Policy change popular with business could mean higher rates

Thursday, 2 November 2023

Property investors and the Chamber of Commerce are keen on a proposal that would see businesses pay less of the city’s rates, but it comes with a catch.

A reduction in the Wellington City Council’s commercial differential, which determines the proportion of rates paid by businesses compared with residents, was proposed as part of the Rating Policy Review. The council heard submissions on Wednesday evening.

To reduce the amount of rates paid by businesses, residential ratepayers would be hit with an increase, phased in gradually over a few years, to make up the difference ‒ their share of the rates would increase by at least 4%, depending on how much business rates were reduced.

The Chamber of Commerce welcomed it as a move to ease the burden on businesses, but would ultimately like the council to go further and abolish the differential entirely.

Currently Wellington has one of the highest commercial differentials in the country, with businesses paying 3.7 times the amount of rates paid by residents. In Auckland the differential is 2.62 while Christchurch is 2.22.

The council’s recommended option was to reduce the differential to 3.25, bringing it closer into line with cities in the region like Porirua at 3.1. (Lower Hutt is higher, at 3.45 for businesses in the CBD.)

Residential rates would increase by 4% for the average household as a result, while commercial properties would get a rates cut of 5.5%.

The Chamber of Commerce’s submission in support of the change included an economic report from Sense Partners, showing that a reduction in the differential could boost employment, wages and productivity in the city.

“In the longer-term, we hope to see the differential reduced and ultimately abolished,” chief executive Simon Arcus wrote. He acknowledged that getting to that point would require a lot of further work and analysis.

Residents were less enthusiastic about the change, although the pool was small with just 12 submitters. Many residents said they were “unsure” about the change.

Mike Mellor suggested the council had pulled the numbers “out of a hat” and thought the commercial differential should stay as it was.

“Apart from anything else, proposing a 4% increase in residential rates on top of any annual increase is politically dumb, particularly when no proper justification for that increase is given.”

Greg Henderson, another Wellington resident, wrote that he had purchased his first home in 2021 and since then rates had increased each year, making the city an unaffordable place to live. He did not want the commercial differential to decrease at the expense of residents.

Another proposal under the review was designed to make land-banking more expensive, by making rates on vacant land 4.5 times higher. It was not popular with property investors.

Property Council chief executive Leonie Freeman said it was “extremely concerned” at the suggested blanket rate on vacant land, which would cover about 60 properties in the inner-city.

There were many reasons why property owners might have a vacant site, including waiting for resource consent and construction delays, said Wellington chairperson Gerard Earl.

“We should be working together for Wellington’s future. The council could take a more targeted approach, talking to the owners of the vacant sites to determine what stage of the development process they are at and what community outcome the developer hopes to achieve.”

The council’s proposal defines vacant land as land that is not under development, has no active use, and excludes land which is not economical to develop, and includes derelict buildings.

Jesse Richardson, a Wellington resident who has advocated for Wellington to change its entire rating system from capital value to land value only through Common Ground Aotearoa, wrote in his submission that vacant land rate was not a replacement for changing the rating system.

He did support it because it was a “step in the right direction”, though it was not a solution to the issue of land speculation.