This is a desktop exercise and the valuation information provides the database used by the council to set the rates for each property. Older readers may refer to this figure as the government valuation, as it used to be known. This valuation is for rating purposes only and it can be substantially different from a market valuation. Property owners who are unhappy with their valuations can appeal to have the property reassessed. The most recent revaluations in the Stratford district were released in December 2023.
Generally speaking, and making the assumption that most properties increase in value over the three-year period, owners are often pleased to know their investment is growing in value and that, if they were to sell, they will most likely make a capital gain. But with an increase in capital value for a property comes a downside in the form of a likely increase in rates. Why is this so?
As I explained in last week’s column, the total rates collected by councils are made up of different categories. Some categories, such as water services and rubbish collection, are based on set dollar amounts and therefore are not affected by property value. However, other categories, such as the general rate and the roading rate, are based entirely on a property’s capital value.
With respect to the two latter categories, simply put, the more your property is worth the more rates you will pay. Some argue about the fairness of this system, saying a higher property value doesn’t mean a homeowner gets anything more in council services.
Rightly or wrongly, this is the reality of the rating system. In my opinion, it’s a blunt tool but it remains the principal funding mechanism for councils.
One of the most commonly held myths I hear about rates is that, when property values increase, so does the council’s rates income. This isn’t correct because the cents charged per dollar, as used for rates calculations, are adjusted to allow for this. As a result, councils still receive the same total rates revenue. Councils also factor in new home builds, new subdivisions, property amalgamations and the like, which cumulatively have a significant impact on the rates other properties pay.
What property revaluations do affect is your share, or portion, of the total rates collected and, when one property changes in value by a different amount than another, that share or portion will change. Sometimes the change can be large and comes on top of other changes a council might make.
The 2023, revaluations produced some very large variances or swings between property types. In general terms, pastoral sheep and beef properties increased in value by around 34%, residential properties in Stratford by around 30%, lifestyle properties by around 39% but, at the other end of the scale, dairy farms increased by only around 3%.
This huge variance between sectors has a dramatic effect on where rates are collected and who pays the bill. In this case, the burden has swung significantly away from the dairy farm sector and onto urban, lifestyle and pastoral properties. The impact and magnitude of these changes to rating values is quite staggering and has contributed to the large variance of rates increases, where some properties are experiencing increases of more than 20% while a handful of others are enjoying rates decreases.
There have been plenty of times in the past when the swing has been the other way and dairy farmers have been the sector hit hardest.
In practice, this large valuation change, which is outside the control of the council, will affect people very differently. Going back to my earlier explanation, and factoring in the different trends in property values and property types, this will result in urban dwellers along with sheep and beef farmers paying a higher portion of the rates increase than other sectors this time around.
Interestingly, even if in a hypothetical situation the council miraculously said it did not need an increase in total rates revenue, a revaluation would still change nearly everyone’s rates. The sector with the highest valuation increase would rise the most and those with the smallest increase would even go down. Yeah right, I hear you say, but I did say it was a hypothetical situation.
In reality, rates very seldom, if ever, go down. So why do rates keep rising and why do they increase at levels much higher than the rate of inflation? That’s the issue in next week’s article.
