Aucklanders (and, I suspect, people in general) complain about high and rising property taxes. But are our rates actually too high? Compared to what?
An article last year reported on what ratepayers are paying in each of New Zealand’s territorial authorities:
Not surprisingly, rates in the most sought-after areas are also high. Those living in Auckland, where the average household income is around $76,000, face annual bills of $2636. The average house price in Auckland was $678,533 in February.
But residents in Christchurch face comparatively low bills. At $1706 a year, they make the top 10 for cheapest rate bills.
In other words:
- In 2014, the average Auckland ratepayer paid rates equal to 0.39% of their property’s value ($2636/$678,553). This year, of course, that figure will be lower as property values have increased much, much, much faster than rates bills.
- In Christchurch, the average ratepayer paid rates equal to 0.37% of their property’s value ($1706 divided by the average home price of $462,086).
The article didn’t bother comparing New Zealand’s rates bills with property taxes in other countries, so I went out and gathered some data on property taxes in the US and Canada, two countries that are frequently cited as examples for New Zealand to follow. (Albeit sometimes for very different reasons.)
Before getting into the figures, I should say that this isn’t a perfect comparison, because:
- There are more layers of government in Canada and the US, due to their federal systems
- Local governments in Canada and the US have more fiscal responsibilities – schools are funded by local governments in the US and provincial governments in Canada, for example
- But they also have more options for levying taxes – in the US, local governments can impose income taxes, sales taxes, and business taxes. In Canada, provincial governments can do the same.
Overall, the Canadian data is likely to be much more comparable than the US data, as municipal governments’ responsibilities and tax powers are more similar. With that in mind, here’s how Auckland stacks up to the major Canadian cities. The data is from a 2014 Globe and Mail article:
Basically, Auckland (and Christchurch) has quite low property taxes relative to most Canadian cities. The only city that pays a lower property tax rate is Vancouver. (More on that below.)
And here’s how Auckland’s residential property tax rates stack up to the five most-taxed and least-taxed American states. The data is from tax-rates.org:
In keeping with American states’ reputations as “laboratories of democracy”, different states seem to be testing out very different property tax policies. If Auckland and Christchurch were in the US, they would be among the most lightly-taxed places in the country. Certainly much less so than that bastion of high property taxes, Texas.
Wait a minute, Texas?
Here’s what tax-rates.org had to say about Harris County, which contains Houston:
Harris County has one of the highest median property taxes in the United States, and is ranked 152nd of the 3143 counties in order of median property taxes.
The average yearly property tax paid by Harris County residents amounts to about 4.26% of their yearly income.
Here’s a chart comparing property tax rates between a selection of major US cities. Houston is head and shoulders above the rest, in terms of property taxes. And, nonwithstanding the disclaimers, Auckland seems to be relatively lightly taxed:
Perhaps the lesson is that if we want to be more like Houston, which some people cite as an example for Auckland to follow, we should start by raising property taxes. The median Houston homeowner pays US$3,040 in property tax. That’s roughly equivalent to NZ$4,100, or 50% more than Aucklanders pay.
Houston needs the cash to pay for all those roads, of course. But its relatively high property taxes are also likely to be one of the hidden causes of Houston’s relatively affordable housing. This is because high property taxes tend to discourage people from bidding up house prices – the more they pay for houses, the more they pay in taxes!
On the other side of the coin, literally, Vancouver offers much lower property taxes. Another analysis of Canadian property tax data shows that the average Vancouver homeowner pays CA$2,322 in property taxes. That’s roughly equivalent to NZ$2,500 – or slightly less than Auckland rates. It seems like Vancouver’s compact, transit-oriented urban form is quite cheap for local taxpayers.
And finally, there’s no evidence that rates are especially high in Auckland or other New Zealand cities. If anything, it’s the opposite – property is taxed unusually lightly in New Zealand.
What do you make of this data?
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It’s just a pity that central government won’t allow Auckland to levy a portion of rates on land values as opposed to capital value. The current regime discourages capital improvement and intensification more than capital value would.
