Mangawhai Matters Inc., 12 February 2022
Summary
Mangawhai Matters supports switching from land value to capital value for calculating rates, arguing it's fairer and more equitable.
Equity and Fairness: Capital value rating makes people with more valuable properties pay higher rates, which is seen as fairer and more equitable from a social perspective.
Impact on Different Households: Under the current system, households with varying financial situations pay the same rates, while capital value rating adjusts rates based on property value, benefiting younger families and pensioners.
Commercial Properties: In the commercial sector, large businesses like supermarkets will pay more compared to smaller local shops, shifting the burden to those with higher business value.
Proposal and Future Steps: Mangawhai Matters recommends the council switch to capital value rating but opposes adjusting the share of rates between land use categories without proper evidence and transparency.
Introduction
Mangawhai Matters endorses the change from land value to capital value as the basis for the General Rate. Capital value rating reflects the true value of the total property to be rated, not just one part.
This is a matter of equity. It means that people with a more valuable property within a land use category pay more than those with a less valuable property in that category.
This is much fairer from a social perspective and therefore morally and ethically the correct thing to do.
How it works
To take some examples from within the Residential category.
A young family buys a section for $100,000 and borrows to build a $500,000 house on it. An older family with savings – maybe they have recently sold a house - buys a similar section and builds a $1,000,000 house on it. Under the current rating system each household pays the same rates despite their quite different financial circumstances. Under the capital value system, the household with a more valuable residence pays more rates.
Taking this a bit further, assume the land value doubles over the next ten years. The younger family – no doubt still paying off its mortgage - is now faced with higher rates under the current system. While the wealthier older family may be paying the same rates, despite a more valuable property and, in most cases charged a greater ability to pay.
To take another example, an older, less wealthy household living in the same house for twenty-five years finds its rates climbing with land value, even though its house value has fallen. If the residents are reliant on their pension they have a problem.
Under a capital value rating system, the two currently disadvantaged households - the younger family and the fixed income pensioners – will be better off, while the high income or asset rich owners pay higher rates, which are more in line with their ability to pay.
A similar analysis can be taken for the distribution of the rates burden within the other categories.
Within the Commercial category, for example, large format shops like supermarkets come into the market and attract customers from a wider area than smaller local shops.
The value of the business done on their site increases while the value of business done on the sites of smaller local shops may decline. But under the current system they both pay the same rate in the dollar on the value of the land they occupy.
Under capital rating the burden will shift from the small to the large commercial operator (whether owner operator or tenant).
What will the effect be?
In our submission of April 2024, prepared by Joel Cayford, we demonstrated the range of changes to the rates that properties pay within each land use category. The results o can be found on page 266 to 272 of the Submissions document. They are by no means extreme although they will impact on some ratepayers more than others. That is to be expected.
I can summarise the residential results.
Of 7,084 residential properties,
Winners
1,990 would have a rate reduction of more than $100 a year, including 632 with a reduction of more than $5,000 and 41 with a reduction of more than $2,000.
This group is most likely to include people for whom rates are already a significant expense.
Losers
3,634 would have an increase of more than $100, most of them under $200, including 288 with an increase of more than $500, and 46 with an increase of more than $1,000.
This group is more likely to include people for whom paying rates is not so problematic.
Our proposal
Our strong recommendation is that the Council shifts from land value to capital value for the collection of rates.
The focus of this recommendation is to improve equity in Council’s funding, capturing the true value of property assets in the rates and thereby better reflecting the capacity to pay.
It is noteable that the majority of councils in New Zealand have already switched to capital value rating, and more are considering doing so.
Looking Ahead
While we endorse the shift to capital value, we oppose making any change in the share of rates collected between land use categories at this time.
Once capital value rating is introduced the Council may choose to review the efficiency of the rating system to ensure that the share of rates within each category is broadly proportional to the costs it imposes on council infrastructure and services. But any review of the shares of rates raised from different categories must be evidence-based, rational, and transparent.
That brings us to the capital value proposal published late last year by the KDC.
The proposal was inappropriate. The shares between sectors and the number of sectors were changed for no apparent reason and without evidence put forward. That proposal lifts the burden on residential ratepayers from 43% of rates to 49%. Why? Other rates in the other sectors were reduced. Why?
Incidentally, making a change between categories at this stage will also make any change to the current system much more politically challenging.
In summary
We strongly endorse the change to a capital value rating system on equity grounds.
But we do not endorse the adjustment between sectors proposed by the KDC late last year.
We would, however, support a subsequent review of the differentials between sectors with a view to improving the efficiency of council funding.