New rateable valuations for properties available within week

Published on 12 November 2019

Rating Revaluations

New rateable valuations for Horowhenua properties will be available within the week.

In New Zealand, councils are funded by a form of property taxation known as rates. At least once every three years every district and city is re-valued to set the values on which council rates are based for the following three years.

Horowhenua District’s revaluation has been undertaken and property owners will start to receive their valuation notices in the post from 11 November. The new values will be used by Horowhenua District Council to determine rating from 1 July 2020.

Horowhenua District Council’s Chief Financial Officer Doug Law said that, naturally, property owners’ first question is how it will affect their rates.

“People often think that an increase or decrease in valuation will automatically result in an increase or decrease in rates. Many people also think that an increase in the district’s values will mean that the Council gets more money. These are misconceptions,” he said.

“How it works is that Council decides through its planning processes how much money it needs to undertake the projects, services and other activities that it will provide for the next 12 months. Having worked out that total, it then calculates the proposed rates by dividing the district’s Land Value into the total dollars that it needs.

“The rating valuation provides the means to share the cost of the rates across the district according to a set of property values that are provided for every property on a common date, 1 August 2019. This means that every property is valued on the same basis and at the same time.”

Mr Law said the rateable value of a property will not change for the next three years even if the market value increases or decreases during that time. 

Property owners who disagree with their valuation can formally object. Details on how to do so will be contained with the notice. 

“The reassessment is a desk based assessment, so if owners have made improvements to their property that haven’t required a consent then it may not necessarily have been picked up” Mr Law said. 

Below are some commonly-asked questions and answers to help you understand the rating valuation process.

The valuation has two components; Capital Value reflects the value if it was sold on the effective date of 1 August 2019 and includes the value of improvements such as houses etc, while the Land Value reflects the expected sale price of the land as if it was bare, with no improvements.

What is a rating valuation?

In New Zealand, councils are funded by a form of property taxation known as rates. Some rates are what are known as flat or uniform charges. This means that the amount that the property owner pays is the same for every property. The rate to fund libraries and community centres is one such charge.

The law restricts the maximum of all uniform charges to 30% of the Council’s total income from rates so the balance of the rates has to be charged some other way. That way is through the use of rates that are based on the valuation of a property. In the Horowhenua’s case, the rates are set on the basis of the Land Value for the General Rate while the Land Transport (Roading) Rate and Urban Stormwater Rate are based on the Capital Value.

The rating valuation provides the means to share the cost of the rates across the district according to a set of property values that are provided for every property on a common date. The common date (1 August 2019) is very important because it means that every property is valued on the same basis and at the same time. It is important to note that the value of the property will not change from this value for the next 3 years even though the market value may have increased or decreased in that time. The exception is where an improvement has taken place which requires the property's Capital Value to increase, however, that value will be assessed as if the improvement existed at the valuation date of 1 August 2019, and what it would have sold for as at that date.

The rating valuation is based on two questions:

  1. What would the value of a property be if it was sold by a willing seller to a willing buyer on the valuation date? This means the valuers assume that the property is for sale and then use current sales histories and other information to assess what the property would probably fetch if it was sold on that day. 
  2. What is the best use of the property? This means that the valuers consider what a new purchaser might do with the property to maximise its value. The valuation is made on this “highest and best use” basis, rather than the existing use. For example, a smaller pastoral block may have a higher value as a lifestyle residential property, and a smaller farming property on the outskirts of a larger urban township may have a higher value as a residential subdivision. It is this “highest and best use” that tends to increase the value of coastal land because of the historically high demand from developers.

What should I do if I disagree with the valuation?

There is a formal objection process that you can use to challenge the valuation if you feel that it is not correct. Details of the process will be contained with the notice. If you want to object, you need to give the valuers some good reasons why you believe that the valuation is wrong and you need to suggest what you think it should be and why. If you are not satisfied with the result of an objection you have the right to have the valuation heard by the Valuation Tribunal.

When do the new values come into effect?

The 2019 values will be used for rating purposes from 1 July 2020. This revaluation process has been undertaken and  property owners will start to receive their valuation notices from Monday, 11 November.

How does a change in valuation affect my rates?

People often think that an increase or decrease in valuation will automatically result in an increase or decrease in rates. Many people also think that an increase in the district’s values will mean that the Council gets more money.

These are misconceptions. The way that it works is that Council decides through its planning processes how much money it needs to undertake the services that it will provide for the next twelve months. Having worked out that total, it then calculates the proposed rates by dividing the district’s Land Value into the total dollars that it needs. If the valuation of the district has increased over the last year, the rate in the dollar falls and vice versa.

Council uses the Land Value of properties as a basis for setting the General Rate. As an example of the process, in 2016/17 the total Land Value of the district was around $3.05 billion and in that year the Council needed $9.5 million from the General Rate. When the rate was calculated, the figure ended up as $0.003097 (if Council was to rate the district as a whole on Land Value). This meant that for every dollar of Land Value, the ratepayer paid $0.0031.

In 2016 there was a district revaluation and the total value of the district rose by 8.3% to $3.3 billion. For the year 2017/18 the Council needed a total of $9.9 million from the General Rate, but because the value of the district had gone up 8.3%, the rate in the dollar fell to 0.003005. This meant that for every dollar of Land Value, the ratepayer paid $0.0030.

In other words, the change in the valuation was not responsible for the increase in rates, rather this was the result of Council’s increased expenditure budget. Having said that, a change in property value can lead to a change in rates. This can happen when a property value increases (or decreases) at a higher (or lower) level than the average for residential properties in the district. For example, if all property values in an area have increased by exactly 10% and the council makes no change to the expenditure budget or the rates collection method, then every homeowner’s rates bill would remain the same. If the average change in property values is 10%, and your property increases by 20%, then you can expect to get a rates increase. If your property only increased by 5%, you might experience a decrease in your rates.