Exactly how does your Council calculate rates? Ask a Quantity Surveyor

Aucklanders are up in arms this week with fears that their property rates will rise dramatically with newly-released valuations, which saw an average CV increase of 46 per cent.

Councils always cop a lot of flack when property values rise and almost simultaneously we hear that rates are going up for the following year. While the two are connected, it’s probably not in the way you think.

When capital values rise, councils don’t rake in more money from ratepayers. Rather, councils have a budget set already for the coming year, which has nothing to do with property values. Instead, it’s an amount of money – in a city like Christchurch for the 2017/2018 year, for example, it’s $455.6 million – that will be required for all civic amenities. This can be everything from new civic buildings to community pools, public transportation subsidisation, to recycling collection and our favourite “cycle friendly” roads.

A property owner’s updated CV will affect how much of this council budget they will pay, however. This is because ratepayers pay a proportionate annual amount of that budget, based on where their property sits in relation to others in their city.

That means, when a CV rises above the average increase, the owner will end up paying more in rates to meet the $466.5 million budget. When a CV rises below the average increase (or stays the same, or even falls) they will end up paying proportionally less of that $455.6 million.

If you owned a property in Auckland and it rose by the average of 46 per cent, therefore, your rates wouldn’t change. But the higher your value increase on that average, the higher the rates increase and the portions are redistributed.

What we’ve been seeing across New Zealand in recent years is residential CVs growing faster than commercial CVs, which means residential property owners will see a proportionate increase of more dollars than commercial owners will.

Overall rates increases will only incur if/when a city council decides more money is needed to run the city (and its projects) for a financial year. This usually happens with population growth, but with this the sheer number of ratepayers also increases to meet civic demand.