The proposal, a variation to the Queenstown Lakes District Council’s district plan, is for new developments to contribute 5% of sales - in cash or land value - to affordable housing.
It is being examined by a hearing panel of independent commissioners chaired by Jan Caunter.
Giving evidence on Tuesday and yesterday for developers who oppose the variation, economist Fraser Colegrave said he considered the council’s policy "a blunt instrument that wrongly places the blame for the district’s housing affordability woes at the feet of developers who, from an economic perspective, are an integral part of the solution, not the problem".
Mr Colegrave said he was recognised as one of New Zealand’s leading economic experts on local infrastructure funding.
He expected the council’s policy would make housing "less affordable for virtually everyone" except those assisted into affordable housing by the Queenstown Lakes Community Housing Trust.
He believed the policy would have unintended consequences including increased risk, cost and complexity of developments likely to reduce the housing supply.
"The policy fails to address the root causes of affordability which include the district’s extremely high land prices coupled with its elevated construction costs."
Mr Colegrave provided graphs showing land prices in Queenstown — at $8850 per square metre — were the highest in the country and almost 60% above the national average of $5630.
In addition, Queenstown construction costs were higher than in all other districts except Thames-Coromandel.
Those pressures were made worse by Queenstown having 23% of its dwellings on Airbnb, compared with the national figure of 2.3%.
He noted the number of short-term rentals had increased by at least 40% from late 2022 to late 2023.
"Overall, I consider the district’s burgeoning short-term rental market to be a key driver of its chronic worsening affordability problem."
Mr Colegrave said the council’s proposed policy was "poor" with "more effective and efficient options likely available".
He considered using council rates was the best way to help fund affordable housing "because they spread costs widely and fairly".
"Rates are also easy to administer and can target specific groups in the community if deemed necessary."
Mr Colegrave suggested another option to consider was the provision of smaller houses on smaller sections built "at both pace and scale".
He noted the average size of new Queenstown Lakes houses, at 167sq m, was second only to Invercargill at 179sq m.
Long-time Queenstown planning lawyer Warwick Goldsmith also advocated affordable housing being funded from rates.
Mr Goldsmith said adding 0.66% to 1% to the general rates across the district would bring in "vastly" more money than the 5% tax on developers being suggested by the council.
He believed ratepayers would not object to making the small contribution he was suggesting.
Mr Goldsmith gave as an example of the lack of fairness a new commercial business setting up in Queenstown creating 200 jobs — thus creating demand for affordable housing.
Under the council’s variation, they got "a free ride", he said.
He also outlined successful outcomes in the past that relied on negotiations between developers, the Queenstown Lakes Community Housing Trust and the council, resulting in sections being provided cheaply or free.
The hearing is due to conclude today.
