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The Dunedin City Council is being left out of pocket as the University of Otago continues a string of commercial property purchases around the city, council figures show.
The trend has prompted Cr Syd Brown, chairman of the council's finance, strategy and development committee, to say the pattern would be a ''major concern'' if it continued to squeeze the council's income.
However, the cost to the council and ratepayers needed to be weighed against the benefits brought to the city by the university's continued expansion, he said.
''We do need to realise they [the university] are the biggest game in town.''
His comments came after the university this week confirmed it had bought the 128-room LivingSpace hotel in Castle St for an undisclosed sum, and planned to convert it to student accommodation.
The change means the hotel will cease paying full commercial rates and instead join the university's stable of non-rateable properties, which pay only for water, drainage and other services.
That would reduce the council's income from the property by $17,123 a year, council staff confirmed yesterday.
It was the latest acquisition by the university, which has previously spent millions buying and refurbishing the Bowling Green and Gardens taverns in North Dunedin and converting both into academic facilities, among other properties.
Those changes of use had also resulted in the council's rates income from the Gardens dropping by $6950 a year, and for the Bowling Green Tavern by $18,982, council staff confirmed.
Cr Brown said the lost income needed to be weighed against the benefits accrued by the city when the university moved to protect its position and its ability to attract more students.
''On one side of the ledger we'll be losing rates. On the other side, we'll be gaining residents to our city. Hopefully, they will balance out.''
University chief operating officer John Patrick, when asked whether the purchases were a problem, declined to ''speculate'' on the matter yesterday.
He would not rule out further purchases if required, but said annual economic impact reports clearly highlighted the economic benefit of the university to the city.
The most recent report, released late last year, showed the university boosted Dunedin's economy by $779.33 million in 2011.
That equated to an estimated 16% of Dunedin's gross domestic product (GDP) and generated an estimated 16,855 full-time equivalent jobs for the city.
The university already faces a rates hike for its Executive Residence, after concerns were raised it was undercutting other accommodation providers in the city.
The residence was meant for visiting academics and other university guests, and so did not pay commercial rates, but in January was confirmed to have been advertising on the open market.
The university had since obtained a new consent to operate as a public accommodation provider, but would, from July 1, face a higher rates bill, up from $9000 to $31,000 a year.