will be able to gain a vast amount of knowledge and lesson learning from this European project. Case studies and policy successes are centered on good quality and good design. What can certainly be brought to New Zealand is that good quality financial architecture is paramount to the good quality design of places that are successfully used by diverse interests,” Professor Squires says.
Partnering in any form of finance is an attractive idea, he adds.
“In economic terms, it helps to eliminate inefficiency as costs per unit of output are reduced. It also improves the dynamics of the market by putting the client more in control and improving the flow of information between the participants. Partnerships can also provide greater incentives to complete the contract on time, to budget, and to the expected standard.
“Local authorities are well-positioned to reduce risks and make projects more attractive for private investors to finance them, through locally relevant incentives. These could include development fee waivers, subsidised insurance, and property tax abatements,” Professor Squires says.
Read the full report here - Innovative Financing models for Public Private Partnerships (PPPs) in Real Estate Development