THE PRESS SATURDAY, JANUARY 23, 1988. A question of values

Press, 23 January 1988, Page 22

THE PRESS SATURDAY, JANUARY 23, 1988. A question of values

The high inflation of recent years and the rapid building development that has changed the face of New Zealand cities have also meant a rapid rise in the value of property. The rise has not been equally shared. Some rural properties, which have suffered a drop in value in recent months, have nonetheless shown an increase in values over a five-year period that bears little relationship to the universal yardstick of the worth of property, the Government valuation.

In towns and cities, residential property prices have also moved rapidly ahead of the Government valuation, more extremely in some sought-after suburbs than elsewhere. Prices paid for commercial sites that are suitable for high-rise development have made a nonsense of Government valuations that are in some instances four and five years old. The dislocation of Government valuation and market prices causes problems. The Government valuation is used for a great many purposes, of which the apportioning of local body rate levies is only one. The Government valuation is also used as a benchmark for levying land tax on taxable properties, for lending money on mortgage by Government departments and by trustees under the Trustees Act, for assessing stamp, estate, and gift duties, and for fixing prices for transfers of land to or from the Crown. Ideally, the Government valuations should be neither above nor below the fair selling price. Otherwise, serious distortions can, and do, result. The problem is to bring the Government valuations, for the most part revised every five years, closer to the realities of the market place. Even in Christchurch, which has not had the extreme movement in property prices experienced in Auckland and Wellington, the latest Government valuations, made in July, 1984, have become increasingly irrelevant to market rates. Sometimes, sale prices in Christchurch prove to be more than twice the valuation put on the property less than four years ago. The Government valuations are likely to become even more unrealistic by the time they are five years old. A big step towards a greater relevance in Government valuations has been taken with the decision to shorten the five-yearly cycle of valuation revisions to three years. By 1990, a new valuation will be available for all properties every three years. To achieve this, the Valuation Department is making great use of computer technology. It is also proving to be an uncommon animal among Government departments: one that is providing an improved and more frequent service without increasing staff or basic costs. In fact, the department has reduced its costs in constant dollar terms, ignoring inflation, by about 50 per cent in the last two years and it has fewer staff. During the change to a threeyear cycle, some local body districts will be revalued four years after their last valuation and will then go on to a three-year term. Christchurch is one of these.

The three-year cycle is supported by most of the 254 local rating authorities in the country. Their reason is the same as, or similar to the reason advanced by Christchurch City councillors at the time of

the Merivale “rates revolt.” The argument is that more frequent revaluations will reduce the degree of the increase in value when the valuation is applied. This, in turn, will mean that the redistribution of the rating load that occurs with each change in valuations will not be as abrupt. The impact of changes to rating incidence on properties will be evened out.

When it comes to levying rates, of course, local bodies decide on the amount of money they need to meet their budgeted spending. Up to this point, the valuation roll does not enter calculations. The Government valuation has nothing to do with the total amount of money that a local body decides to levy in rates. Once this decision has been taken, however, the Government valuations are applied to see what proportion of the total rate demand is applicable to each property. This is where changes to valuation affect the size of the individual rate demand. If every property value went up by the same amount, the rating load would remain the same on each property; this is not so in practice and, as a general rule, properties that change most in value change most in their share of the rating burden. The biggest beneficiary of the change will be the Government, through the land tax it collects on commercial properties with a Government valuation of more than $175,000. Up to that figure commercial properties are exempt; between $175,000 and $350,000 they are taxed on a sliding scale; and above $350,000 they are taxed at a flat rate of 2 per cent. The more frequent revaluations under the new regime will mean an earlier disclosure of higher values and, therefore, earlier collection of higher taxes. The amounts involved are substantial and commercial interests are bracing themselves for the worst. Some measure ,of what is entailed can be gauged from two examples. Wellington City has already gone on to a three-yearly cycle of revaluation. The change in values of commercial properties as assessed in the new valuation roll compiled last year had the effect of increasing the land tax from the central city tenfold. In Auckland, the last valuation done was in 1983. The central commercial area was valued then at $5OO million. A new valuation is due in the next few months. Given a movement in commercial property values in Auckland similar to the movement in Wellington, and the longer interval in Auckland since the last valuation, the new value is expected to exceed $6 billion. Apart from bringing several million dollars extra to the Government’s coffers a little earlier than it might have been taken otherwise, these new valuations are also likely to be reflected in other ways, such as more frequent rises in rentals, both commercial and residential, to more accurately reflect the increases in property values. As well as giving the public a more frequent and more realistic assessment of property values, the seemingly simple change from five years to three between revaluations will have wide-ranging consequences in many arenas.