Economists explain Wellington’s 24% drop in home valuations

The average drop in RVs in Wellington was 24%. Photo / Mark Mitchell

• Rating valuations in Wellington have dropped by 24% on average, affecting homeowners' perceptions.
• Economists emphasise RVs are not accurate indicators of current market value, but a tool for setting rates.
• Despite lower RVs, Wellington City Council is considering a 12.2% rates increase this year.

By Nick James of RNZ

Rating valuations have been dropping into Wellington mailboxes for the past week, with most people finding their home values had plummeted.

The average drop in RVs was 24% compared to the last time the process was done by Wellington City Council in 2021.

RNZ spoke to economists to explain the effect of the revaluations.

What will happen to my rates?

CoreLogic chief property economist Kelvin Davidson said, in a nutshell, RVs were simply a way to allocate rates across the city.

“If your property accounts for 1% of the overall property in the region, you pay 1% of council rates.”

Davidson said the drop in ratings valuations did not mean rates would go down, with the council considering a 12.2% increase this year.

In Wellington’s case, if a person’s RV dropped by 24% their rates increase would be in line with the average household in the city, he said.

If a person’s RV dropped by less than 24% they could expect slightly higher rates than the average, while if their RV dropped more than the average, they could expect a rates increase lower than most people.

Does my RV reflect how much my property is actually worth?

The valuations that have just landed in mailboxes are based on a snapshot of property values at September 1, 2024 – nearly half a year ago.

Infometrics principal economist Brad Olsen told RNZ that ultimately RVs were not a good measure of what a house might sell for or what a property might be worth today.

“They’re a point in time snapshot figure that comes through every three years that help to set rates, but they are not an indication of what you might get if you list your house today.”

Olsen also noted that the RV drops were so big compared because the 2021 valuations were taken at a time when the property market in Wellington peaked.

Valuations were later than expected this year, with updates due in December pushed out to February due to a lack of available property data for vacant lots in some areas of the city.

Quotable Value operations manager James Wilson told RNZ late last year a review of some areas was necessary to ensure accuracy.

Should I be concerned if my RV has dropped a lot?

Opes Partners economist Ed McKnight told RNZ it was important to remember it was not an RV that determined a home’s value, but the market.

“It’s not like whatever the council says – whether they think it’s a little bit higher or whether they think it’s a little bit lower – is actually going to have an impact on what the market’s going to pay.”

He said receiving a lower RV did not mean someone had suddenly lost value from their home.

“It’s not like the council is having an influence on what the market will pay – the RV is a reflection of the market.”

McKnight said homeowners who bought a property at the peak of the market in 2021 had faced a challenging situation.

“The only question is, do you continue to hold or do you decide to sell and take that loss?”

He said most homeowners would be best served by waiting for their property prices to recover.

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