The latest round of Auckland property valuations present, as usual, a double-edged sword. While many households celebrate their increased wealth on paper, they wonder what it will mean for their rates next year. Their added wealth is purely theoretical until they sell the house but their rates bill will be real. If the value has risen by more than the average (34 per cent since 2011), chances are they will have a rates increase.
Some of the areas to record high increases in value are places where residents may be new home owners with high mortgages and not much capacity to afford a heavy rates rise. Hobsonville's value has risen 65 per cent, Pt England 62 per cent, New Windsor 58 per cent and Glen Innes 55 per cent. On the face of it, they can expect a 20 to 30 per cent increase as well as the 2.5 per cent increase in total rates the Auckland Council expects to levy next year.
The first thing the council needs to remember is that high valuations are not increases in cash income, the second thing is that they are not invitations to raise rates overall. When a city enjoys rising property values, its council rate in the dollar should be constantly coming down. Rising values do not mean the council needs more money to operate its services. Yet we almost never notice the rate coming down.
Auckland rates are still in a confusing phase following the formation of a single city. The different rates and charges of the previous councils had to be standardised and its phase-in over three years should be completed next year. A rebalancing of commercial and residential rates also has been under way since the inception of the single city. Consequently it has been hard for property owners to keep a check on the council's costs.
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Revaluations always rekindle another debate about the degree to which council services should be financed by a uniform charge to each household rather than a rate reflecting their value. Rates are a form of wealth redistribution but uniform charges can more closely reflect the costs and performance of a universal service. The council set a uniform annual charge in 2012 well below the maximum of $750 it was permitted by law. The charge stands at just $373.35.
Representatives of high valued areas are already advocating an increase in the uniform charge and Mayor Len Brown was said to be open to that possibility before a council discussion behind closed doors yesterday. If an increase in the uniform charge is agreed it must be to reduce the general rate increase, not be an addition to it.
The council is coming up to a decision on rating policy for a 10-year budget that presents it with difficult decisions. The cost of major works, particularly the City Rail Link, requires savings in local programmes that may be less glamorous but closer to the hearts and needs of communities. The council should take its example from the Government which has contained costs without reducing its range of services. Local government staff, like those in central government and large companies, can always do more at lower cost if they must.
House values have risen at rates that may not be sustainable. When the market slows, as it has since the Reserve Bank imposed loan to value restrictions and raised interest rates, sales volume has dropped but not (yet) prices. It would be unwise of the Auckland Council to rely on current valuations though. Sooner or later residential property may lose some of its security for personal investors.
Ratepayers should not tolerate increases above national inflation. They most certainly should not buy the idea that local government has to accept higher cost inflation. If councils keep enough discipline on their contractors and staff, rates should fall as values rise.