Public to get their say on changes to Wellington rates

The Mayor of Wellington has acknowledged that any move to reduce the city's commercial rates burden could add to residential rates bills.

On Thursday, Wellington City Council agreed to move forward with public consultation on a suite of changes to its rates system. That includes lowering the capital's commercial rates differential, as well as a potential shift from the Capital Value (CV) based ratings system to a Land Value (LVR) based system.

In a statement following the meeting, the council said it meant residents would see the lowest rates increase in six years.

The plan had identified $31.7 million in savings enabling the council to limit the upcoming residential rates increase to 5.9 percent.

Mayor Andrew Little said the result "makes good" on his commitment to rein in council spending while protecting community services and facilities.

"Every councillor and Pou Iwi has contributed to agreeing the Annual Plan and budget. I also acknowledge the efforts of council staff to identify ways to maintain services while seeking savings," Little said.

As a part of the plan, the council was raising Air BnB hosts rates to 2.6 times the base rate while continuing cyclelane improvements in Brooklyn and Bunny Street in the CBD.

Contaminated land and asbestos disposal fees had been brought into line with the rest of the region while cremation fees would only increase in line with inflation.

The council said swimming pool entry for children would also be kept to current prices.

Meanwhile, Little said Wellington's commercial rates were some of the highest and least affordable in the country.

"I'm acutely aware that if we do make changes to our commercial differential - if we want to reduce it, it effectively shifts the ratepayer burden onto residential ratepayers so that has to be considered as well.

"This is an issue that we do need to consult on," Little said.

Disincentivising business and development

Little said the business community had told him that Wellington's high commercial rates were an impediment to property development projects.

"I think whatever system we have is going to have both positive and negative equity effects and positive and negative incentive effects, but we have an opportunity through the consultation process to understand what the range of effects might be and therefore what might be desirable," Little said.

Wellington City had some of the highest rates differentials for commercial, industrial and business properties and charged 3.7 times residential rates in comparison with Auckland's differential of 2.39 and Christchurch's 2.22 differential rate.

Thursday's meeting considered whether proposals to reduce the differential to 3.4 or 3.25 or to phase in a transition to 3.0 or 2.8 over the next four to five years should go out to public consultation.

A council report used to inform the meeting's discussion said maintaining the current differential would provide no rates reduction to incentivise businesses in the city while dropping the differential lower than 3.25 - without phasing in the initiative - could risk an increase in residential rates to pay for the move.

Submitting to the council on Thursday, economist Dr Kirdan Lees urged the council to think beyond the revenue bought in by rate payments and consider the vibrancy and growth of the city.

"When we increase that differential we disincentivise the growth we want to see within Wellington.

"Firms are more likely to either move to Petone, or move further away or not actually start up.

"It becomes harder for firms to do want they want to do within Wellington.

"I get that it's tough. I get that means residents have to take up more of the burden immediately but in the long run that means fewer jobs. I would encourage thinking about a smoother path to a much lower differential," Lees said.

Property Council Wellington regional committee member Edith Boettcher said property was the city's third largest industry and contributed $3.6 billion to the city's economy.

But she said occupancy in the city was declining and vacancy was on the rise.

"Rates and insurance costs have become so high that businesses are downsizing and shifting staff to remote work and that directly undermines retail, hospitality and events in our city centre.

"It's becoming too challenging and too costly for businesses to operate in the city and people are starting to look for alternatives," Boettcher said.

She urged the council to commit to a "clear staged pathway" to reducing the city's rate differential.

"Wellington CBD needs people, it needs investment and it needs confidence to recover. The current differential works against all three," Boettcher said.

But Councillor Sam O'Brien said - while he supported the proposal - he was not sure that creating rates relief for commercial landlords would be worth the potential impact on residential rate payers.

"I don't see the evidence that these benefits will necessarily flow through to our small businesses. I am concerned that there will be a disproportionate rates cut to some of the biggest commercial land owners in Wellington.

"A reduction to the commercial differential means a 5.6 increase in residential rates. In a potentially rates capped environment - no matter how many efficiencies we find to make savings - there will be some tough decisions ahead of us.

"In my view the biggest thing we can do to drive economic growth is make sure Wellington is more affordable for its residents so they have the money to spend in the local economy and invest in our CBD and our suburban retail centres to make them places people want to be and spend money," O'Brien said.

Little improvement since council declined to reduce rates differential

Deputy Mayor Ben McNulty said he had opposed the reduction of the rates differential in 2023.

