What do our infrastructure services really cost?

Our new research finds that New Zealand households spend an average of around 16% of their after-tax income – about $13,500 per year – on infrastructure services such as drinking water, transport, broadband and home heating.

New Zealand households’ spending on infrastructure services is comparable to Australian households. Moreover, the share of household’s after-tax income spent on infrastructure services declined from 19% to 16% between 2006/07 and 2018/19. Infrastructure spending rose slightly over this time, but incomes rose faster.

“Infrastructure networks – the roads we use, the drinking water supplies we depend on – are vital to our quality of life. Infrastructure is not free. It costs a lot to build, operate and maintain our infrastructure networks and someone needs to pay. Our work breaks down how households pay, whether it’s through utility bills, rates, or running a car,” says Geoff Cooper, General Manager – Strategy, Te Waihanga.

The research looks at how much households spend on four types of infrastructure services – land transport (roading and public transport), energy (electricity, gas, and heating fuels), water (drinking, storm, and waste), and telecommunications (mobile and fixed-line).

“On average, private transport, which includes the annualised cost of buying and maintaining a basic car, accounts for over half (55%) of household infrastructure costs. That’s followed by electricity (15%), telecommunications (10%), water (drinking, storm, and waste) (7%), and public transport (6%).

“Households in large urban areas tend to spend a lower share of their after-tax income on infrastructure services compared to households in rural areas and regional centres. There are differences, however, when we start to look more closely. For example, while the average rural household spends around 20% of its income on infrastructure services, one in four rural households spends more than 35% of their income on infrastructure,” Cooper says.

“In fact, a key finding in this report is that households that look similar can spend very different amounts on infrastructure. This reflects different decisions about how and when households use different infrastructure services.

“Assessing the affordability of infrastructure services is more complex than simply comparing average spending for households with similar income or demographic characteristics. Our report findings suggest that it can be challenging to effectively target assistance to those in need through built infrastructure solutions,” Cooper says.

This research represents some of the first results of a year-long project – What’s Fair: Providing and paying for infrastructure – that will improve our understanding of how infrastructure is servicing different groups in New Zealand. The project will inform the Commission’s advice on how equity should be considered in deciding what and where infrastructure is provided – and, importantly, who pays for it.

• Other key findings of this research:
  Average household infrastructure spending is highest in small regional centres and rural areas and in low-density metro areas, and lowest in medium and large regional centres and medium-density metro areas.
• On average, the lowest income households spend 37% of their after-tax income on infrastructure services, but there’s a lot of variation – one in six low-income households spend less than 10% of their income on infrastructure services.
• Relative to low-income households, high-income households spend more on mobile telecommunications (366% higher), heating fuels (233% higher), and both private and public transport (228% and 210% higher, respectively). They also spend more on water (drinking, storm, and waste) (77% higher), electricity (90% higher), and fibre and copper telecommunications (125% higher).
• On average, working households spend around 17% of their after-tax income on infrastructure services, compared with 27% for non-working households. Higher incomes for working households more than offset higher infrastructure service costs for these households. Working households spend almost twice as much as non-working households on private transport. Similarly, infrastructure spending as a share of income is around 1 percentage point higher for households with children, relative to households without children.
• Non-working households with dependent children are disproportionately likely to report difficulty paying infrastructure bills. A total of 40% of these households reported having difficulty, compared with just 6% of non-working households without children. This compares with 12% of working households with dependent children and 5% of working households with no children.
• Patterns of household spending on transport vary significantly between countries, potentially reflecting different approaches to providing and using transport infrastructure. In the United States, low-income households spend a much larger share of their household budget on transport than high-income households. In the United Kingdom, the opposite pattern holds – high-income households spend a larger share of their household budget on transport. New Zealand is somewhere between those two countries.