ANZ economists, in their latest property market update, have identified council rates as a major component of rising homeownership costs, alongside insurance premiums and interest expenses.
While interest rates have begun to ease and other ownership costs like insurance and maintenance have levelled off, council rates have continued to climb sharply. Last year saw the steepest rise yet, with council rate inflation hitting a record 12.2 per cent nationwide.
According to ANZ, councils have had to contend with rising operational costs, such as higher wages and escalating construction expenses. However, the increases in rates appear to reflect not just inflationary pressures but also an expansion in council spending.
Councils typically set their annual rates based on projected expenditures, meaning higher spending plans translate directly into higher rates for residents. On average, local councils are projecting an 8.4 per cent rise in rates for the coming year. Some areas, such as Hamilton and Wellington, are facing double-digit increases—15.5 per cent and 12 per cent, respectively—while Auckland and Christchurch are seeing more modest rises.
Looking forward, while rate increases are expected to persist, ANZ suggests the pace of growth may slow slightly. Most councils have completed their long-term financial plans, which indicate another year of nearly 10 per cent rises before easing to annual increases in the 5 to 7 per cent range. Although this marks a decline from the current highs, it still represents a significant cost pressure for homeowners.
This ongoing rise has sparked growing resistance from ratepayers. With local elections approaching, council rates are shaping up to be a hot political issue. There is increasing discussion about introducing caps or indexing rates to limit their growth. However, balancing the books remains challenging for councils, especially as responsibilities expand and previous underfunding of infrastructure and assets is brought to light.
Experts have pointed out that some of the recent rate hikes reflect a catch-up to meet baseline costs that have risen over time. In many cases, councils have been grappling with deferred investments or insufficient reserves for asset replacement, which now require correction through higher rates.
With central government also facing financial constraints, a shift in responsibilities back from local to central government seems unlikely. Instead, councils are expected to continue carrying a heavy load in terms of service delivery and regulatory responsibilities, ensuring that elevated rates are likely to remain a long-term feature of homeownership in New Zealand.
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