Auckland accommodation businesses on the warpath over planned rates hikes

Friday, 17 March 2017

Auckland backpacker lodge owner Campbell Smith says visitors will simply go elsewhere if council rates hikes push up room prices.

Auckland commercial accommodation businesses are squaring up for a fight over paying for city tourism promotion. Amanda Cropp reports.

Campbell Smith and his brothers pay about $30,000 a year in rates for their 50-bed Verandahs backpacker lodge in Auckland's Freeman's Bay.

Auckland mayor Phil Goff says getting the city's commercial accommodation to pay for tourism promotion is only fair because most of their guests are visitors to the city.

If a new targeted rate to raise up to $30m for tourism promotion and events massively raises the lodge's rates bill, he says it could spell the end of their business.

'Do we struggle on, or sell up and move on?'

Colliers International spokesman Dean Humphries says Auckland needs an extra 3000 hotel rooms and high property rates will deter developers.

At the very least they might have to reconsider the addition of two more rooms as part of a scheduled renovation.

Smith is far from being a lone voice in opposing a proposal that affects Auckland's 300 or so commercial accommodation providers.

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Hospitality New Zealand calculates the capital value-based property tax mooted by mayor Phil Goff could lift some businesses' rates by between 150 and 300 per cent.

It would cover hotels, motels, serviced apartments, camping grounds, holiday parks, backpackers, short stay hostels, bed and breakfasts, homestays and lodges.

Tourism Industry Aotearoa chief executive Chris Roberts says he has never seen the accommodation sector so steamed up or united over an issue.

Councils at other major visitor destinations around the country use targeted rates to fund tourism promotion and events, but Roberts says they are applied to businesses in general, not just commercial accommodation.

The industry objects to being treated like a 'cash cow', he says and that will be made clear on Monday when it presents a submission on the council's annual financial plan.

Playing fair

Both sides of the argument talk a lot about fairness.

Goff says ratepayers tell him it's only fair that those who benefit directly from marketing the city should contribute more towards the cost.

In return, he says the tourism industry would get a bigger say in how the promotions budget was spent, and the council could afford to spend more on vital infrastructure such as transport.

When demand is high - such as during the forthcoming Lions rugby tour - Goff claims hotels bump up their prices 'massively, sometimes hundreds of dollars', so they can simply add a bit more on to cover their higher rates bill.

'When tourists come to Auckland they're less likely to be worried about another $5 or $10 on their room rate, than being caught in traffic for two hours to get to their hotel'.

That riles Smith who says the backpacker market is very price-sensitive and guests complained after he raised prices a couple of dollars to cover the 15 to 20 per cent commissions charged by booking engines like TripAdvisor.

He argues it's unfair to expect the accommodation sector to bear the brunt of promotion costs when accommodation accounted for only about 10 per cent of the $7.5 billion spent by visitors to Auckland last year.

'Our guests go all around the city to restaurants, cafes, supermarkets, it's very unjust'.

Price resistance is appearing at the other end of the market too and general manager of the Pullman hotel Rob McIntyre says people are already bypassing Auckland hotels because they're considered too expensive.

A council report on the annual budget does canvas other alternatives

A targeted rate on all businesses would add just over 5 per cent to their rates bills, and levying it solely on CBD businesses would result in a 26 per cent increase.

Hospitality New Zealand accommodation spokesperson Rachael Shadbolt says that's a lot less than the rises facing her members.

'For a hotel this could be in the realms of $900,000 off the bottom line. For motels, which are often husband and wife teams, this is the difference between taking a wage from the business or not'.

Shadbolt says rates are often paid by the building owner, not the hotel management company actually running the premises, and many operators are locked into contracts setting room prices well in advance, which also prevents them from passing on the targeted rate.

Scaring off investors

The Ministry of Business Innovation and Employment has encouraged hotel development to make up for a short fall in accommodation and there are fears a targeted rate will put investors them off Auckland.

National director hotels for Colliers International Dean Humphries says anything that eats into profitability can tip over an already marginal project.

'Two or three of our clients have come back and said 'if this [rate increase] happens, we will not be going ahead with our development' … That equates to about 500 rooms. Auckland only has 9000 rooms so that's not an insignificant number.

'In places like Australia they've provided rates rebates to persuade people to build new hotels because they're expensive'.

However, Goff is not convinced the targeted rate will jeopardise new hotels, saying occupancy and growth rates make Auckland one of the best places in the world to invest.

But he is willing to listen. 'If there are problems that we have not thought about or might not be fair, we can make adjustments'.

The Queenstown solution

The Queenstown Lakes District Council began charging businesses a tourism promotion rate - including commercial accommodation - more than 20 years ago.

Since the late 1990s holiday homes rented out more than a certain number of days a year have contributed, and more recently Airbnb operators have had to help pay for tourism marketing too.

Recently council staff sent letters to 800 owners found to be advertising short-term rental accommodation online, but paying residential rates on their properties.

The council's chief financial officer Stewart Burns says 200 agreed to register their holiday homes as required, 300 said they were no longer renting, and staff would chase up the remainder who had not responded.

At this stage the Auckland targeted rate excludes holiday homes and Airbnb operators.

But an Airbnb spokesperson confirmed it has met mayor Goff to discuss its 6000 Auckland listings being covered by the rate, and further talks are scheduled.