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.
9 thoughts on “Rates on Vacant Sites”
In Australia, well at least NSW Council’s work on land value (Freehold value of the land excluding any structural improvements) CCC have got to stop milking the system.
That’s interesting that NSW do that, lots of councils in NZ do as well. Yea I’m sure there are some cons as well but it seems to me like there are a lot of really big pros, which would be even bigger in an earthquake city desperately trying to encourage redevelopment of vacant sites.
If the site owners allow a transitional project on their vacant site (brokered via Life in Vacant Spaces), the council gives them a rates rebate. Yet many landowners are simply not interested. It seems rates are not the problem.
I don’t know how many are actually paying the vacant sites rate, it seems pretty easy to avoid it. A lot of sites are used for carparking -I guess it’s one of the more attractive uses as it comes with bonus income.
It’s a real shame that using land value rating for just part of the city (e.g. the CBD) is apparently not legal (according to some FAQs when the vacant sites rate was going through consultation). I’d support rates on land value city-wide, but it is obviously a harder sell politically.
Interestingly the TOP land value tax proposal is only on “residential” land. I haven’t seen any clarification of whether this includes mixed use areas like most of the CBD. It would be strange if not, because I assumed the city-centre landbanking aspect would be good way to link the policy back to local issues.
Would it be a harder sell politically? People with vacant land would have to pay a lot more, people with developed land (i.e. the majority) would pay a tiny bit less. I would’ve thought that’s an easy sell.
To be honest the TOP land value tax is a bit different to the local rates issue and is being done for different reasons (e.g. replacing income tax and gst), I possibly shouldn’t have brought that up.
I did once have a quick look at rating info for Christchurch to try and estimate what fraction of landowners would be worse off under land value rating. I seem to remember it wasn’t as much of a slam dunk as I’d hoped! I guess lots of people are sitting on “underdeveloped” sites and would be penalised.
I’ll try and dig out the numbers.
Found the numbers, might have overstated a bit.
Land value makes up ~43% of total rateable value in Christchurch, so any property with a proportion of land value higher than 43% of capital value would face a higher rates bill under land value rating. If you exclude undeveloped land, the median property has a land fraction of just under 43% (with a lot of variation around that number).
So the average person not sitting on an undeveloped section might have a slightly reduced rates bill. (All this is ignoring how land values might change as a result of a new rating system – you would expect to see empty sites become slightly less valuable, I think).
I just realised that the 132 Lichfield plans devote the entire ground floor to parking, in a prime retail area! How unfortunate. Honestly not sure how that optimises the value of the site, but I guess it is their money!