Failing to find value in the rates system

Should tenants of rental properties be contributing to payment for council services? Photo: ODT files
Should tenants of rental properties be contributing to payment for council services? Photo: ODT files
Is Dunedin’s rating system fair, asks Maurice Prendergast.

The system of charging property owners only - to the exclusion of non-property owners - for council services is upwards of 300 years old.

It is perverse in its presumptions of the days before the concept of debt, and was probably almost fair in an era when the value of a person's property was genuinely representative of his means.

That is, a valuable property was considered to be owned by a rich person and a property of lower value was generally owned by a poorer person and this was occasioned by the probability that neither had debt, and that the value of their respective properties was genuinely representative of their wealth.

Fast forward a couple of hundred years and New Zealand's early settlers took up and broke in land, towns were established which needed to be serviced; roads built and so on, and councils and boroughs were established to manage the services (roading then being the predominant service to the tune of about 90%).

Unfortunately the settlers brought with them the old Westminster system of rating property owners only, and worse, continued to charge those property owners according to the belief of some bureaucrat's notion (the valuer) of the value of that property.

To illustrate how perverse this concept is, imagine a check-out experience at a supermarket where a well-groomed person is charged full price for a block of butter, the following person in overalls and a ''high viz'' vest is considered not so wealthy so the check-out person (the valuer) guesses that he should only be charged 70% of that charged to the man in front of him. The following person is unshaven and heavily tattooed; which allows the check-out person to presume that he owns no property at all so he receives the block of butter free of charge.

Does this sound irrational to the point of lunacy? Well, have it your way; all I've done in offering these examples is illustrate the principles of the Local Authorities' Rating system.

Why on earth do we tolerate this? I don't know.

In terms of the rating system, we selectively embrace this dishonest means of funding our community; to the exclusion of all other commercial transactions.

Take for instance a Mazda 3 valued at $15,000 that pulls into a petrol station on the opposite side of the pumps occupied by a $90,000 Audi.

They both buy fuel, but the Audi being six times more valuable than the Mazda, should (according to the local authority property rating system) pay six times per litre more than the man in the Mazda (because the status of his car appears to represent the wealth of the driver).

If the proprietor of the service station tried to pull a stunt like this, he'd be exposed on the front page of newspapers nationwide, and held up to public ridicule. But why? After all, his premises are valued at six times the value of the residential property across the road, for which he pays a bill six times greater (in local body rates). So, though it may seem ridiculous, if the structure of local body property rates is an honest one, then the scenario that I described earlier with the Audi paying six times more per litre than the Mazda, must also be an honest transaction for services. Yet nobody would tolerate this.

But when I say that the tattooed character referred to above probably owns no property and therefore does not pay a cent in rates towards the provision of sports grounds, libraries, public amenities and the like, I hear you say, ''but he'll be a residential tenant, and oh yes, the landlord factors the rating cost into the weekly rent when he strikes his rental charges.''

Rubbish. Landlords don't strike the rental rate. The market does that; landlords are ''price takers'', they are not ''price makers''. They can only take what the market will give them, otherwise the property remains unoccupied.

To explain: rather than offer a calculation on today's depressed bank investment rate of about 3.6% per annum, let's go back (say) five years and do an honest appraisal when investment rates were running at 5%; when I had a $300,000 property rented for $320 per week. (The market rejected any advance on $320pw) so my property was earning $15,606pa from which I had to subtract my opportunity costs of not investing elsewhere.

These costs were $300,000 x investment rate of 5% ($15,000), local body rates $2000, insurance $1000 and maintenance $500pa. A total of $18,500 in costs for a $16,640 return.

So where's the tenant's contribution? I invite you to dispense with any of your fatuous claims that tenants make any contribution whatsoever to the rating impost on a rental property. Is it any wonder that landlords are stampeding from the business of property rental and finding different ways to get a reasonable return on their property investment? (i.e.: Airbnb.)

Reference to the advent of the Airbnb factor, brings me to observe another recent clumsy notion of imposing a dedicated rate for those who are deemed to profit from letting out a spare residential room. Well, good luck with that proposal. That concept was tried bu the Dunedin City Council - and failed - some 15 years ago.

There was an attempt to impose a ''hosting rate'' on such premises. Problem was that while the agents of this mad notion knew where some of this activity was taking place they didn't know where all of this activity took place. As an instance, it was widely known that we (my wife and I) were hosting passengers from tour coaches at that time, but less well known that so, too, was our neighbour. We had a uniform ''hosting'' charge of $500pa factored into the DCC's declaration of ''future rates'' on our property that year, but because they didn't know that my neighbour was engaged in a parallel activity, his declaration of ''future rates'' included no such charge.

Not surprisingly the proposal was abandoned for the want of an ''informed basis'' upon which to justify such charge, and the scenario would be no different today. It would take an army of investigators to ''snoop out'' where this activity took place and even then they would not all be found. So forget about it.

The exercise would be about as fruitful as throwing stones at the moon. As the Romans would say, ''O me miserum'' (woe is me.)

-Maurice Prendergast is a retired shearing contractor and a former Dunedin deputy mayor.


Morituri ✒️

Tenant rates would require
Rent Control. Landlord Rates are one reason rents are raised frequently.

Should we not ask a more basic question?- Does the DCC provide value? or just another tax to fund technocrats and their crazy ideas? that would instantly be voted down if they put major items to the vote. So, Vote them out!

Central government needs to fix this with a law change. UK brought in poll taxes for local government funding. But be wary of this one. Because it was poll taxes in addition to property taxes not instead of. Removing GST from rates would be a good first step. But no government of any party wants to do it. They want the money it brings in. Terrible for businesses and farms to have high asset taxes. Can make them go broke. Same with people who retire to the beach. And then beach property booms. And they get rated off.





Local journalism matters - now more than ever

As the Covid-19 pandemic brings the world into uncharted waters, Otago Daily Times reporters and photographers continue to bring you the stories that matter. For more than 158 years our journalists have provided readers with local news you can trust. This is more important now than ever.

As advertising drops off during the pandemic, support from our readers is crucial. You can help us continue to bring you news you can trust by becoming a supporter.

Become a Supporter