Housing in Mount Victoria, Wellington. Photo: RNZ / Dom Thomas
Up and down the country, councils are updating rateable values (RVs). This is a three-yearly assessment of a property's value, used by a local authority to determine and allocate rates.
In parts of Auckland and Wellington, where RVs were set when house prices peaked in 2021, it's likely we'll see significant reductions.
But even if RVs fall, rates will continue to rise. And at record levels, in parts of the country.
What's going on?
The purpose of RVs
Valuations provide a snapshot of a property's value at least every three years. Different authorities are on different schedules, but Auckland, Wellington, Hamilton, and Tauranga are among 20-odd local authorities due to have their RVs updated in 2024.
The new values will be used to calculate rates from 1 July 2025. But they will be made public in December, with the exact date dependent on the audit process, a Wellington City Council spokesperson told RNZ.
Christchurch and Dunedin had their most recent valuations done in 2022.
While rating valuations help councils work out everyone's share of rates, the total amount of rates collected, specified in current annual or long-term plans, remains fixed.
"Ratings values are used to determine how the rates pie is split up, not how big the rates pie is," Infometrics chief executive Brad Olsen told RNZ.
"If all houses in an area went up by the same amount, they'd all pay the same proportion of rates as they did before. But if some houses saw a larger rise or fall in ratings value than other houses, those houses would pay a larger or smaller proportion of rates than before."
Homeowners can challenge their new valuation if they're not happy with it. The deadline for objections is about six weeks after the results are released.
RV versus market value
The average New Zealand home was valued at $905,357, down 15 percent from the market's peak at the end of 2021.
Historically, council valuations were an indicator of what a property might sell for, Chris Farhi, head of insights, data and consulting at Bayleys Realty Group told RNZ.
"Our view is [capital values] have become less important overall."
But the current situation was unusual, he said.
"Generally speaking, over time [valuations] increase. We're in this funny period where some regions had their [capital values] set at the market's peak, and the market has since come back from that. But hopefully the new CVs will address this issue."
Average asking prices more than doubled nationally in the decade to 2022, according to realestate.co.nz.
Prices dropped after the Reserve Bank started increasing the cash rate in late-2021, in response to high inflation.
As a result, it was "very likely" some regions will see "significant reductions" in RVs this year, Farhi said, with Auckland and Wellington likely to experience the biggest corrections.
However, some sellers were still putting a lot of weight on RVs when considering offers.
"Despite appraisals by agents, [sellers] might still anchor themselves on the CV. Particularly if it's higher. And that can add a hurdle into the sale process."
Three components
Rating valuations are made up of three components:
- Capital value: the probable price that would be paid for the property at the valuation date. It doesn't include chattels, stock, and so on.
- Land value: the probable price that would be paid for the bare land at the valuation date.
- Improvement value: the difference between the capital value and the land value, reflecting the value of the structures on the property.
While the council has copies of all survey plans and building consents issued, a valuation won't consider other renovations.
RV calculations
The Rating Valuations Act 1998 obliges councils to maintain the valuation rolls, but allows them to choose their service provider. For many, that's state-owned enterprise, Quotable Value Limited.
In the 2024 financial year, QV revalued more than 362,000 properties, ranging from commercial and industrial sites to residential apartments and houses.
"This year, we'll revalue even more," operations manager James Wilson told RNZ.
Calculations were based on local market analysis, with a sample of sales inspected for in-depth knowledge, Wilson said.
QV also relied on "factual data" such as floor area, land area, a house's age, and construction details. The appraiser constantly monitored property updates such as building consents and subdivisions.
Physical inspections took place for "key property types" and areas that have undergone a lot of change in the previous three years - "new subdivisions, new commercial or industrial developments, that sort of thing".
When asked how many properties were physically assessed, Wilson said it was hard to say because "the level of physical inspections required is dependent on so many variables".
Things like zoning changes, a significant number of new buildings in the area, low sales volumes, or outlier sales, could require "on the ground" inspections.
"We then ensure the accuracy of our values by undergoing statistical testing and thematic mapping to track values and check for anomalies. Additional handcrafting of values and inspections are done as required."
The Office of the Valuer-General then audited the process against strict quality standards.