RATING SYSTEMS

Evening Star, Issue 22783, 4 May 1931, Page 2

RATING SYSTEMS

TO THE EDITOR. Sir* —Having had over a quarter of a century’s experience in the loc.'vl property and money markets I feel that i am qualified to express an opinion on this subject. /In the, first place, I have learned from experience that theory frequently affords unexpected results when put into practice, as some of our Australian friends have recently realised. It is a sound rule not to depart from a settled policy until absolutely assured that the change will be for the better, and so far the advocates of the proposal 1 now before us have absolutely failed to prove that the change would benefit even the workers. This morning I received a cirfc'iilar containing various figures purporting to give comparisons between Dunedin and Wellington rates and Dunedin and Christchurch rates. To anyone who has learned to think for himself these figures are absolutely useless and obviously inaccurate. If they were accurate one would expect to find thef rates on the £BOO Wellington section exactly four times the amount of the rates on the £2OO section in the same city, and the same criticism applies to the Christchurch figures. However, there may be some simple explanation that has not occurred to me, but I would point out that in any case the comparisons conveyed by the figures are not only misleading, but useless. In the first place, there may be a considerable difference between the cost of a Christchurch property of the capital value of £I,OOO and the cost of a Dunedin property of the same capital value. The capital value is Really the market value, and no matter where the property may be situated it may be considerably more or considerably less than actual cost. Other conditions being equal, a property in Dunedin of a capital value of £I,OOO on which the rates are about £ll would be distinctly superior to a property in Christchurch of the same capital value on which the rates are about £5, for the simple reason that the greater the burden in the way of rates, etc., the more the capital value of a property is depreciated. To put it another Wjay, if the two properties are. each worth £l,ooo, then the Dunedin property must command a higher rent to enable the owner to pay the extra rates and still have as good a return as the Christchurch owner.

However, the comparisons referred to are absolutely useless for other reasons. Ifor example, we are not told what benefits the Wellington and Christchurch citizens obtain for their rates in the way of electric light and power, water, gas, drainage, tram fares, etc., as compared with the cost of the same to our owui citizens. Wo are not told what it costs Christchurch to lay and maintain its streets and footpaths as compared with Dunedin. Christchurch must have a tremendous advantage in this respect. I quite admit that Wellington has not the same advantage, but, if there is one thing I feel proud of when 1 visit Wellington it is our Dunedin main Streets. I should also like to know what it costs us for our water supply compared with Christchurch, where the supply is, apparently, both unlimited and cheap We must not overlook the fact that the initial cost of our water, gas, electric, and drainage systems still have a distinct bearing on the amount of our rates. It is nonsense to contend that, because the rates payable in one city under one system are more than the rates payable in another city under another system, the latter system is to be preferred. It would be just as logical to contend that, because one landlord charges more rent for a Princes street shop than another landlord charges for a similar shop in a different part of the city, the latter is the more just arid reasonable man. Personally, I am just as keen as any one to see our rates reduced; and, if the proposal is carried, 1 have nothing to fear in the way of an increase on my own home, provided i can rely on the contentions advanced by those advocating the change. Unfortunately I cannot agree with them for the following reasons;— (1) The only class who are certain to benefit are the owners of large buildings and shops in the business areas. There is absolutely no assurance that any other class, as a whole, will benefit at 'all; blit wo Have this absolute certainty' that the huge amount lost in rates through the exemption of these commercial buildings will have to be made good by all the landowners in the city-i—the freehold of the poorest worker having to bear its proportion of this additional burden.

(2) The present system is the more equitable, as it, is the nearest approach to rating according to ability to pay. If, say, a doctor owns a £3,000 house on a quarter-acre in my street, and 1 have a modest £6OO dwelling on a section of similar size, why should he not pay more rates than I do ? He is making more use of the benefits offered by the city in the way of electricity, gas, water, drainage, etc., and probably using his house as his surgery as well, and why should he not pay accordingly? And if Jones at the corner further along has erected a shop on a tiny section no more valuable than mine, and is drawing several pounds a week rent from it, why should be not pay more rates than I do?