Manukau City used to levy rates on Land Value, until 2006. It didn’t encourage intensification nor did it stop land banking
Rates based on land values in Auckland would place even more hardship on those who live within the city boundaries. Pensioners, the poor and those on low wages get hammered badly by rates. Most Aucklander’s have no control over the rapidly rising values of their properties. And it would be callous and irresponsible to simply say ‘ if you can’t afford the rates sell up and move on’. Why should they have to? Len Brown’s love affair with China and wild immigration have caused much of the rapid property/land value rises, over which none of us have had any control at all. So if rates are to go through the roof, the only ones who could continue to pay them would be the wealthy, and is that the sort of ‘livable’ city anyone wants? Right now rates are around $80 a week soon to rise closer to $90 for very average properties, and all because of the factors I have mentioned. Take that out of a pension or benefit and see how much those people have left to live on. Auckland is fast becoming the ‘most unlivable city’..
Note that, while the Harris County tax may be 4.26% of incomes, the comparison to other figures used in this post is 2.31% of property value, as per the third chart.
Also, the Taxpayers’ Union did something useful for a change and compared the average council rates bills here: http://ratepayersreport.co.nz/ although they note that this does not include regional council rates, except where the city/ district is a unitary authority like Auckland. Rates vary from $1100 a year in MacKenzie District to $3200 in Western Bay of Plenty District.
I was looking at council data from Stats NZ recently, and grouped them together in regions so you could actually compare the unitary councils with the others – it turned out the average Auckland household has a very similar level of rates to the average Northland or Southland household. I didn’t take the analysis across the whole country, but might do that for a post sometime.
Ha. It’s annoying that the figures don’t include what’s paid to the regional council since you can’t directly compare TLAs with unitary authorities. I would be great to to see this if you get a chance to post the figures John. I know I consider my rates bill to be the total amount paid to both councils not just the TLA. Also it would be nice if articles that features moaning about rates rises also provided context of comparable rates data nationally and locally. Then we could ignore them even quicker than we do now [I’m looking at you for this sort of journalism – Herald].
Also – if you see rates as a kind of wealth tax on property, then calculating as a percentage of property value makes sense.
If you see them as a blunt-instrument way to pay for goods and services provided to the city by the council, it’s not obvious to me why rates as a percentage of property value is interesting.
Naturally I can imagine campaigners for lower rates will argue they’re simply payments for goods and services, so the proper way to measure whether rates are too high, by their framing, is to compare the value of the goods and services provided by the council to the rates paid.
I agree. Rates is not meant to be a wealth tax so this is the wrong metric to look at. Rates is meant to be a tax to pay for services to a specific area.
The correct metric to look at should be total rates income/total land area. Or put another way, how much is the rates in each city for a quarter acre section. In theory, I should get the sames roads/libraries/transport/services whether my house is worth $100k or $1m.
I am fine to an extent to reallocate that based on property value but the value to a city should be based on land area.
Well not so fast; it’s an attempt at both. Rates should be a wealth tax in the sense that existing property owners are the beneficiaries of uplift in value that occurs as we collectively invest in everything from transport, the 3 waters, sports grounds, cultural institutions etc etc. Property value is a proxy for increased ‘liveability’. Strict user pays gives enormous free value to entrenched interest when the new users lift the value of whole city. The reverse is also true, if new users get a free ride or degrade the city, then that costs existing owners. Is tricky.
So, if ‘Property value is a proxy for increased ‘liveability’’, then why not levy a capital gains tax payable to the council rather than the central government. So if the council is investing heavily in an area so as to increase the liveability and amenity, they are able to see a return on that investment.
Provides another revenue stream and perhaps an incentive for council.
Under current legislation, councils can do that using a targeted rate. I.E. if they’re doing a project that will benefit one specific geographic area, they may increase rates in that area to pay for it. For example, the city centre pays quite a few targeted rates for shared spaces and the like.
But only because that’s all the government will allow councils to charge though right.
And a capital gains tax (to council rather than central govt) might better reflect council improvements?
And, and since gain is only realised at sale, could be a more fair system. Obviously targeted rates would still be necessary but anyway, just a thought…
Good luck findin a quarter acre in auckland. They were not the common back in the day.
Are you suggesting 1 house on an 800sqm section should pay the same rates as 4 houses on 200sqm sections combined?