"At that stage the idea of giving New World, Countdown, Mitre 10 and the like a reduction in rates while asking for more out of the pockets of our residents meant that I couldn't support the change.

"Three years later unfortunately things aren't particularly better for Wellington. Thousands of public servants have been laid off and we have the threat of thousands more to be replaced by AI tools that can't correctly identify how many Es there are in the word seventeen," he said.

But McNulty said he'd since discussed the change with "builders, developers, retailers, tradies, pubs and the like" and their feedback had been almost unanimously in favour of reducing the commercial rates differential.

"I know personally of developments that are pending in our CBD - and also in the northern suburbs - awaiting the outcome of this rating review as to whether they will proceed.

"They are developments that - if they proceed - will result in construction, jobs, new housing and building. That is a compelling proposition that I cannot ignore," McNulty said.

Andrea Compton said she felt reducing the commercial differential rate needed to happen more swiftly than being phased in over a number of years.

"If a differential of 3.2 is the appropriate target then there's little justification for taking six years to get there. We need relief now especially after periods of economic pressure and a faster reduction means households will get to see the true cost of council spending sooner - rather than relying on commercial contributions - and focuses [the council] on tighter spending," Compton said.

Developers punished for building

Submitting towards the discussion of the move to Land Value rates based system, Common Ground Aotearoa director Pierson Palmer said Capital Value did "a pretty poor job" of approximating service use about properties.

"Capital Value penalises improvement. When someone adds homes, strengthens a building, renovates or makes productive use of a site the Capital Value rises and so does their rates.

"Land Value rating removes that penalty by rating the underlying value instead.

"If Wellington wants more housing, more apartments and better use of scarce urban land then the rating system should not be punishing people for building those things," Palmer said.

Councillor Nicola Young countered that - when the city had used LVR ahead of 1992 - some developers had put up cheap structures "the curse of which we are still living with today".

"Have you seen how grotty the Oaks [complex on Cuba Street] is?" Young asked Palmer.

"Have you seen how grotty the empty lots are?" countered Palmer.

Councillor Tony Randle said he was concerned that using LVR in dense areas would reduce the funding available to pay for infrastructure needed to cope with larger populations in those areas.

"Because it's at high density, the rates contribution coming from those people will be significantly lower and that will impede the provision of local services such as pools and libraries. The burden of which will fall on people that don't use those services," Randle said.

Councillor Andrea Compton said the change from CV to LVR "doesn't make rates cheaper it just changes who gets the bill".

"LVR redistributes the pie but does nothing to reduce the pie which is what our communities are asking for - which is affordability," Compton said.

Councillor Diane Calvert said delivering on a change to LVR in the face of local government reform and the potential amalgamation of regional councils could complicate the process.

"There's going to be a perfect storm over the next 12 months. It's about to hit us. So I have grave concerns that - if we go out to consult on the LVR - how we are able to actually implement it given everything else that is going on.

"In this current environment - with all the other change - consulting on a Land Value Rating system is inappropriate at this time," Calvert said.

Doubt over whether council can afford the changes

Council Manager of Financial Planning and Partnering, Raina Kereama said consultation documents would endeavour to clarify how the changes would impact rates as changes were made.

"As part of those options we will talk to the impact of those and what that means. Because this is about the size of the pie the actual dollar impacts will change depending on the decisions [the council] make through the Long Term Plan," Kereama said.

The costs of the change to LVR was estimated as between $600,000 and $2 million to put in place. Kereama confirmed there was not currently $2 million spare in the 2026/27 budget to implement the changes.

The Council voted to move forward with public consultation on the changes.

Meanwhile Greater Wellington Regional Council said the approval of their annual plan on Thursday would maintain essential regional services while limiting the average regional rates increase to 9.7 percent.

The plan would cost residential ratepayers an average of another $83.83 per year while business' annual rates bill would grow by an average of $695.70 (ex GST) and rural rates an additional $103.25 (ex GST) each year.

Greater Wellington chair Daran Ponter said no stone had been left unturned to keep the rates increase to a minimum.

"Councillors have had to make difficult decisions, balancing affordability and uncertainty with our responsibility to the region. We know any rates increase is hard, so we have gone line by line through our activities to keep rates as affordable as possible," Ponter said.

The GWRC regional plan incorporated the change to assets and debts once Tiaki Wai took ownership of the region's water supply next month.