Proposed rating changes divide Wellington city councillors

Wellington city councillors are considering changes to the way property rates are calculated, with a possible shift described as "terrible timing" by one councillor and key to unlocking development by another.

The move is underpinned by a drive among some councillors to incentivise growth in the city.

Consultation is underway on changing from capital value-based rating to land-based value rating, with feedback sought by 15 November.

Ratepayers can test out what they would pay under a new system with this calculator, provided by the council. As shown in the examples reported below, houses in the same suburb could be affected quite differently by the change.

Another of five potential changes to rating policy would see a reduction to the amount businesses in the city pay.

Winners and losers

Capital-value rating calculates the bill based on the value of someone's land and buildings, whereas land-based value assesses just the value of the land.

Under the model - and according to the calculator - a two-bedroom house on a 500-square metre piece of land in south Karori would pay an extra $700 in rates under a land-based value system - about $2700 under capital value and $3400 under the change.

Compare that to a five-bedroom, three-bathroom home at the city end of Karori and on a property larger than 1000sq m, where the rates there would drop by more than $1000, from $4000 to $2925, under the change.

These figures excluded Tiaki Wai water bills, the greater regional council rates and the levy for the Sludge Minimisation Plant, and were based on a random selection of properties put into the council calculator.

An apartment owner in one of the units in a central business district complex would see an increase in their rates under the change, from about $800 to $950.

A three-bedroom family home in Newlands - a 100sq m house on a 1000sq m patch of land - went from about $2500 in rates under a capital value system to nearly $2200, according to the calculator.

In Kelburn, a four-bedroom, three-bathroom home on a 500sq m piece of land would see a rates increase of more than $2500 - from about $9000 to nearly $11,600.

In one last example calculation, a one-bedroom, one-bathroom place in the same suburb, Kelburn, would also see an increase of about $600 from the current bill of about $4500 to $5100 a year under the change.

Infometrics principal economist Nick Brunsdon said anyone land-banking valuable land in the city could see themselves paying higher rates.

He said one group likely to pay less rates under a proposal are those who live in an inner-city apartment building.

"If you're in a big apartment building, you might have that land value spread across and shared across many more people."

He said land-value was not always accurate in determining how wealthy someone was.

Divisions around the council table

Greens Wharangi/Onslow-Western ward councillor Rebecca Matthews said she'd worked on the change to land-value rating for the past six years.

She said the proposal was about choosing a rating system that supported development and affordable housing in the city.

"We have really constrained land in Wellington, we are a hilly city, we don't have much room to grow, we have to grow up, rather than out."

Matthews said she was keen to hear from residents about their views on how to incentivise growth.

"We want to grow," she said. "We'd love to have more people living Wellington city... but we've actually kind of sent a lot our growth further out into the region."

Fellow Wharangi/Onslow-Western ward councillor Diane Calvert said she didn't think land-based rating was the fairest way of calculating rates.

Calvert and Karl Tiefenbacher were two councillors who voted against the consultation in late June.

Calvert gave the example of two equally sized neighbouring sections - one a four-person house, another with six townhouses next door.

"You could have 20 people who are paying less in rates to a family of four, yet you'll have a lot more people using council services such as pools, parks and libraries."

She said the change put Wellington city out of step with Porirua, and Lower and Upper Hutt, which uses a capital value rating system.

"I think the timing is terrible timing," Calvert said. "When we're in the midst of potential amalgamation, it's completely out of sync with our neighbouring councils, and the cost and disruption to the organisation is not something we can afford at the moment."

Consultation documents show a change to the city's rating system could cost between $600,000-$2 million to implement, due to modelling, research and engagement.

Proposal to reduce business rates

The council is also looking at lowering the commercial differential over six years, from $3.70 in rates for commercial properties for every $1 of household rates to $3 for every $1 of household rates.

Commercial rates in Wellington are among the highest in the country.

At a June council meeting, Property Council NZ's Edith Boettcher said rates and insurance had become so high that businesses in the city were downsizing and shifting staff to remote work.

"It's becoming too challenging and too costly for businesses to operate in the city, and people are starting to look for alternatives," Boettcher said.

Will these changes actually work?

Brunsdon said how much a rating change could incentivise development in the city was debatable, when other factors - such as the cost of construction or borrowing - remained.

"The big asterisk is that... if you're land banking, your rates may go up," he said. "It's not immediately clear if they would go up by enough to make you suddenly jump off your chair and suddenly build something."

Brunsdon said Wellington's rates were already quite unusual in that they didn't have an "annual general charge", where every house was charged $500-$1000 for a range of services, although it did have a "sludge levy" for the sludge minimisation plant.

That could ease out disparities in different rating systems, although there were arguments against this approach too, he said.

Whatever the council decided, any amalgamation with the other cities in the Wellington region would require another change to rating systems, but the debate was important for the future of the city, he said.

"Potentially, the choice between systems might have an influence on how the city develops over the next 30 years."