Joint CCO best water option: Infometrics

Otago Daily Times03-06-2025

A leading economist has voiced strong support for Southern Water Done Well's preferred water services delivery model, saying it offers the best pathway to safe, reliable water services and long-term financial benefits for the southern region.
At a recent meeting of Southern Water Done Well (SWDW), political leaders and senior staff heard from Infometrics chief executive Brad Olsen and his views on water reforms.
Southern Water Done Well project leader Andrew Strahan said Infometrics was provided with documents to review.
Those included the latest Morrison Low report, which included work last year for the group of eight Southland and Otago councils, a peer review of the benefits, briefings for elected members and consultation documents.
SWDW's four partner councils — Waitaki, Gore, Central Otago and Clutha district councils — are consulting on three options for the future delivery of water services to meet the government's Local Water Done Well legislation.
Their preferred delivery model is a jointly owned council-controlled organisation (CCO).
The Infometrics chief executive and principal economist agreed, saying it provided a strategic, carefully considered approach to meeting future water services challenges.
"Status quo is just not going to cut it any more. And if it does, it'll become so expensive that the community won't tolerate it ... the government clearly isn't tolerating it already.
"So, effectively, things needs to change."
One of the most compelling advantages of SWDW's preferred model was the leap in bargaining power it delivered.
Individually, the four councils each represented just 1% to 2% of the South Island's population, placing them 13th to 18th out of 23 South Island councils, in terms of scale.
By forming a jointly owned CCO, they collectively moved into the fourth-largest position, representing 6.6% of the South Island's population.
"That shift in scale is transformative," said Mr Olsen.
"It gives councils and their communities far greater influence when negotiating with contractors, accessing skilled staff and securing funding. In a tight infrastructure market, scale gives you options and leverage."
Even greater efficiencies would be gained if other councils were accepted into a jointly owned CCO at some point in the future.
Mr Olsen noted SWDW's deliberately conservative approach to financial modelling for the jointly owned CCO and emphasised the importance of looking long-term.
While short-term financial gains might be modest, water assets were long-term (20 years+) and by year 20, modelling for other joint water services delivery entities had shown potential savings of up to 20% compared to going it alone, he said.
Just as significantly, the joint approach improved resilience, attracted talent and helped councils meet more demanding compliance standards without overburdening local ratepayers.
Mr Olsen believed there was potential for even greater gains beyond initial projections.
"We've reviewed the assumptions, and they're conservative. That's appropriate, given the significant changes that have to happen, but even under these conservative assumptions, the numbers still stack up."
The conservative modelling still projected 15%-16% operating and capital efficiencies being achieved over "roughly a decade", which was "a similar timeframe to achieve efficiencies as seen in other spaces".
Morrison Low's modelling of the benefits of a jointly owned CCO shows SWDW consumers would save $44 million by 2033-34 compared to where costs would otherwise increase to. In its first 10 years, the jointly owned CCO would deliver $82 million in savings to consumers.
Olsen also highlighted that the proposed model retained community ownership while delivering greater long-term benefits through scale and co-ordination.
Southern Water Done Well's preferred delivery model gave councils the scale, flexibility and financial sustainability they simply could not get on their own while retaining community ownership and voice, Mr Olsen said.
Southern Water Done Well consultation closes this Friday.

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There's an upside to this painfully slow economic recovery

