In a week where the headlines were dominated by housing affordability concerns, Prime Minister John Key said central government would need a compelling reason to allow local councils to collect additional taxes on top of their standard rates revenue.

Well, here are 415,000 reasons.

$415,000 was the national median sales price on a home in New Zealand in February, which rose by $13,000 compared to the previous month.

And while it may seem a stretch to link council taxes to housing affordability, the reality is that councils’ ability to pay for infrastructure determines their enthusiasm to open up land for development, since they bear the bulk of infrastructure costs (roading, water networks etc).

This is clawed back in the form of rates (calculated by dividing a council’s annual operating costs by number of properties in a particular area, and then weighting the bill against the value of the property).

The problem is that this formula does not always capture the economic reality of what is happening on the ground. Take the Far North District Council. Every year the region’s population quadruples in the summer, resulting in a massive cost spike for the council, and yet the number of rate payers remains the same.

The benefits of all that extra spending end up in central government’s coffers, in the form of GST and salary taxes. Wellington spends 91 cents in every public dollar. That stands at odds with the reality that local councils own and maintain the bulk of the infrastructure assets.

Over 90 per cent of the road network is owned and maintained by the 78 regional and territorial authorities operating in New Zealand – yet only 50 per cent of that is funded through road levies.

Furthermore, central government keeps adding to the operating costs of local governing bodies by handing down diktats to councils without providing them with a means of additional funding.

In the case of construction, councils have to handle the Resource Management Consent process as well as building permits and inspections. And when central government policy results in a massive cost blow out – as in the case of the leaky buildings fiasco – councils end up footing a big part of the repair bill.

Is it any wonder that local government is loath to encourage housing development at scale, with the added costs and liabilities it brings?

If Mr Key’s government is serious about addressing the housing affordability crisis, letting local government participate in the country’s economic growth would be a good place to start.