Hi Ben – Good points! I suppose my aim here is to provide some contextual data rather than argue for a specific position about the appropriate level for rates.
That being said, I agree with Patrick and others that people with more valuable properties should generally pay more. That’s because land values reflect, among other things, the “betterment” received from infrastructure and public services.
In other words, a property tax that’s levied as a proportion of property value is, in fact, a user-pays system. The users who receive the most benefit pay the most tax!
Unless of course you have lived in your home for a long period of time and wish to continue doing so. There is no ‘profit’ to be made on anything in life until it is sold. It disturbs me to hear people say such things as ‘those who benefit’ from rising house prices should pay higher rates. Really? What if the factors that make your property increase in ‘value’ are beyond your control, and you have no desire to upsticks and ‘cash in’? What then? Or should we all be selling and deserting our communities (‘livable city’??) just to satisfy rampant ratings and inefficient councils?
As for the stats above, actual real dollar rates are very high in NZ compared to most of the examples above. Apples for apples, percentages are nonsense when house prices are so disparate.
Comparing different countries is not always apples with apples. In New Zealand we tend to apply charges to land when developed some others do not. One example is a new water and waste water connection in Auckland being around $12,000, in places like Helensville its $23,000 per connection. I understand some other places they recoup these costs in their higher general rates rather than the one off development fees at the start.
Interesting.
Texas also has the most miles of Federally subsidised Freeway in the whole US of A, and an economy more like an Arabian Gulf state than a usually OCED state. In fact it is currently producing around 3,000 barrels of oil a day which puts it roughly equivalent to Iran and Iraq, above Kuwait; in that second tier behind Saudi Arabia, Russia, and the US itself, were it a nation state.
Houston is the base of the world oil majors; it is Oil’s head office, and interestingly Texas is also the wind power capital of the US [even they are transitioning!].
All those that say we should just do what they do in Houston fails to understand the wildly different geography there, and in particular the resource base of the economy, quite apart from that fact that it results in a very unpleasant built environment and an incredibly wasteful use of resources.
Keen to get a look at that “literal” coin that has Houston’s taxes on on side and Vancouver’s on the other 😉
As Ben alludes to above, having this discussion without asking what is provided for the money is not particularly helpful (unless you’re just looking at taxes as a tool to pop the bubble).
I would be very happy to pay higher local rates and have the council provide a higher level of amenity. With a world in transition in transport and energy usage, there is a great opportunity and great need to move fast. That costs, and we need to get used to it.
I always find it interesting to see what we get for our rates bill. I think mine is ~$2000-$2200 a year in Chch; let’s say $50/week if we include regional rates. For the princely sum of $50 I get:
– rubbish/recycling taken away on a regular basis
– clean drinking water to my tap (yes, I know some other places pay for that separately)
– my wastewater taken away and dealt with
– a great series of libraries for me and my kids
– construction and maintenance of roads, footpaths, cycleways
– a bunch of parks, sports grounds, beaches and cheap pools for my family to take advantage of
– a good network of fairly inexpensive buses (I only have to pay $2.50 to get anywhere across town)
– some fun events throughout the year
– and so on…
Now Chch’s rates will be going up a bit in the coming years to help pay for the rebuild/repair and various new facilities. But considering what we will be getting out the other side (e.g. Major Cycleway networks, new central library, smooth roads again!), I’m quite happy to pay a bit more for that end-result.
Need to see what the average house prices are too. You will be surprised. So real $$ will be way less than you think for the US.
In Canada and the US, policing and firefighting are managed and paid for at municipal or county level. This is a significant proportion of property taxes across North America. In New Zealand we have a national police force and a national fire service which are both funded through general taxation and controlled by central govt.
Looking at Policing as an example:
If New Zealand used the North American model Auckland would have it’s own Police Force (eg. Auckland Police Dept) which would answer to the council. We would probably also still have a national police force as well, though it would be far smaller and its jurisdiction would be likely limited to federal or national level issues – kind of like the FBI or Australian Federal Police. Prior to amalgamation, under a North American model, there would likely have been four municipal departments in Auckland, each with differing levels of service.