NZ Herald

6 hours ago

NZ Herald

There's an upside to this painfully slow economic recovery

There's a lesson there, and it's one you might think a 50-something-year-old bloke should have learned already. There are no shortcuts in life. Or at least none that don't have consequences and complications of their own. So no prizes for guessing where this analogy is headed ... These days, we're talking a lot about the state of the economic recovery. We're frustrated because it is taking longer than we'd like. And yes, New Zealand took an almighty dose of over-the-counter stimulus to deal with the economic fallout from Covid-19. For a time, it felt like we'd avoided the worst of the symptoms, but then we overheated, and then we crashed. Now we're in recovery. And it's a hard-fought one. It's making us sweat. It's the kind of recovery we have to earn, and I think that, as painful as it feels now, it might be good for us in the long run. It's so hard precisely because it isn't pumped up by Government stimulus, it isn't pumped up by immigration, and it isn't pumped up by rising house prices making us richer than we are. We've relied on those three drivers to inflate our sense of economic progress for a long time. The disappearance of a 'wealth effect' based on house prices has been a shock to New Zealand's economic system I think it probably accounts for the slower pace of recovery as much as anything else in the myriad puzzle pieces. Gareth Kiernan, chief forecaster at Infometrics, said last week that his forecasts were for house price inflation to average 3.1% a year over the five years to June 2030. In nominal terms, prices would pass their 2021 peak in mid-2029, he said. But adjusted for inflation, prices in mid-2030 would still be a fifth below the peak. That would represent a bigger drop than we saw in the global financial crisis (GFC), when prices fell 14% in real terms. Long-term forecasts are notoriously unreliable and other economists aren't so downbeat. But if Kiernan is right and the days of the wild housing booms are over, then it would represent a huge cultural shift that could reshape our economy. We have dealt with many of the big supply constraints that were limiting the amount of house building a decade ago. There's also a demographic shift under way. A large bubble of boomers (is that the collective noun?) will be looking to sell down in the next few years. And, of course, migration has been subdued with a net population gain of just 21,000 in the year to May – down from a staggering peak of 138,000 in the year to October 2023. Perhaps this Government or the next will panic about house prices and start enacting policies to push them higher. But the politics of housing are shifting, and a growing number of non-home-owning voters is likely to keep the pressure on to keep supply open. Creating new demand isn't as simple as throwing open the borders either; we need an economy that is creating jobs to attract more migrants. I'm not convinced house price growth will stay as subdued for as long as Kiernan suggests. But I agree that there is no sign of another boom on the horizon to turbo-charge this economic cycle. So what's the good news? Where's the payoff for the economy? The early 20th-century Austrian economist Joseph Schumpeter had a thing or two to say about the value of difficult economic cycles. He is famous for a concept called 'creative destruction'. He argued that downturns weeded out inefficient parts of the economy and ultimately made economies more innovative and efficient. His views can sound pretty hard-hearted when you consider the human cost of business failures and job losses. But he had a point about tough conditions driving new innovation and efficiencies in an economy. Faced with squeezed margins and slow revenue growth, businesses have to think creatively about what they do. They have to look at improving productivity, whether that is through cost-cutting or investing in new technology and exploring new products or new markets. Without property sitting there as an easy investment option, Kiwis will also have to get smarter about where they put their money. Capital is more likely to flow to the productive parts of the economy. It is a great relief that our agricultural export sector is humming this year. Without that, there may have been no recovery at all. Economies can and do get trapped in recessionary feedback cycles that are no good for anyone. But we have some momentum, and we have a central bank that has regained control of inflation. It may need to pause its interest rate cuts in July, to make sure it still has that control. But with plenty of spare capacity in the economy, the medium-term outlook for inflation remains subdued. The RBNZ still has scope to go lower if required. Yes, this recovery is a slow and painful process. We're being forced to sweat it out for every small gain in an uphill slog. I'm hopeful that it will see us emerge leaner and fitter. We'll be better placed for the period of sustained growth we'll need to start solving our fiscal woes and the social challenges we're facing in the coming decades. Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.

RNZ News

3 days ago

RNZ News

House prices to be '20% lower in 2030s than 2021'

House price inflation is expected to average 3.1 percent a year over the next five years, says Infometrics. Photo: RNZ House prices will be 20 percent lower in real terms in the mid-2030s than they were at the end of the house price peak in 2021, one forecaster says. Cotality - formerly Corelogic - has released its latest data, which shows the housing market is picking up in activity but values are still flat. Gareth Kiernan, chief forecaster at Infometrics, said that was likely to be the case for some time yet. He said his forecasts were for house price inflation to average 3.1 percent a year over the five years to June 2030. In nominal terms, prices would pass their 2021 peak in mid-2029. But when adjusted for inflation, prices in mid-2030 would still be a fifth below the peak. That is a bigger drop than recorded in the global financial crisis (GFC), when prices fell 14 percent in real terms, but not as big as the drop of the 70s, when prices were down 38 percent in real terms, although still rose 47 percent when not adjusted for the decade's significant inflation. Cotality chief property economist Kelvin Davidson said prices had only lifted about 0.5 percent in the year to date and it was possible that they could end the year 2 or 3 percent higher than they started. He said prices were still about 16 percent below their highest point, and agreed it could be a long time before they returned to that level, even in nominal terms. "At a 5 percent annual growth rate - you have to take compounding into it as well - but at a 5 percent growth rate it's going to take about three years from here. But once you get down to 2 percent or 3 percent [ a year], it's going to take quite a bit longer, five or six years." He said it was possible that growth in house prices could pick up but said it was not unexpected that the recovery would be slow. It had taken five years after the GFC for prices to get back to where they had been. "There's always been a chance this time that it would be slower and we're already three-and-a-half years into the cycle, if we get another three-and-a-half years to get back to the peak it's a seven-year cycle." It is a more prolonged and deeper downturn, he said, and there were other factors such as debt-to-income ratios and loan-to-value restrictions at play that were not in place after the GFC. "There's always been explanations for why this cycle could take a bit longer than it did back then." ANZ said it expected house prices to increase by about 0.5 percent a month over the rest of the year. "However, with high-frequency economic activity indicators soft of late, and housing market indicators still going sideways for the most part, the risks are tilted towards slower house price inflation than this." Kelly Eckhold, chief economist at Westpac, said his team still had a forecast for 6 percent growth this year. "Although the last month of data wasn't as strong as expected. We will review our forecasts when we do our August forecast review ahead of the Reserve Bank's MPS." Davidson said stock listing numbers were high, even with activity picking up, and concerns about the labour market could make people hesitant to commit to big purchases, even while interest rates fell. "There's a bit of balance out there at the moment. "There's two sides to it and some people might be disappointed [by market softness] but people who are looking to buy a house are probably fairly happy." He said it "might not be the worst thing" to have a period of readjustment for the market. Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.