Guest Post: Land value rates

A guest post by Common Ground Aotearoa:

Many New Zealanders are unhappy with their local government, but they don’t have to be. If local councils can get three things right, they’ll generally have a well-run city and happy residents. The three things: (1) keeping rates affordable, (2) providing quality services & infrastructure and (3) alleviating the cost of housing. These goals are often in tension with each other, and that’s reflected in local elections and around council tables. Rates could be kept low, but at a risk of underinvesting in critical infrastructure. Councils could seek to build public housing to reduce the burden of rent, but with the way rates are increasing at the moment, many won’t have the funds for it. Luckily we have a way forward, with a policy that will successfully enable all three goals. That policy is Land Value Rates.

Our names are Jesse Richardson and Aidan Homewood and we started Common Ground Aotearoa last year to advocate for changing the way rates are calculated in local government. Most councils in New Zealand charge rates based on the total value of your property (a.k.a Capital Value), we want to change the system so that rates are levied on your Land Value only. If you think this idea sounds counter-intuitive you’re not the first, but there are many good reasons to support it.

Firstly, you’ll more likely than not see a short-term decrease in your rates. We’ve analysed property data from cities and districts across New Zealand and a switch to Land Value Rates generally results in an average rates cut of 2%-9% compared to the status quo, with higher burden falling on vacant lots and the wealthiest landowners. To be clear, that’s a rates cut for average residents without any loss of council revenue.

Secondly, it’ll mean more housing supply where it’s needed. Under the current system, developers face an incentive against building houses because it means higher rates – if rates are instead based just on land value then they’ll pay the same no matter what they build, so they’re motivated to use the land fully rather than speculating on an empty lot. The higher the land value, the higher the rates, so prime real estate in the CBD gets developed, while properties in the outer suburbs and rural areas don’t face the same pressure & get lower rates to boot! 

We both support greater density in our cities, but if you live in a low density suburb and you don’t want to see huge changes in your neighbourhood, you should support Land Value Rates. Under our proposal, areas that are zoned for higher density will actually meet their housing capacity instead of sitting empty, so there’ll be less pressure on councils to zone more suburbs for high density. Imagine trying to fill a bathtub but your tap is broken. Zoning for more density is like trying to solve the problem by getting a bigger bathtub, what we’re suggesting is that you fix the tap.

Thirdly, examples of this policy show that it’ll lead to urban revitalization that will help councils afford crucial infrastructure without jacking up rates to unaffordable levels. Here’s a quote from a former US Senator: “When the people of Allentown voted for the land value tax in 1994, nearly 3 out of every 4 properties saw at least some sort of tax cut. Today, many of the properties that did pay more have new or better buildings on them, stabilizing the tax base to the point where we haven’t had a tax increase in five years.”

If you like the sound of a policy with a proven track record that will keep rates affordable while helping alleviate the cost of housing, we urge you to write to your local councilors and tell them to support Land Value Rates or get in touch to support our work: 

Email: contact@common-ground.org.nz

Twitter: @cgaotearoa
Facebook: Common Ground Aotearoa