Rates and the impact of revaluations
Council’s rates revenue increased by an average of 7.7% for the 2019-20 financial year. This means that we need to collect an average of 7.7% more money this year than we did last year to deliver the services and activities identified with the community through the Long Term Plan.
There were several reasons for the increase, the more significant ones being wastewater treatment plant upgrades, changes to solid waste management, growth planning and changes to legislation.
But many properties, especially urban residential properties, have seen increases much larger than 7.7%. WHY? Because of the district wide revaluations conducted last year.
QUESTION 1 - WHY DOES COUNCIL DO REVALUATIONS?
- Revaluations are a legislative requirement; we have to do them.
- Revaluations help us work out everyone’s share of the rate revenue required to operate Council activities and services.
- The aim of rating valuations is not to provide values for property owners to use for marketing, sales or any other purposes.
- All properties in the district were revalued last year.
- The revaluations are done by Opteon, an independent company. The revaluation is not done by inspecting and assessing each property. That would take far too long. District revaluations are determined by house sales.
QUESTION 2 – WHAT WAS THE RESULT OF THE REVALUATIONS?
Residential properties increased in value a massive 71% from the 2015 valuations; with lifestyle properties showing a 44% increase and commercial a19% increase. Industrial increased by 3% and dairy decreased by -5%.
While increased property values are good news for owners, they do impact rates.
This is the opposite of what happened with the revaluations three years ago in 2015. The 2015 revaluations saw dairy land values increase by 42%, the residential sector increased by just 3% and lifestyle values went down by 5%. This meant that the average residential property rate increase was just 0.5%, lifestyle was 3%; compared to dairy where rate increases were up by more than 10%.
Essentially, due to the 2018 revaluations, residential properties are carrying a larger piece of the total rates pie. See images in Question 3.
QUESTION 3 – WHAT DO THE REVALUATION CHANGES MEAN FOR RATEPAYERS?
To simplify the valuation sectors in the South Waikato, we have focused on our five main sectors (these are in colour in the pie charts below). The remaining smaller sectors in our district are greyed out, but still visible for your interest. Our five main sectors are: dairy, lifestyle, residential, industrial and commercial. Remaining sectors include forestry, mining, utility, pastoral, horticulture, specialist and other.
The smaller pie chart shows what the valuations were in 2015 and the larger pie chart indicating the more recent 2018 revaluations.
The bar graph shows the increase/decrease in the ten sectors relevant to our district. Residential properties have increased in value a massive 71% from the 2015 valuations; with Lifestyle properties showing a 44% increase and Commercial by 19%. Industrial increased by 3% and dairy decreased by -5%.
The valuation increase for urban properties is what is causing the increase in rates for these properties. It’s not that rates have gone up more than the 7.7% (actual average increase), it is that urban residential properties are carrying a larger piece of the pie.
The impact on individual properties rates of the 2018 property revaluation are almost the opposite of the impact of the previous revaluation in 2015. In 2015, residential property values increased by an average of 2% while at the other extreme farms increased in value by around 40% on average.
QUESTION 4 – DOES COUNCIL COLLECT MORE RATES WHEN PROPERTY VALUES INCREASE?
No, part of a property’s rates are based on the capital value of the property. Changes in the valuation can result in changes to the rates on an individual property. Council does not collect more rates as a result of increased property values or less rates if values decrease. But your property’s new value will help determine the share of the total rate revenue you pay.
Think of it as a pie (see the picture). This time round, residential properties’ piece of pie increased; and rural properties decreased.
QUESTION 5 – DID COUNCIL DO ANYTHING TO HELP OFFSET THE INCREASE?
Yes, increases in residential property prices was anticipated by Council and in order to reduce the impact of the valuation changes, we reduced our Uniform Annual General Charge (UAGC) by approximately $115.
The reduction in the fixed charge benefited 81% of all ratepayers. It advantaged 98% of residential ratepayers. If this change was not made, the rates increase on most properties would have been higher than they are.
QUESTION 6 - HOW DOES COUNCIL SET RATES?
Rates are made up of different components including General Rate, Uniform Annual General Charge (UAGC) and Targeted Rates. These are explained below.
- The General Rate portion is charged on the capital value of properties.
- The UAGC rate portion is the same charge to each property, regardless of property value.
- Targeted Rates are charged to specific properties for specific services. A good example is water supply which is only charged to urban properties connected to Council’s water supply network.
Council also funds services through Fees & Charges, subsidies and grants (largely roading) and financial contributions (development costs), however these are not relevant to a discussion on rates.