RATING SYSTEM

Evening Star, Issue 18543, 28 January 1924, Page 8

RATING SYSTEM

UNIMPROVED VALUE ANALYSED. MERITS AND DEMERITS. TOWN CLERK’S REPORT. Some lime back the town clerk (Mr G. A. Lewin) was requested to report on tho system of rating known as tho “ rating on the unimproved values.” Tho reference from tho Finance Committee of the City Council read as follows:—“That during tho current financial year tho town clerk investigate and report fully on the merits and demerits of rating on tho unimproved value system, and, if necessary, ho visit Christchurch and Wellington to fully inquire into and report on tho working of the system in those cities.” system in those cities.” * In accordance with the above Mr Lewin now reports: As the result of my investigations and general study of tho whole subject, extending over many years, and disregarding for tho moment all academical considerations an eat tho theories of different rating systems, I am persuaded that the chief merit of the now system lies in tho fact that in practice it tends to check the holding of land for speculation purposes. If a person should be holding, say, desirable building sections for what is called the “ unearned increment,” it is possible that tho difference in tho rate demand upon him under the annual value system and tho unimproved value system may, in some cases, be sufficient to induoo him either to build a house on tho land or dispose of it to someone who would do so. Whether there is any general tendency to hold land in Dunedin for speculative purposes mrt§ bo a moot point; but I am satisfied that if such a tendency should exist, then the rating on unimproved values would tend to discourage it, and, as I have already stated, that, in my opinion, constitutes in actual practice tho chief merit of tho system.

From the fact that the system is likely to operate against the land speculator and the man who holds for tho “ community created increase ” in value the system is, I think, eminently suited to a now and rapidly-crowing district, inasmuch as it gives the local authority an improved prospect of collecting its maximum rate income from the inception of its activities, and may, therefore, assist in discouraging borrowing for non-reproductivo public works, such as street formation. In such circumstances, too, it is quite conceivable that at least some of tho inequalities of the system, when applied to an older and widely-developed district, may be less in evidence. With an extension of the open space provisions around dwellings, as now proscribed by the Municipal Corporations Act, the system may, in the circumstances indicated, prove useful for a limited period. On tho other hand, that tho system has certain very pronounced demerits cannot, I think, bo denied. In tho first place, it certainly tends to the creation of “ pockethandkerchief ” sections. Tho advocate of the system meets this contention with the cry for building regulations and tho provision for a minimum lot-area, for residential purposes. This is, no doubt, impressive enough in theory; but in any such regulations that could he supported on tho plea of prudence and fair dealing it would be an undesirable tendency to find the prescribed minimum agea steadily becoming tho maximum in the case of dwellings; but that is most assuredly tho trend of affairs under the particular system referred to in a much more marked degree than in any other system of rating. In other words, it tends to tho congestion of buildings, and all experience of tho system disproves tho theory that “ a fox on land values would do away with the necessity of housing laws.” If any system of taxation such as we are dealing with—i.e., local rating—can bo said to have any influence at all on the housing question, then it seems clear that the rating on unimproved values system exerts a pernicious influence. If a land owner is forced to adopt a policy to evado local rating as far as he can legally do so, then examples given seem to point the direction to tenement bouses n.s the predominant form of dwellings available for hire, Tho further claim by advocates of tho system that by increasing the tax you cheapen the land appears to me to rest on a very insecure basis, and I can find no practical experience to support a theory so 'diametrically opposed to all accepted notions of tho effect of increasing taxation on any commodity. ’

Within the limits of the city of Dunedin wo have large areas of rural land used for grazing purposes, and quite unsuited for subdivision for residential use, or, at any rata not in demand for such use. Such lands are doing good sendee under existing conditions 'in helping to supply the city with milk and other farm products. Such properties would bo heavily penalised under a land value system of local rating. This is one of the admtiled inequalities of tho system, and all sorts of devices have been put forward to meet the position. One of the drawbacks to the adoption of tho system appears to mo to be connected with tho relatively stationary nature of the total rateable valuation. It has already been shown that upon the adoption of tho system wo should be required to use the Government valuation roll for the district. This roll, unlike our own roll under the present system, is not remade each year. A complete revaluation of tho city is made by tho Government department only, at very irregular periods—perhaps after a lapse of five or seven years, or even longer. That means that the total assessment on which the basic rate is calculated is very largely a stationary figure. In this respect tho position is in striking contrast to the annual value system, where wo get the benefit of a completely revised roll each, year, and thereby obtain tho full advantage of all new buildings that have been added.

Each now building that is creeled imposes some additional burden on the civic treasury in the additional cost of the multiplication of civic services rendered, such as water supply, sewage pumping, house refuse collection, to say nothing of the more extensive works, such, as street improvements and lighting, etc., that become more and more insistent as buildings in any particular locality increase in number. In proof of this fact, it should be noted that in the period 1916-23 the cost of certain of these general services increased by over 52 per cent. No doubt that was a somewhat abnormal increase owing to the exceptional conditions prevailing at that period, but a comparison of the figures for any other periods would, I am sure, show a substantial advance..

