Rates on Vacant Sites

The Christchurch City Centre is in a unique position. Although the Earthquakes were 12 years ago, there are still some 300 sites sitting vacant, comprising 47 Hectares (roughly 10% of the central city).

It is reducing but it’s a very slow process. In 2015 there were 65 hectares of vacant land. So in the last 7 years about 28% of landowners have rebuilt on their vacant land, the other 72% have not.

Why are there so many landowners who haven’t rebuilt? They were almost all insured and, apart from the odd exceptional case, they will have recieved payouts a long time ago.

I sometimes wonder if Christchurch City Council’s rates system for the city isn’t helping with this. Like most councils in NZ, CCC rate based on both land value and improvement value. A site with a building on it pays significantly more in rates than a site without a building.

One part of the city I’ve been looking at lately is the block bounded by Manchester, Tuam, Lichfield and Poplar Streets, on the southeast edge of the commercial core. It’s still mostly vacant sites, and looks like this from above.

Not particularly inspiring.

One of these vacant sites, 132 Lichfield Street, is the small trapezoid immediately above the big yellow tents, facing Lichfield Street. It pays $10,796 in rates each year. It looks like this:

The site next door at 128 Lichfield Street is a similar size, but it has been rebuilt and now houses the very popular restaurant “Earl”, the owners’ apartment above, and 2 floors of office space currently used by a company developing geospatial AI software to help the farming and science industries. This building pays $40,418 in rates each year. It looks like this:

Now a quick quick google search shows these two sites are owned by the same person. And that this person is wanting to develop the adjacent site (132 Lichfield) into the building below, comprising carparking, a floor of office space and 6 residential apartments.

He currently pays around $10,000 in rates each year on the vacant site. Once this building is completed that would roughly quadruple, assuming a similar rate to the building next door.

Does that seem intuitively fair? That he should have to pay a massive increase on his rates bill for building on his site? Or to spin it around, that he should get a massive rates discount for not building anything? Does it really save council that much money to have him not build anything on his site? The pipes and roads and sewage plants and water pumps all have to be provided to the site irrespective of whether he redevelops or not.

And these sorts of buildings add so many positive spillovers to the city. The residents living there will increase the viability of all the businesses in the area as they spend their money in restaurants and shops, increasing property values of all the land around them. They’ll contribute to the labour pool of the city without requiring onerous infrastructure to service their commutes. Surely it’s in the city’s interests to do everything it can to incentive redevelopment of these vacant sites.

Council have recently moved to try and address this through a “vacant sites differential rate” where landowners who haven’t rebuilt get charged a higher rate as a sort of penalty. However this is relatively small, and doesn’t apply if the vacant site is operating as a carpark as they are then not considered “vacant”: neither are sites with half destroyed buildings still sitting on them. The rate also gets exempted if landowners tidy up their site and put in some landscaping.

There is a lot of discussion at the moment on whether a flat land tax is a better way of apportioning rates, so that the vacant site and the redeveloped site would pay exactly the same amount. Brendon Harre advocates for it here. TOP party promise a similar idea but at a national level if elected. I don’t think it’s a coincidence that the TOP party is led by Raf Manji, ex-Christchurch City Councillor who chaired the finance committee for 6 years following the earthquakes. Timaru currently rates on land value only, as do several other councils in NZ. This removes the disincentive landowners currently face to redevelop. On the surface it makes way more sense to me to do it like this, even in a regular city like Timaru. In a city like Christchurch with so many vacant sites that it’s desperately trying to get development on, it makes even more sense.

Something to mull on over the break anyway. Hope you all had a merry Christmas and happy new year.