New Zealand faces significant challenges in managing growth, delivering infrastructure, and improving the well-being of our communities. Our productivity performance has been dismal.  Cities and regions are grappling with housing shortages, transport congestion, and skills gaps. The current model of mostly centralised decision-making and funding is struggling to keep pace with these complex, cross-cutting issues. 

One solution increasingly talked about is city and regional deals - formal agreements between central government, local councils, and other key stakeholders to drive economic growth and tackle shared challenges. 

City and regional deals have been used in the UK, Australia, and other countries to align planning, investment, and delivery across different levels of government and sectors. They provide a mechanism for tailoring solutions to the unique needs and opportunities of each locality, while also leveraging the resources and expertise of central government. 

Here in New Zealand, the previous Labour Government took some tentative steps towards city and regional deals, such as its Urban Growth Agenda and the Wellington Regional Growth Framework. However, these initiatives were overshadowed by Labour's centralising agenda in areas like water services and resource management. This generated considerable opposition from local government and communities. 

The new National-led Government has an opportunity to reset the relationship between central and local government and embrace a more localist approach. National has already signalled its support for city and regional deals as a tool for infrastructure investment and economic growth. It supports sharing GST revenue with councils to help fund new builds and encourage them to support growth. It has also repealed Labour's controversial Three Waters reforms. It will replace that legislation with a 'Local Water Done Well' model that emphasises local ownership and control. 

So, what is a city and regional deal? There is still a lot of uncertainty about how they might be applied in New Zealand. They vary considerably across and within countries, but there are some common elements. 

The deals involve a contract or agreement, between tiers of government – national, regional, and local.  There are shared, measurable objectives and targets. They have defined responsibilities, transparent funding contributions and clear accountabilities for each party.  Governance arrangements are agreed at the outset and establish collective responsibility for outcomes. They have a medium-to-long-term focus, to provide certainty for planning and investment. 

To realise the potential of city and regional deals in New Zealand, the central and local government could consider several principles and lessons from international experience: 
 

• Deals should be co-designed between central and local government, with input from key stakeholders, to ensure they reflect local priorities and aspirations. They should involve shared ownership, decision-making, and accountability, rather than a top-down imposition from the centre. 

• Deals should be flexible enough to address the diverse challenges and opportunities of different cities and regions. This could involve a spectrum of deal types, from more transactional infrastructure funding agreements to more ambitious devolution deals. 

• Deals should be structured around clear, measurable goals and outcomes, with strong monitoring and reporting requirements. This will help to ensure transparency, accountability, and continuous improvement – incentives to deliver. 

• The success of deals will depend on strong local leadership and institutional capacity. Central and local government should invest in building these capabilities as an explicit part of the deal-making process. 

• Deals should strike a balance between delivering tangible short-term benefits and supporting lasting structural change. They should be of sufficient duration (e.g. 10-30 years) to enable strategic planning and investment, while also maintaining political and public support. In the UK most deals have led to subsequent deals – the first deal should not be the last.
   

There is understandably strong interest among councils for city or regional deals. Ideally, they would be open for allcomers, but the Government is likely to prioritise larger city-regions facing significant growth pressures. Those that have stable and constructive governance, and a willingness and ability to collaborate on well-articulated, economically robust growth plans, will have a head-start.   

There will be challenges to overcome. Implementing city and regional deals will require a significant shift in mindset and practice for both central and local government. There is a legacy of mistrust between central and local government after years of failed centralisation and unfunded mandates.  

Deals should not just be about councils extracting more money from central government. Nor should they be a new way for central government to impose itself on councils. Great care and skill will be needed on both sides to ensure agreements are high quality and make a difference.   

But that said, city and regional deals represent a promising way forward. Done well they could harness the power of localism to drive economic growth, improve public services, and ultimately enhance the living standards of all New Zealanders. The New Zealand Initiative’s wish for city and regional deals is more localist and more competitive – see here. 

Alongside city and regional deals, the Government should continue to remove barriers and streamline processes that slow down infrastructure delivery and urban development, such as the Fast-Track Approvals Bill and broader RMA reform. City and regional deals and wider regulatory reform should be seen as complementary parts of a wider agenda to enable growth and improve living standards. 

That we need city deals shows that something is not working in our constitutional set-up between central and local government. Seen from this angle, city deals are like plastering over a wound. In the long run, rather than keeping a dysfunctional system working with quick fixes like city deals, a better institutional set-up would be preferable. That would be a system that works for the whole of the country, not just those lucky few places which central government deems worthy of a deal. 

But in the meantime, New Zealand has a unique opportunity to learn from international experience and create a distinctively 'kiwi' model of city and regional deals that reflects our own cultural, institutional, and geographic context. By embracing localism and genuine partnership, we can unlock the potential of our cities and regions to drive national prosperity and create thriving communities for all. 

To read the full article in the NZ Herald, click here.