This year we are collecting the same basic rates for our own purposes—that is, the general and water rates —as wo did in 1916; but in tho interval tho total assessment on which these rates are levied has increased by over £208,000, which, at our total rate- of 4s 3d in tho £ for tho current year, provides an increased income from rates of a shade over £44,000 in 1923 as compared with 1916. Had we been operating under the unimproved system, with tho taxation of improvements entirely eliminated, added to the. comparatively negligible increase in the assessment based on land values alone, and the further fact that the lower rate of accretion in the value is not made available to us year by year, tho only other method by wliich wo could have provided ourselves with that additional £4?,000 would be by advancing the basic rate on all properties. That is tho experience of some other towns whore the system is in operation—viz., a fluctuating basic rate year after year, generally, of course, with an upward tendency, because, obviously enough, tho cost of all new civic services to the newlyerocted buildings must be met by the whole area, since these buildings do not themselves provide any added sourco of rate income by an accretion to the total rateable valuation of the city. Again, in actual practice another disadvantage is found in the more complicated nature of the valuation roll and the conditions of its compilation, which precludes thp prompt levy' of the rate rs wo nro able to' achieve it under the existing system. I do not wish to infer that anomalies .do not exist in our present valuation

list. On the contrary, I am aware of numerous such instances. These arc due, however, almost, if not wholly, to the exceptional conditions regarding the housing question that have prevailed during the war and the post-war periods. A gradual writing down of the assessments of many of the buildings that were erected during the period of inflated costs seems inevitable if.these anomalies are to bo eliminated, as they unquestionably should he. Tiro point I desire to make here Is that the system of rating on land values does not afford the least escape from anomalies in the assessments, and that under nominal conditions it should be much more simple to achieve a fair basis of assessment under the letting system than under the alternative proposal

It I have been unable to record many merits for the new system, when applied to a city of the characteristics of Dunedin. I wish not to be understood ns regarding the existing system as by any means ideal. Probably no system is ideal. Probably, also, no system that could be so regarded will ever be devised. At the moment there is a bouse shortage in New Zealand, as in . almost every part of the world; but, clearly enough, that is not due to the inability of the persons requiring houses to acquire land upon which to erect them. The real reason is too well known to call for mention here, but under the land value form of taxation owners of unoccupied lands throughout the whole area to bo assessed throughout the whole area are to be assessed as if the land were actually required for building. The answer to the question regarding the prevalence of the practice of holding land for speculative purposes involves many considerations, and having regard to the relatively low rate of increase in the land values, taking the city collectively, it would appear that tho practice offers little •or no attraction for the land speculator. In tho case of tho city’s leasehold properties that are let on twenty years’ leases with a revaluation of the ground rent, the new rentals, as assessed for renewal purposes, appear rather to confirm this view. But even if it should be contended that there exists “ a mischief or defect to be remedied,’’ it is worthy of note that there are other methods available besides the rating on unimproved value system, which, if it has th ; s merit, most certainly has other counteracting influences of a distinctly undesirable character. There is much talk nowadays.on town planning, and one of the needs of most cities is to bo provided with some feasible and rational means of fully developing its area within the limits to which it has ah-

ready extended its several public •services, such’ as tramways, water and gas, and sewerage mains, and the other community services that it renders. The abnonuu* capital cost of these services under or*-sent-day conditions is, I am persuaded, going to prove a knotty problem for man/ cities and towns, and it is of portance that the vacant places shah b<f filled up before costly extensions of thft several services named and others that could ho mentioned are taken in band. This view lias of late been forcing lte<slx into notice, and if we are to apply anything in the way of a brake to cxcpbsivo public borrowing, it will demand consideration in the near future. A specially devised tax on unusca lands within a specified zone—and that is the gravamen of the idea should seem to offer outstanding advantages, providing, as it would, far'greater scope for control in development than a laud value tax made applicable throughout tho wide area of a city constituted as Dunedin is, with its large aross of rural lands that may not call for further development for many years. Tho alternative is to faco increasing public borrowing for the extension of utility services, thereby entailing added burdens for interest and other charges, perhaps, in many cases for extensions that cannot hope to prove selfsupporting for many yew's to come. No doubt objections can bo urged to any such scheme, but new conditions call for new methods of dealing with them, most of us are becoming reconciled to the very real existence of the new conditions that have emerged a-s tho result of the happenings of tho past few years. The point here raised is germane to tho rating question, as I think I have shown; hence tills reference to it, but it embraces other aspects of civic politics which need not further engago attention at this juncture. That the principle at stake already finds a place in our statutes is something in its favor.

fn conclusion, I wish to say that, while I have freely expressed the merits and demerits of tiro subject as they have appeared to moj I realise that the question is an important and many-sided one, and am conscious that tho system of rating on unimproved values can claim many enthusiastic advocates. I have not in any instance intended to dogniatise. The natnn? of the scheme has been indicated, and I have attempted to state what I regard as its advantages and tho objections against it. The matter is one of policy, which in terms of the Act must bo determined by the ratepayers themselves That my efforts should prove of some assistance to tho committee in making its report to council is all I hope to achieve.