Before anyone builds a house in New Zealand, someone must pay upfront for the pipes and the roads that connect a development to the city. Almost always, that someone is the council.

But a council can only borrow so much: about two to three times what it collects in a year. Once it hits that limit, it can no longer pay, so it uses its planning rules to say no.

When land to build on is scarce, prices climb. Those who buy homes for the first time pay that price, if they can afford it. Others are locked out. Money flows to whoever happens to own the right field.

There is another way to pay for the pipes and roads upfront: investors lend money. Those who move in pay them back slowly, through a small charge on their homes, like a mortgage for the pipes. The debt would sit with the project, not the council.

The difference comes down to who loses money if things go wrong. Under the current way, ratepayers and taxpayers carry the loss. Under the alternative way, investors who backed the project would face the loss, and no one else.

We used to pay for infrastructure this way.

For most of the last century, a community could vote to tax itself, borrow the money and build. Harbour boards and power boards did it; roads and pipes were also built this way. If a project failed, lenders lost money, not the ratepayers or taxpayers. Then, between 1989 and 1996, we shut it all down.

In 2020, Parliament brought the idea back. Yet, six years later, only three projects have used it.

A contradiction at the heart of the model explains low uptake.

The government has one foot on the accelerator: underwriting the model so investors will lend, retaining decision rights, and getting financially involved. But government also has one foot on the brake: routing every project through Cabinet with so many checks and costs that only a few large projects can afford this.

The way out is a finance model that can let a project fail without hurting others. If one runs into trouble, the taps keep running for those already bought in, while investors take the loss.

Build that, and the government can take its foot off the brake.

My report, Finance Freedom, shows how. We knew how to do this once, and it built much of the country. To give people homes they can afford, we need to do it again.

Explore Benno's research through our new research report, our NZ Herald column and our podcast.