Generally the more wealthy the municipality the better these services are, and in the USA especially, this leads to a wide variation in the level of service and quality of policing. A smaller poorer US county (such as Ferguson, MO) will usually pay and train their officers far less (starting salary likely around 35-40k) than a larger wealthier US metropolitan area such as San Francisco (starting salary in the SFPD is $110k). The biggest proportion of policing and firefighting costs are wages and especially future pensions, which are usually significantly more generous than those offered in NZ.
In Canada municipalities have the option of having their own police department or contracting this out to the Royal Canadian Mounted Police. The City of Vancouver for example has it’s own police (VPD), and pays 100% of this cost. Most of the neighbouring areas such as Surrey, North Vancouver and Burnaby contract the RCMP to provide policing in their area with 90% paid by the local council and 10% paid for by the federal govt. In Metro Vancouver Translink even has its own full police force patrolling the transit system, paid for out of their operational budget
Thanks for the useful info, Stephen. I’d mentioned that schools tend to be funded locally in the US and Canada but forgotten to mention other municipal services.
On the other hand, local governments in the US and Canada have more ability to tax incomes, consumption, and other things. They also have a wider range of options for revenue-sharing from other levels of government.
Hard to say what the net effect of these policy differences would be. Honestly, you’d have to sit down with a big pile of financial statements to figure it out!
I thought the government didn’t fund the fire service, instead it was paid for by a levy as part of insurance. Am I wrong?
Quite right. Fire service is not funded by government.
True, and thanks for correcting me. However is still run as a national organization, rather than by each local council through rates collection – this is the point I was making.
We lived in Colorado back in the 90’s. We were tenants and the company paid the rent for us, so no land tax issues for us. However I was very aware that a great deal of local body income was from Sales Tax and it varied from County to County (8% here, 5% across the road). During our time there, the City wanted to replace Mile High Stadium. A referendum was held and it was agreed that Sales Tax would increase over several Counties by half a percent until the Stadium was paid for then it would automatically drop back to the precious level. I thought this was a fascinating and democratic way for a City to raise money for significant projects.
Just as there is a correlation between capital and yield, there is probably also a correlation between house prices and rates.
How about a graph that overlays cities median house price to income to median rates?
If buying a house, in either Vancouver/Auckland compared to Houston, you are have better off financially if you pay less for housing and more for rates (ie Houston) than if visa versa (Vancouver/Auckland), and would further gain financially in Houston if and/or, after purchase, your house increased in price and rates dropped.
However if you have already purchased a house where house prices are high and rates are low (Vancouver/Auckland), then you would be far worse of if the opposite happened.
Good idea! In fact, I’ve already written that post 😉
would be more informative if you had median property prices too given you have you data as a % of property price
(do all countries do rates this way – I am sure some have different systems). Why not add median incomes to the mix too – lets
see how AFFORDABLE in relative terms the property taxes are in various countries. Thats just for a start but those two
stats I would consider minimal to get useful info from what you have presented.
Not to mention – what that tax gives you in various places and what other taxes each place has as well (that might cover some of that stuff).
If you click on the links to the source data, you’ll find some additional information on house prices and incomes. I’m not aware of any consistent data on local government expenditures, though.
If you’re interested, I’d encourage you to compile the data and share your findings.
That’s quite a fruit salad of figures you’ve got going there – you’re not actually comparing apples with apples are you?
You cite Houston’s high median property tax, yet fail to mention their median house price. Google revealed multiple results, all the same: “The median jumped 14.5 percent to $184,900” Those are 2015 figures, and I’m sure many Aucklanders would be happy to pay Houston’s rates/property taxes if it meant the could buy a home for less than $200k.
Obviously every town/city has a base cost for services and if you are paying those via a rate/tax then the % will be higher where homes are cheaper. Your chart of property tax percentages makes no mention of the cost of housing in those places, and a cursory observation from me sees LA and San Francisco [both expensive] down there with Auckland.
I have no doubt this part of the drumbeat to charge HIGHER TAXES on Aucklanders, because gosh darn it, WE CAN AFFORD IT – WE’RE ALL RICH AND NOT PAYING OUR FAIR SHARE!!