(3) One of the most valuable sources of revenue will be entirely lost to the city, and again the freehold allotment of the poorest citizen will have to bear its share of the additional burden, t shall explaiif what I 'mean. Under our present system the rates , are assessed on tho annual letting value. This letting value is the amount of the actual rent (less 20 per cent.), bub not less than 5 per cent, of the capital value.- Assuming a person purchases a business site for £2,000 and erects a building at a cost of £B,OOO, the initial capital value will be £IO,OOO. If the city valuer has to assess the letting value before the building is occupied, he can fix it at £SOO per annum, and the owner cannot object. Next year, however, the building is occupied by tenants paying amongst them a total rental of £I,OOO per annum; The city valuer promptly assesses the rateable value at 80 per cent, of £I,OO0 —that is, £BOO, and again the owner cannot object. The result is that the city collects rates on an additional £3OO per annum—a sum referable neither to the value of the building nor the value of the land, nor to the joint cost of both. This source of revenue is a most valuable asset to the city. 1 feel confident that, if it is swept away, as it will be if the proposal is.caitied, its loss will be severely felt by every landowner in tho city. The majority of tho shops and business premises occupied by tenants, particularly in the mam streets, must be paying rates on this enhanced value, and it would no doubt pay the owner handsomely' if the proposed change of system were adopted. 4. Dunedin has been built on the present system; we have adapted ourselves to it, and any drastic change, especially at tho present time, would be dangerous, it would, for example, adversely affect many people whoso houses are mortgaged, especially in numerous cases i, which, owing to the high value ot the land, as compared with the buildings, an increase of rates will follow 4 If, for. example, jfche pre-

sent tates are £lO per annum, and by the system now proposed they are increased to £2O per annum (which is quite conceivable as there are numerous instances in which they would probably be trebled) the property from a lender’s point ol view would bo depreciated in value by about £l7O, for the reason that, by the increase of rates by £lO per annum, the city corporation has automatically obtained a further preferential lien on the property to that amount, which is equivalent to a prior mortgage of per annum. For the same reason the selling price of the property is similarly depreciated If the proposal is carried a considerable revision of securities will be necessitated. Many borrowers may be called on at the first opportunity to repay or reduce their mortgages or to pay interest at an increased rate; and there will probably be cases in which the depreciation in value exceeds the amount that the owner has paid on the property. 5. The contention that the proposed change would give an impetus to subdivision of blocks of vacant land is not as sound as it would appear. In the past a rather popular and advantageous form of investment, especially for young men, has been to buy allottments in subdivisions, paying a small deposit and th 6, balance by easy instalments over a fairly Tpng period. The question of rates has been no worry. If, however, every allotment is to bear heavy rates, there is not the same inducement on the part of the vendor to offer easy terms of repayment unless the purchaser undertakes to pay the rates from date of sale, which he is not likely to 'do. He will probably prefer to save tip and pay cash for a section later on. The proposed change would no doubt induce an owner to subdivide and soil for cash down, but it would hot tend to encourage sales on easy terms. 6. In the interests of health and for the beauty of our city, our citizens should be encouraged to have gardens attached to . their dwellings. Notwithstanding what the .advocates of the change may say, the system they stand for would have, if anything, the opposite effept. 7. The proposed change would "drive out of the _ city many large business concerns which require a large area of ground for their works, and yards. This’ would mean that probably hundreds of employees would either have to live outside the city boundaries tolbe near their work or incur the inconvenience and expense of travelling to and fro. In any case it is a most inopportune time to suggest a step so severely, affecting our engineering works, foundaries, etc., whose proprietors no doubt are already experiencing difficulty in ’finding work for all their employees. 8. It will probably surprise many ratepayers to know that within the city limits there are at least 5,600 acres of land utilised for farming. If rating on the unimproved value were adopted, the occupiers of these lands would be driven out of the city, with the result that the price of farm produce would tend to increase. It may be contended that a lot of farm produce already comes in from beyond the city limits, but it must be remembered that those farmers who are' nearest the city and can produce and deliver at the least expense can practically fix prices. It may also interest many ratepayers to know that in the case of one farm the buildings and the bulk of the land are in the city, and the remainder of the land lies in an adjoining district in which rating on the unimproved value is in force; and yet the rates payable in the adjoining district exceed the rates payable to the city. 9. As a final reason, I might mention the hardship that would jio imposed on clubs and bodies holding sports’ grounds. Ido not stress this too. strongly, however, as amusement is now regarded more as a necessity than a luxury, and the bodies controlling the larger grounds will have no difficulty in passing the burden on to the public. No matter how hard we are hit by a change of policy in a blind effort to reduce the cost of living, there will still be enough of money available for sport and amusement.

