Rating values explained

By: Vicki Phillips

Auckland Council will update rating values this year, and we often get asked, given the positive market movement since the last rating valuation, will my rates increase?  Well, the answer is complicated, but to put it simply – it depends!

Councils apportion rates based on rating values (RVs). These are assessed every three years using a mass appraisal approach, largely computer calculated and considering a number of factors such as property type, location, land size, zoning, dwelling floor area, consented work and recent sales data.

Based on the 2013 Census, there are over 470,000 dwellings in Auckland, plus thousands of commercial properties, so assessing RVs is no easy task. The process has improved with access to a lot more data but it is not an accurate assessment of current market value, nor should the information be used for insurance purposes. The process calculates a Capital Value (CV) being an estimate of the selling price, used as the Rateable Value (RV); a Land Value (LV), the most likely bare land selling value; and Improvements Value (IV) being the difference between the RV and LV.

Due to the number of properties, this process cannot individually assess every property, accurately taking into consideration things such as views, amenities, condition, fixtures and features which contribute to the appeal, and therefore the market value, of a property. It also relies on having accurate property data, which is not always the case, especially when it comes to dwelling sizes.

Traditionally, purchasers have used the RV as a benchmark when assessing market value, which is clearly flawed and becomes even more meaningless as the market moves over time.

There has been considerable market movement since the last rating valuations were done; REINZ records the median sales value for all of Auckland as being $610,000 in July 2014 compared with $845,000 in June 2017 (a 39 percent increase), so how may this effect rates?

Firstly the Council set their budget based on their planned spending for the new financial year. After all fixed charges per rateable property are calculated (Uniform Annual General Charge, Waste Management Fee and Transport Levy) and deducted from their total budget, the remainder is generally apportioned over all rateable properties (based on type – residential, rural or commercial) with weighting applied depending on the proportion of rates paid by each property type. The share of this remainder is apportioned using the RV.
Therefore, many factors influence the change in a rates bill – the amount that Council has increased its budget, the change in number of rateable properties (affecting the total value of fixed charges), the way Council applies the weighting factor between property type and finally, compared to the last RV assessment, how much a property has changed in relation to others in Auckland.

For example, if your RV has increased since July 2014, but not as much as the rest of Auckland, it could be possible, depending on all the other factors, for your rates to remain the same or decrease as the greater share of the increase is absorbed by other properties. Those whose zoning has changed to higher density under the new Unitary Plan may see significant increases in their land values in relation to other properties, so the opposite may apply there, with rates increasing by a greater than average amount.
Rates for this year have already been assessed based on the July 2014 RVs, and new RVs will be available in November for assessing next year’s rates. It is still important to look at the new RVs and see if they fairly represent the value of your property.

Houseowners can object to the assessed RV within a set timeframe, requiring the valuers completing the RV to take a closer look at the assessed value for features not considered using the mass appraisal process. Any review of an RV will obviously adjust the amount of rates paid.

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