(sorry for the caps but I wanted to emphasise the rallying cry)
As you probably figured, I’m in the ‘It’s a wealth tax!’ camp. But I do like the idea of making any CGT (if we have to have one, no I don’t want one) payable to the local instead of the govt, since they are presumably more responsible for any capital gain.
Now, I’m not an expert in tax policy, but it seems from a quick reading of the literature that lower property tax rates “cause” higher house prices, not the other way around. Intuitively, this is sensible – if you know paying a higher price for a house will increase the amount you have to pay in tax, you’ll be less willing to do so.
And, as you say, perhaps people would be happy to pay higher property taxes if it kept prices from rising as rapidly. Probably worth investigating.
cause is a word I would be careful with using to be honest – proving cause even in a non scientific subject is quite a process
speaking personally property tax might be a disincentive to higher prices but in reality higher prices (for us mere mortals out there) are a disincentive to higher prices in of themselves ……I am rather fond of being able to eat and pay the other bills and take the kids for medical treatment etc rather than have 90% of my income going out into a mortgage or rent……but thats just me and I might not be your average bear ………
I think you can say cause here. A higher property tax is factored into the value a house has to you. In effect the government has appropriated a share of your property and the value of that share is the discounted cash flow of your present and future property tax payments. A future buyer knows this and only bids for their share and not the value the government grabbed. Ignore my blunt language I still like the idea of land taxes as they are very efficient and less of a dead weight than income taxes.
hmm so you would say THE cause, a minor cause or the leading cause ? While I don’t doubt that there is some effect or correlation I would doubt personally its the main factor in property values – it will no doubt be a complex issue to tease out (and one full of everyones personal theories no doubt) – hence why I object to simplified use of the word cause without proper caveats and details. Perhaps there is some good peer reviewed literature out there attributing causation – it may be out there – I have not looked – but no doubt again it might depend on what the tax is encompassing exactly and the system in which it is implemented.
Re: land taxes I suspect, in the NZ situation at least they are unlikely to supersede income taxes – rather it would be additive to current taxes -but good luck with that one.
I agree that it’s necessary to be cautious when interpreting causation – hence why I put the word “cause” in quotes. And I definitely agree that the reasons why people pay certain prices for housing are complex!
This is an interesting point, I think: “higher prices (for us mere mortals out there) are a disincentive to higher prices in of themselves”
I guess I’d qualify that by saying that this applies mainly at the point at which people buy houses. (In fact, every time I look at house prices in Auckland I think, nope, too high! Guess I’ll keep renting…) Once people own a house, though, they start thinking that increased prices are a _good_ thing. My intuition is that people are willing to pay higher prices for houses in the expectation that the value will appreciate further.
Eh, nope.
I’d be happy if house prices in Auckland halved.
Of course, if that happened, I would still actually have SOME equity.
It would mean that other people I know would have an opportunity to buy.
But give I think that this article was not particularly well thought out, you can feel free to consider me a nut job.
Rates are in my opinion pretty much irrelevant as a property costing factor.
$2-3K per year is minor relative to $16-20K in mortgage payments.
Your decisions are massively more influenced by your income vs. major expenses than by your property value vs. those same expenses.
In fact I don’t think I’ve ever even thought about it until reading this.
My take on Auckland rates is that they are pretty reasonable for the amount of services provided, (and also covers what must be a significant sum of money currently going out annually to cover leaky building claims against the council). Obviously low-income households will find rates and even another $99 for extra transport options more of a struggle, but could be worse off having to buy and run a car compared to investment in walking, cycling and PT.
Certainly not a pain-point for me personally, and as pointed out, not raising nearly as fast as house prices.
The Christchurch figures on the other hand look too low to me; this is a council struggling to pay for massive amounts of repairs/rebuilds, new infrastructure and increases in insurance costs, while at the same time supporting large road and other infrastructure maintenance costs on a relatively static population that has become less centralized. Looks to me that Christchurch rates need to rise to help pay for the rebuild; something like a $100 or $200 per property earthquake repair levy as a temporary measure on top of rates would make more sense for them.
They’re going up by >8% a year for the next 4 years, plus they’re proposing to sell off a fair proportion of Council-controlled assets.
