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Wellington City Councillor Fleur Fitzsimons is calling for rates to be based only on the land value to encourage building affordable housing (File Photo).

Changing the way Wellington charges rates could incentivise development and increase affordable housing options in a city battling a housing crisis.

Wellington City Councillor Fleur Fitzsimons, who holds the housing portfolio, said the council needed to consider rating land value only, rather than the value of buildings, to encourage increased development on underutilised land.

Median house prices in the capital have been inching closer to a million dollars(external link), and the average rent was $595 per week in November(external link), according to Trade Me data, an increase of 6 per cent year-on-year, while a debate about heritage value versus development has been in the spotlight(external link).

A land-value based rating system would allow property owners to build housing, without seeing an increase in their rates bill.

“It would also ensure that land is used more efficiently, and encourage more affordable housing,” Fitzsimons said.

She had asked council officers to investigate what impact charging rates only on land value would have in Wellington.

The council was also willing to work with building owners who had existing buildings which could be converted to housing.

“We have a housing crisis in Wellington, and the council must do everything possible to ensure existing properties are habitable and tenanted.”

Senior Economist at Infometrics Brad Olsen said, depending on how it was done, moving to a land value-based rates system would not necessarily change how much homeowners were currently paying in rates.

“What it will do is help change how we slice and dice the pie.”

Currently in Wellington, and across much of New Zealand, rates were based on both land value, and the value of the buildings on top of it. Building medium-high density housing resulted in a rates increase.

Research from the Productivity Commission showed taxes and rates on capital values created a disincentive at the margins for owners to invest in property development.

But, charging rates based on capital better reflected who was using council infrastructure, Olsen said.

“Having the capital value of an apartment block being rated on means all those people who are there – using the roads, and the services council provides – pay for that because there is a greater capital value, compared to a one-bedroom house, on the same-sized land next door.”

Councils had limited options for how they were able to bring in money, and how they could assist developers.

There were not going to be quick wins for councils trying to help the housing market.

It was encouraging that councillors were looking for new housing options when it came to setting the direction of the city for the next 10 years, he said.

Land value-based rates are not a new idea in New Zealand, but their use has been declining. According to a 2019 Productivity Commission report, in 2007 33 per cent of councils used a land-based rates system, dropping to 12 per cent in 2019.

Council spokesperson Richard MacLean said the idea of using land value rating had not been formally raised or discussed.

READ MORE(external link)

Wiltshire, L 2021, 'Land-based rates changes proposed to ease Wellington housing crisis', Dominion Post,  14 January, accessed January 22 2021 from stuff.co.nz.

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