Photo: RNZ
Local council rates have increased by 7 percent to 12 percent a year on average across the country over the last four years, ANZ economists say.
In their latest Property Focus update, they examined the rise in council rates as one of a number of costs of ownership that had increased significantly since the pandemic, alongside insurance and interest rates.
"Interest costs are now falling, and insurance and maintenance costs have, on average, largely stopped increasing. However, council rates bills continue to shoot upwards."
Council rate inflation hit a record-high of 12.2 percent across the country last year.
ANZ's economists said councils had faced costs such as rising wages and lifting construction bills that were more than the rate of overall inflation since 2019 - but spending seemed to have grown as well.
Councils set rates by deciding on their spending plans for the year and then collecting rates revenue accordingly.
On average, they have announced an increase of 8.4 percent for the coming year.
Auckland and Christchurch City were increasing by 5.8 percent and 6.6 percent respectively. Hamilton City is lifting by 15.5 percent and Wellington City by 12 percent.
ANZ said it was likely that rates would continue to rise over the next few years but at a slowing pace.
"The bulk of councils (58 out of 78) completed long-term plans in 2024. On average these plans envisaged one more year of near-10 percent increases in average rates revenue after this year, easing back to still-large increases of 5 percent to 7 percent per year thereafter.
"These figures refer to the total dollar value of rates revenue collected by councils, but suggest that rates inflation will gradually slow as historically rates inflation has been almost equivalent to revenue growth in percentage terms."
ANZ noted there was increasing voter pushback against rate rises and the government was contemplating rules to cap increases.
"Cyclical pressures on council finances look set to ease, but balancing the books looks likely to remain a fraught task for the foreseeable future, and this will keep the pressure on council rates over the medium term.
"There's a lot more to the decision on whether to buy a house than just the rates bill. But at the margin, it will be putting downward pressure on house prices as prospective buyers and sellers weigh up the costs and benefits of owning a home."
Massey University senior property lecturer Arshad Javed said the trend of rising rates put pressure on household budgets.
"That said, I believe many households are likely to accept rising council rates as a necessary cost of homeownership, with limited impact on overall housing demand or ownership rates.
"With local council elections approaching later this year and general elections next year, council rates are likely to emerge as a key issue for both ratepayers and political representatives. Growing public sentiment may favour measures such as indexing rates to inflation or capping future increases.
"While a rates rebate scheme is available, it has strict eligibility criteria, households earning $51,658 or more receive no rebate, leaving many without access to financial relief."
Infometrics chief forecaster Gareth Kiernan said civil construction costs and other cost areas for councils were not rising as fast as during the pandemic.
"So what we've seen during last year and this year is something of a catch-up to meet higher baseline costs going forward. The general discussion around rates increases this year suggests that, on average, they will still be reasonably large, but not as big as the 12.2 percent increase recorded in the CPI in 2024.
"Looking further forward, we're still likely to see above-average rates increases over the next few years, because the breadth of responsibilities and work required from local councils has grown over time and, in general, previous rates rises have not always fully covered some of these pressures.
Kiernan said in some cases, there had also been underinvestment in core infrastructure, or underfunding of the cash required to replace depreciating assets, which meant that further rates rises were needed to make up for previously underfunding, which might have kept rates artificially low.
As a result, in some parts of the country, there was a risk that rates rises over the next five-10 years were stronger than forecasts, he said.
"There's obviously the long-running debate about the responsibilities of central versus local government and the perception that increasing amounts of service provision, monitoring, and compliance has been forced on local government by central government. The current government is looking to tighten the focus of local government activities, although this push is primarily coming from an ideological standpoint rather than much of a shift in responsibilities back towards a more centralised model - some possible changes around building consents being one of the exceptions.
"Given central government's own tight fiscal position, there's probably limited scope for a reset of responsibilities in this regard, if any of it is going to end up needing more central government funding instead. The continuing long list of responsibilities faced by local councils also points towards continued above-average rates rises."
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