How do you figure 8% *per year*? They go up in year one because of the new levy. But in year two the levy does not increase. So you are left with the underlying 2.5% rise ( or is it 3.5 now? Seems to change every month or so)
I believe he’s in Christchurch, Dan.
Interesting post. Its pretty difficult to compare cities if you don’t compare the services they provide. Generally It think my rates bill is fine. A friend has a bach at the beach in the Coromandel. The bach has a septic tank, gets water from a bore, is next to a state highway and pays for rubbish with paid bags. He pays higher rates than his house in Remuera but what does he get for his rates? Not much I would think.
Good point and a great example of economies of scale in publicly-provided goods/services, which I would argue are a major (understudied) benefit of agglomeration.
He gets local roads mostly, plus a smattering of services like libraries and stuff. About twice as many people live in Remuera than all of Thames-Coromandel, but the Coromandel is over 2,000 km2 has a heap of long and winding roads to look after still (even excluding state highways). Remuera is 7km2 and about 600 times the population density.
Thats what happens when you’re spread out, huge amounts of infrastructure to maintain per person so its extremely expensive, you end up paying through the teeth for shitty roads and little else.
Oh I understand that there are fewer people in a larger area, but it shows that Auckland rates aren’t that terrible for what we get. Though I can understand the complaints from legacy council zones that are seeing huge rate hikes. I’m out south and we actually went down a little because we were paying a lot beforehand.
Yes I agree.
I’d like to believe the outcomes of this analysis, but there are just too many variables for it to be in any way useful (its far from the perfect analysis!)
Why use the rates to house price ratio – that is unfair on places with low house prices (having high house prices shouldn’t mean the council needs more money)
How can you exclude sales taxes – maybe Houston has very low sales taxes and very high rates?
And what services are provided by the council – for example in Auckland water isn’t included in rates, in other places it is. Our household pays about $500 a year in water.
Why didn’t you include Australian cities – surely they are more aligned to us? Would be interesting to see how much they pay in Adelaide compared to Auckland.
Is it possible to get the council’s total infrastructure spend per capita? That would be much more interesting (but still compromised by federal / state government spending on motorways, etc)
Those are a series of good questions. I encourage you to go gather some data to answer them, and let us know what you find.
Remember, we’re not being paid to write blog posts, which limits the amount of time we can devote to analysis!
This is a useful high-level analysis. It suggests that, on the surface, rates in Auckland are not particularly high. I also note that the absence of other taxation mechanisms, such as what is available in the U.S. would actually increase the local taxes levied by U.S. cities compared to local government in NZ.
Of course the answer is not definitive, but like Peter notes: You’re welcome to do your own analysis and submit it as a guest post. From where I’m sitting, this provides some evidence to suggest rates in Auckland are not unusually “high”.
I am not sure if rates based on property value is the best matrix. Rather the issues is affordability of rates, which actually is a function of a persons after tax income and disposable income. US pays less income tax than we do plus they are generally paid more than us (in US dollar terms). Cost of living (including cost of owning the house) should be considered. So I think we should be asking are rates more affordable in NZ than other countries ? If the cost of living in Auckland becomes unaffordable then people will leave the city and we will not have the worlds most livable city in the world (which is the councils objective).
Vancouver is not paying enough tax, and getting people to pay enough results in much whinging and moaning. The roads are a mess, transit hasn’t improved since the addition of the Canada Line for the olympics, the busses are too full, trains are old, no new bike lanes in a long time. Everything is on life support. See current transit plebiscite.
In terms of property rates, I imagine its ‘lowness’ is related to the surge in property prices in the last 10 or 15 years, with rates held back to reduce the burden on owners, as they are being in Auckland now.
Regarding the rest, I doubt anything is really comparable here – the US is so (income) tax averse that municipalities will need other methods to fund anything – the detail to weed this all out would be quite difficult I suspect. I’d be curious with what we’re paying vs Australian cities and some nice dense European ones.
No matter what though, people want better services and people want to pay less taxes. Fund the city you want to have, most people are not so short sighted, and those who are’s interests are not aligned with the social issues that cities face.