I candidly admit that the present system has its defects. One serious objection is that you can hardly dare to improve your property without risking an increase in your rates. I know that many ratepayers threaten to support the proposal for that very reason. All I can say is that, if they do so. they may find that they have jumped from the frying pan into the fire. The proposal has been rushed at us too hurriedly. Let us use a little of the Scotch caution that characterised the founders of our city, and make sure of the probable results before we. take the step. The devil we know_ is to be preferred to the one we don’t’know.—l am, etc., Look Before You Leap. May 4.

TO THB EDITOR. Sir,—l think Mr Silverstone has overreached himself. He is either insincere in his view on the unimproved rating or is using this means as an axe to grind his way to the City Council table. I cannot help thinking that both influences are taking a prominent place in the master mind of Mr Silverstone at the present time. In support of this I will quote some of his own figures. He says: “There are 8,730 workers’ cottages of four to five rooms and 2,488 of six rooms, the total of one to six rooms occupied by the working classes being 12,054 —a vast majority of the ratepayers.” He says: “The unimproved system of rating would reduce the burden of these workers’ cottages by one-third.” How does Mr Silverstone know that it would reduce these workers rate burden by one-third? That this is a dangerous and unwarranted statement for him to submit to electors upon an important poll I will proceed to show. Where are the majority of these 12,054 houses? < Most people know the comprehensive view one gets of the city from any vantage point of Upper Queen street near the Woodhaugh end. Look down below and j*ou will see the majority of these houses Mr Silverstone quotes. If you know land values —whic|i, in other words, are Mr Silverstone’s unimproved values—you will also see below you the clearest demonstration of the injustice that Mf; Silverstone through his advocacy wbuld perpetrate on the owners and occupiers alike in these houses below. For they are the houses of the workers. ' Yes, nearly every one of them; there is hardly a residence, of large proportions in the lot. This is the oldest built on portion of Dunedin, from John Hyde Harris’s days, and this has ever remained the most thickly populated area. Now cast your eyes to that portion between St. Andrew and Howe streets. Note the advent of factories into this area during the last few years, and note also that it is the natural trend for factories to come this way. When factories come what happens to land values? They soar; yet Mr Silverstone, who refers to the ignorance of editors and others, displays his own when ho invites electors to vote to have our rates based on land values.

Tho issue at stake is too important to base one’s ideas on mythical dreams such as Mr Silverstone conjures up by his misleading statement that he will reduce the workers’ rates by one-third. Let me give you an example. In the residential-cum-factory area of Castle street, near Hanover street,, a section about 20 poles changed hands recently for £I,BOO for manufacturing purposes. It had an old cottage on it .which wftS

pulled down, so the £I,BOO represents the value of the land. The adjoining section with house thereon under present rating would pay about £lO. Taking Mr Silverstone’s own basis of £5 8s 4d as being the unimproved rate in Dunedin on every £IOO _oi ground value, the people in this vicinity would have their rates put up from £lO to £97 10s per year—a very cheerful prospect for north-enders, to say the least. Explanations come so easily from Mr Silverstone, but even he can’t explain away this. This is an actual fact, and if Mr Silverstone does not like facts like these let me remind him that Government valuers do. There is nothing like the fee simple in a recent land sale to show Government valuers what to do with the adjoining ground. How far is this expensive ground going to extend north? Or is Mr Silverstone with his magic wand going himself to draw the line of demarcation between the £I,BOO sections and those he says will benefit under unimproved rating. If Mr Silverstone or anyone else doubts the validity of tin's statement let him go and have a look, knock at the doors of the adjoining properties, and he will, if he has any reasoning powers at all, get absurd notions of changing our present system for a worse one knocked out of his head for all time.

Mr Silverstone keeps on quoting Christchurch, but ho omits to say that unimproved rating there has forced workers miles out for cheaper sections, while the city charges them t high tram fares to get there. I have 'more faith in the good sound judgment of the electors of Dunedin tljan I have in Mr Silverstone and the scheme ho is sponsoring, and I look forward to Wednesday with every confidence that tho electors will 'choose not to jump from tho frying pan to the fire as Mr Silvorstone sublimely invites them to. —J am, etc., Voter. May 4.

