The domestic political year has started with housing density back on the agenda. Is Christopher Luxon walking away from the bipartisan housing accord? Is he undermining his housing minister?

The speculation is a gift for newspaper columnists. But it misses the point.

My colleague Benno deals with the implications of changing Auckland's intensifications settings below. I want to focus on the money.

We can rezone every block in the country. We can pass laws in Wellington demanding more townhouses. None of it will matter enough if the underlying incentives remain broken.

New Zealand has one of the most centralised tax systems in the developed world. Central government collects roughly 90 percent of all public revenue. Local government scrapes by on less than 10 percent, mostly from rates. And when new houses go up and new workers pay tax, councils see none of that growth dividend.

GST on construction costs? It goes to Wellington. Income tax from workers? Wellington. Corporate tax from developers? Wellington again.

The council that issued the consent gets the bill for roads, pipes and parks. It takes on the debt. It upsets ratepayers who fear their suburbs will change. Then it watches the tax revenue disappear into the Beehive.

Is it any wonder mayors are hostile to growth? They are acting rationally within a system that punishes them for success.

The answer is simple. Share the GST collected on new builds with the councils that consented them. Growth would become a windfall rather than a burden. Councils would compete to attract developers. They would be able to invest in infrastructure knowing a return was coming.

The maddening thing is that the government knows this.

The coalition agreement between National and ACT explicitly commits to “consider sharing a portion of GST collected on new residential builds with councils”. It is there in black and white. And yet here we are, more than two years into the term, still arguing about zoning maps while the fiscal solution gathers dust.

What a waste. GST sharing goes to the heart of why housing is so expensive. It should have been the first item on the agenda, not an afterthought.

The government can fiddle with density settings forever. But until it fixes the funding model, it is pushing on a string.

May’s Budget will be the moment to act. It is time to stop fighting over where the density goes and start paying councils to let it happen.

Read Benno's article about the implications of changing Auckland's intensifications settings here.