The Texas examples are skewed by the fact the State has no income tax and a constitutional prohibition on a state property tax. Instead they collect a property tax at the local level. The important point for anyone is the total tax you pay summed across all levels of Government. Texas in that respect is a low tax low services regime. Even so they fund a criminial justice system of courts etc that Auckland doesn’t and I am not sure but maybe even the National Guard. Auckland doesn’t pay for police, courts, education, militia or a legislature. (Apart from that what have the Romans ever done for us?)
An interesting comparison, although as mentioned by others property taxes tend to pay for a wider array of services overseas than what rates pay for here in NZ. Surely the fairest comparison of housing costs is to add the cost of servicing a mortgage on the average house to the cost of property taxes to get an overall picture. So while people may go “OMG look at Houston’s high taxes” the overall cost of owning a home (and getting into the market in the first place) is much lower than in Auckland. I think most people would be willing to pay slightly higher ongoing rates in exchange for a lower house price. Those who already own their home might not be impressed though…
‘fess up Peter, you knew this was coming and you’re laying the ground work for the Council Spin Control team?
[just kidding]
“It has emerged the combined impact of the general and targeted rate on (Auckland residential) households will be in the region of 9.5 per cent. This is a steep increase from an earlier 5.6 per cent average rates rise for households.”
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11443671
Ha! If I were a part of the Council’s media strategy, it would be a serious indication that they needed a new media strategy!
I haven’t had a chance to contribute to this one but as it’s one of my favourite topics I’ll make a late contribution.
I struggle to get anything meaningful out of the data presented. Firstly I’d rather look at rates as a portion of take home pay rather than property values. Property values are influenced by market factors and may not reflect the true value of property.
We also have to take into account not only what people pay but what they get in return for their rates. I think others have covered just how vastly different it is in the US vs NZ.
I don’t think much can be taken from the above data.
Agreed. Stats can be used to ‘prove’ anything. Average property values (Auckland now averages 800k) listed from all examples above plus services, state and income taxes and average incomes, etc might give a more meaningful portrayal and may in fact show the opposite and that we may already pay the highest (in real $$) rates. Who knows. As you say needs more data. All I know that is real is that 70 to 80 a week for rates on average properties in Auckland is soon to become 80 to 90 with Len’s new increases, which is a quarter of our family’s food bill each week – a not inconsiderable amount.
Half our food bill sorry.
Actually, if you read carefully, I’m not trying to “prove” anything. I’m trying to provide some context for the discussion we’re currently having about rates in Auckland (and Christchurch, too). Context that too often goes missing, by the way.
The data has limitations, of course, but I stated those up front. Even given those limitations, I think that it does establish that Aucklanders’ rates bills are not unusually high by international standards.
“70 to 80 a week for rates on average properties in Auckland”
Did you read the article? It states up front that average rates paid in Auckland are $2,636 p.a. That works out to be $50.69 per week, not your inflated 70 to 80.
“Property values are influenced by market factors and may not reflect the true value of property.”
To an economist, this is a quite curious statement. Ever since Alfred Marshall, it’s been pretty commonly accepted that the value of a thing is equivalent to the price that people are willing to pay for it. E.G. if somebody is willing to pay you $500k for your house, it’s _actually_ worth $500k, as opposed to $10k or $20 million.
Put this into practice. Let’s say you’re selling your house, and somebody turns up and offers you $500k. How would you react if somebody else (say, some government bureaucrat) prevented you from accepting that price, saying that the “true value” is only $300k.
Perhaps what you mean is that there is some uncertainty about the path of prices in the future?
or perhaps that statement just reflects a likely wide bell shaped curve/tail etc in the distribution of peoples perceptions of property value? So if one say’s the property is “not worth that value” its a reflection of their estimation and perception of that value and means “its not worth that value to them”. Where as for others with different perspectives its worth more …being then if someone is willing to pay $500K for the property that’s deemed to be about what it is worth and what it sells for. Of course that person might be sitting in the tail of the curve (one assumes it will be the person willing to pay the most with caveats for other factors thrown in of course) and those with different perspectives/circumstances would not ever be able to or prepared to pay that etc. I would imagine though the housing market in Auckland/ChCh at the moment is affecting those perceptions (it might be quite crowded in my hypothetical tail!) but there are still some who will look at things and say no its not worth that to me. Random speculation anyway from someone not particularly versed in economics – interesting discussion 🙂
You obviously know a bit more about economics than you’re letting on… you’ve just given a quite good explanation of why demand curves slope down!