TO THE EDITOR., Sir, —Wo do not quite see your point, if any, in your footnote to our last letter, whether you mean to imply that, because Christchurch city’s expenditure had increased enormously, this was as a result of the unimproved values system of rating, because this increase was_ able to be hidden under the guise of increased valuations. Even if it is so, the same thing is complained of by Dunedin city’s ratepayers. So as far as your point goes it is 50-50; but whereas we nere either lower or keep the'rate as it is to get the same amount,, of revenue, we raise the valuations even' where no improvements have taken place; but under the unimproved system the valuations stand for so many years, and the amounts must be shown if more revenue is required. So how the increase can be covered up, unless a new Government valuation is instituted, we are at a loss to fathom. Perhaps you can enlighten us and others. “ An Old Timer” seems to us to get a bit mixed in his reasoning and deductions. First, he talks about congested areas in Carroll, Stafford, and Melville streets. He also mentions Mornington, where houses are too close, and suggests voting against the unimproved value system to obviate this continuing. But surely “ Old Timer ” cannot lay the blame of these congestions on unimproved rating when we have not yet had it in Dunedin. Another paragraph in “Old Timer’s” letter is similar in his deductions: “In Wellington, under the unimproved value system, in many of its suburban streets the houses are so close together that the residents can almost follow the conversations in the next house. I admit (he says) we have similar conditions in Dunedin, besides those I have mentioned, but with the hundreds of acres' of buildable land just outside our municipal boundaries there is no need for further congestion.” We thank “Old Timer” for the last part of that paragraph, because in it he completely vindicates our policy. What he writes of in Wellington no doubt existed before unimproved rating came in. We contend that land could be procured by the City Council prior to running trams there, etc., and a building scheme started, the land improvements being the city’s property and all revenue going into the city treasury. This would cut out the speculator, jerry-builder, land agents, etc., and what an asset to any city! We understand in Great Britain there is at least one place where the 'municipality owns all ■ the land the city stands on, which is rate-free. To obviate building on too small a block of land, without room for gardens, etc., surely only a little tightening up of present regulations is required. We are, etc., Executive Otago Labour- Representation Committee. May 4.

TO THB EDITOR. v ... Sir, —All the last-minute propaganda of those opposing the introduction of rating on unimproved value is an attempt to stampede the workers into voting against its introduction. Some of the statements that are being made, such as that the new system will do away with gardens, slums, tax sports grounds, are so ridiculous that one could hardly imagine anyone believing them. Have a look round our residential areas and try and find the large sections with the workers’ houses thereon. A great number of thorn are of one-eighth of an acre and' manv of them one-sixteenth of an acre or less. You would not be allowed to build another house on a piece of grouftd that size. In respect to gardens many of the workers under our present system have not been given sufficient room to have.a garden. Talk about slums! What about Dr Hercus’s report on the deplorable housing conditions in Dunedin that was made a few years ago? To what extent have we improved since then? Very little, if one only looks around. In regard to sports grounds, the council can exempt those bodies in respect to rating, and I believe that on farming land the tax can bo reduced. The examples that we have quoted in our circular can be proved. It is no use using St. Kilda in comparison with Dunedin. St. Kilda has no valuable business area. It pays for the supply of water, gas, trams, and electricity to. the city.- In fact, the people of St. Kilda contribute a considerable amount toward the success of these undertakings, and they do not receive any share of the profits that are made. The people in the city had £30,000 profits from the trading concerns used to relieve the rates. That is equal to a rebate of 20 per cent., or, in other words, it means that if this transfer was not made a man who now pays £lO a year in rates would have to pay £l2. I quoted the position of the leading cities and boroughs in respect to the amount spent in buildings and alterations per head of population—Wellington £lB, • Dunedin £B, Now let us look at some of the places and see how they have progressed on a population basis. Taking the 1921 and the 1930 figures, Wellington has increased in population during that time 22.8 per cent, Christchurch 23.7 per cent., Dunedin 13.2 per cent., St. Kilda 34.2 per cent., Hamilton 31.6 per cent., Lower Hutt 124 per cent. I have not the 1921 Auckland figures; but the above shows how Wellington and Christchurch under unimproved ratings having increased in comparison with Dunedin. Look how St- Kilda has progressed from a population standpoint. Christchurch has not lost its private gardens nor its sports grounds. The dairy farmers still supply that city, and there aro more European gardeners in Christchurch than any

of the other cities. Let the workers remember how the Reform Party stampeded them with those large page advertisements, and ask themselves who pays for these.—l am, etc., F. Jones. May 4. '■ [Do the Christchurch dairy farmers live within tho city?—Ed. E.S.J TO THS EDITOR. Sir, —A very important point , has been overlooked by your various contributors on this question—namely, tho incapacity of tho officials in the valuation department in the Town Hall. The whole trouble over our present rating system has arisen through the stupid blundering of the valuator in putting up property values (for rating purposes) at the last assessment in the face of much depreciated commercial values. If rating on the unimproved value is carried in Dunedin the blame will rest entirely on the valuation department in the Town Hall.—l am, etc., Common Comment. &