Analysis - Auckland's rate revaluations left some people scratching their heads. How can rates potentially go up in a market downturn?
Waimahia development in Weymouth, where the rates have increased by 57 percent. Photo: RNZ / Kim Baker Wilson
There seems to be some confusion about the Auckland Council rates revaluation in relation to the market. (Perhaps there is confusion every three years).
They're two very different things but there is a relationship. The Auckland property price bubble, the capital gains in the market, and the corresponding shift in where people are building and buying has changed the ingredients in the pie - but not its size.
It's still a very large pie, though.
There was a big jump in the more affluent suburbs when the valuation was last adjusted in 2014, but not so much of a hike in the cheaper spots. This time the cheaper areas are catching up with what has been, overall, an expanding nationwide housing market.
Auckland revaluations. Photo: Auckland Council
Around one in three of New Zealand's ratepayers live in Auckland. Your rates are a tiny slice of the $1.7 billion earmarked by the council in its last budget as the take from more than half a million urban and rural residential and commercial properties, plus farms and islands. It consists of four parts: a fixed charge, a transport levy, targeted rates, and general rates.
We're talking the general rate, which is calculated based on locked-in sale price estimates, what it's used for, and where it is.
Most importantly, the rateable value of your home is not the market value. Let's leave the market mostly to one side; but suffice to say it ballooned in most parts for the last three years (at least) and deflated some in the parts that were straining credulity in terms of prices (yes, Auckland).
The council says the upward trend in prices since the last revaluation in 2014 is reflected in the new rates. From the council's point of view, there needs to be a redistribution of rates to take this into account.
Auckland Council head of rates Debbie Acott says a total of 216,326 properties - about two-fifths - have received a valuation increase above the average 46 percent. This does not necessarily mean a corresponding increase in rates, she said.
Biggest changes
- Paerata/Runciman - 151 percent
- Wainui/Waitoki - 102 percent
- Westgate - 84 percent
- Drury - 81 percent
- Karaka - 73 percent
- Papakura - 65 percent
- Manurewa East - 62 percent
What the council has done is lock in all the estimated July sale prices for 549,000 residential and commercial properties in 237 suburbs, from the central city to the rural residential lifestyle blocks far out of the city. Lifestyle properties increased in valuation by 57 percent, by the way.
Then, they factor in additional components and send you your valuation. It's complicated because at street level, rates can differ quite substantially. Councils estimate budgets ahead of time, so the first bills using the new valuations don't land until next year and the locked-in valuation is out of date by the time the bills land.
Year-on-year property value changes from October 2016. Photo: CoreLogic
Some people are scratching their heads because the market is wheezing in places. How can rates go up when the market is slowing down?
The difference in the general rate between valuations is largely driven in this case by the immense capital gains and shifts in the Auckland property market.
QV prices from 2014 to 2015 for Auckland city went up almost 25 percent in a year to $1,079,470 - mostly driven by the central suburbs.
The change from October last year to this year was much smaller - an increase of 1.2 percent overall to an average city price of $1,223,913. When you factor in all the other suburbs of the Auckland metropolitan area, the city's average price has dropped slightly.
At suburb level, it's a case of mostly up, up, up, with a few areas where the increase isn't as pronounced.
November's QV report says there has been a slowdown in the "frenzy" of investors and a reduction in sales to investors from a peak in 2014.
It may be that the market returns to a "normal" level of activity (not necessarily "normal" prices, just activity). Prices in some developments in Flat Bush - where the valuation is up 54 percent - have dropped by $100,000 in a year, QV says. Investors have dropped off too and there's been an increase in first time buyers, the report says.
Outlying ward Wainui, for example, has gone up by 102 percent. Valuations there have doubled in three years, but it was also one of the areas where there has been a surge of interest in lifestyle properties and "rural retreats". It's also newly zoned as "future urban".
Many of the areas with the biggest increases are in places where properties were less expensive.
On the face of it, it does mean that people in suburbs where the valuations have gone up more than 50 percent, may be looking at an increase in rates, but this won't be made clear until mid-2018.
Generally, those areas traditionally viewed as cheaper suburban options have gone up more, but they started from a lower base, as more people choose to live, buy, rent, and invest in those areas.
On the other hand, desirable inner city areas such as Remuera, Herne Bay, and Grey Lynn, have still gone up but not as much. They skyrocketed last valuation.
Manurewa's increase is 53 percent, largely driven by the suburb attracting first-time buyers and investors. Houses here and other comparable suburbs are being actively marketed with "do up" potential.
In Māngere and Ōtāhuhu - a 55 percent increase - there has been strong demand and it remains relatively central but affordable, the council notes say.
Ponsonby, Grey Lynn, and Herne Bay all have revaluations around the 40 percent mark, probably because the high-end reached its peak towards the end of last year and the market has flattened - so the corresponding valuation change from 2014 to 2017 isn't as high as the suburbs.
The price (estimated or otherwise) of a house fluctuates, in this case many of those in cheaper areas - mostly the outer suburbs - have increased at a greater rate in the last three years or so than the corresponding increase in the more affluent suburbs.
Ask yourself: 'What's happening in my suburb? What's happening in my street?' because Auckland Council is talking about averages across the whole city, and that's not particularly useful. Auckland is such a big and variable housing market.
Check out the percentage change in your suburb here
What's not in dispute is the huge interest in the new valuations - more than 120,000 people rushed online to check their properties.
SOURCES: Auckland Council, QV, CoreLogic, MBIE