http://en.wikipedia.org/wiki/Law_of_demand
nup – nothing ! not even a pre-random speculation read-up LOL! …..and my field of passion is far removed from yours ……..but does involve significant analysis ………
“Ever since Alfred Marshall, it’s been pretty commonly accepted that the value of a thing is equivalent to the price that people are willing to pay for it. E.G. if somebody is willing to pay you $500k for your house, it’s _actually_ worth $500k, as opposed to $10k or $20 million.” Peter that is true but by “people” you must include the person who currently owns the property. The Herald ran a story yesterday on a couple who live in the Mill Rd corridor. AT have offered far less than what the property is worth to them. The Public Works Act is based on the flawed reasoning that the property is only worth what a willing buyer and willing seller agree. But that couple, if they didn’t own it now, would buy it for more than the AT offer. They are not willing sellers because their own value of the property is higher than what others would pay. The proof of that is the simple fact that the property was not on the market.
Very true – thank you for noting that. More precisely, prices are set at the point at which the marginal buyer’s desired purchase price is equal to the marginal seller’s desired sale price. Some sellers obviously want higher prices than others – hence why supply curves slope upwards. And yeah, the use of compulsory acquisition methods like the PWA does occasionally result in some perverse outcomes.
I remember in a post grad game theory lecture we covered a special auction that would force bidders to reveal their top price. The idea was to get them to reveal their value in the knowledge they would not actually have to pay that top price if they won. It was used in auctioning telecoms frequencies or spectra. The problem is there are different ways to determine value.
In the case of the couple in the paper people will say they over-capitalised. But that is simply what people do if they have no intention of moving. If I were them I would be down at the Council applying for any resource consent that might increase the value. A service station or boarding kennels or whatever it took. AT dont have to play fair so why should they?
but take home pay is equally influenced by market factors and may not represent the ‘true value’ of the services supplied.
One should compare rates with other rates set in the country adjusted for population and size of authority. However as other have compare to overseas counties I would point out that Auckland rate are high compared to some London rates, but lower than others.
The key element is value for money for the ratepayer and how efficient is the council with spending ratepayers money. I used to live in Wandsworth London, with Lambeth, the council next door. Both councils has similar social populations, with similar numbers of rich and poor, both with large social housing estates. Wandsworth was run by a kiwi, Paul Beresford, Lambeth was run at time as a pseudo socialist republic. Despite both getting similar amounts in grants Wandsworth was run efficiently and had good roads, pot holes being repaired promptly, and low rates. Lambeth was run badly, had many potholes which took ages to repair, and had high rates. As a cyclist and walker I much preferred cycling and walking in Wandsworth to Lambeth.
I do not see any signs of Auckland council being or even wanting to be efficient. I do not have my rubbish collected by the council, they are too expensive, If Auckland was more efficient and spent its money more carefully then it could have had the CRL running by now.
And we should all remember that a rise in property values does NOT give Auckland council 1 more cent.
Property values only affects the distribution AMONGST ratepayers.
This point appears to be grossly misunderstood by many I speak with but rather important.
HAving lived in our home for over 50 years and no intention to sell it, but am now wondering if I can afford to live in it any longer. Inflation has made a monkey out of us. We built without a mortgage and saved a Pound to by a sheet of Gib board while living in the basement. But inflation really made a mockery of that effort when it was so high in the early 70’s and many around us had 3% mortgages over 40 year. Now inflation is making a monkey out of us again.
Below is a press release about an upcoming Rates Ripoff Rally:
With Auckland rates increasing on average 9.9% there’s a Rates Ripoff Rally on Sunday August 16th 2015, where angry citizens can publicly show their opposition.
The rally will start at 1pm at Aotea Square and proceed to march to the Auckland Council building at 135 Albert Street.
http://www.scoop.co.nz/stories/AK1507/S00538/rates-ripoff-rally.htm
http://akl-nz.blogspot.co.nz/2015/09/how-to-save-aucklands-economy-and-make.html
This author suggested to raise property tax to 3% but drop other tax rates. I think he/she makes a good point.