While the Government’s plan to put a cap on rate increases won’t address the infrastructure challenges councils are facing, a proposal put forward by the Green Party and an independent Wellington mayoral candidate has received unlikely support

Source: Christchurch City Council
Stats NZ reports that high increases to council rates is now having a noticeable affect on driving inflation. By Christmas, Local Goverment Minister Simon Watts intends to have a cap on the amount councils can increase rates. However, this will not change the fact that costs are increasing for councils to provide basic services and catch up on a growing infrastructure deficit.
Independent Wellington Mayoral candidate Alex Baker and Wellington Green Party local candidates are both running on a policy to shift local government rates to be solely based on land and not tax capital improvement as part of rates.
Baker explains this will encourage urban development, improve housing affordability and quality while reducing rates for most people.
“High rates in Wellington reflect both past failures and a lack of ambition. Poor decisions by previous Councils has created a massive infrastructure deficit, such as unfunded renewals of water infrastructure. The costs of addressing this infrastructure deficit are mostly fixed: they simply need to be shared across all ratepayers.
“While the costs of the infrastructure deficit have been mounting for decades, our population has stagnated – reducing the number of ratepayers who can help to pick up the tab for the mess that has been left by previous Councils.
“Changes to zoning rules in the district plan last year significantly increased the amount of land available for development within the city. Over time, this will increase the supply of housing and support both affordability and quality – with the most dilapidated and inefficiently utilised buildings among the first to go.
“However, the way that rates are charged by Wellington City Council currently acts as disincentive for building new housing.”
He says this is because rates are charged based on the total capital value of the property, that is land plus improvements.
“This means if you choose to invest in your property, for example by renovating or developing, then your rates bill will eventually increase. Similarly, if you own land, then you can keep your rates bill low by not investing in improvements to your property.
“I will advocate to switch the basis for setting Council rates to land value rather than capital value. This will support much-needed investment in our city and bring Wellington into line with how rates are set in many major cities in Australia.”
The Taxpayers’ Union is throwing its support behind the idea.
“The Greens are right on this one,” says Executive Director Jordan Williams.
“Taxing land, rather than housing and development on land, creates the right incentive of avoiding land banking or not putting land to its most productive use, such as housing.
“The current rates regime employed by most councils sees rates as a tax on housing and the very developments that make cities great places to live.
“The government is currently proposing a series of improvements to local government – including adopting the Taxpayers’ Union’s call for capping rates. Local Government Minister Simon Watts should reach over the aisle and grab this phenomenal policy to realign rates as a tax on land for services provided to a property, rather than operating as a tax on improvement.”
Baker adds that development contributions are another deterrent to new housing.
“In some places this is fair enough, as development imposes costs on Council, e.g. for new infrastructure. In some parts of Wellington, however, the additional costs of housing to Council is close to zero. In these places, development contributions should also be close to zero.
“I will advocate to replace developer contributions with targeted rates based on location-specific infrastructure capacity considerations. These rates will be high in places that impose high costs on Council, and vice versa.”
Baker says to reduce rates and improve housing outcomes, it needs to be easier to develop in places that impose the lowest cost on Council.
“Building housing in these places grows the ratepayer base without increasing Council costs. Growing in this way shares our infrastructure deficit across more people, reducing the burden of rates imposed on individual ratepayers. In doing so, increased housing supply will drive rents down and quality up.
Baker says these changes will incentivise development in areas that have high land values, which will see more housing supply and lower rents.
“Typically, these locations will be more central, have access to existing Council-funded services, and be more accessible by active and public transport modes.”
He also argues that these changes are more fair.
“Where Council invests in infrastructure and services, like public transport, parks, and swimming pools, then the value of this investment is reflected in higher land values in surrounding properties. For this reason, it makes sense to set rates based on land values.
“Character areas of the city can remain, although properties in these areas will be rated based on the value of the land they occupy. In contrast, rates and development contributions for more intensive housing typologies (such as apartments and townhouses) will tend to reduce.”