Should council rates use land or capital values?🍋
Reporting back on the 11th NZAE member survey
In the eleventh NZAE Member Survey we asked respondents to compare a land-value based system versus a capital-value based system for local government (councils) to raise revenues.
Councils in New Zealand raise most of their revenue from property taxes, specifically the application of rates to land values, improvement values, or both (i.e. capital values). This rates revenue is subsequently used to fund Council services.
The survey
We circulated the survey amongst NZAE members on 14 October 2024 via Asymmetric Information. Responses were open for one week.
Twenty-eight respondents answered the survey. 71% of respondents were male, and 54% held a PhD. Most respondents worked in academia or in the government (75%). The 41-50 age group was best represented (39%).1
The survey asked respondents to
consider a situation where a Council is deciding how to raise a fixed amount of rates revenue and indicate how strongly you agree with the following three statements:
Promoting development?
Q1. A rating system based on land value is more likely to promote faster and/or more intensive development than is one based on capital value.
The majority (83%) of respondents either agreed or strongly agreed. There was little difference between respondents working in academia vs. those in government, but respondents in academia tend to be less extreme with their response (agreed vs. strongly agreed).2
Promoting fairness?
Q2. A rating system based on land value provides a fairer mechanism for meeting the costs of council-provided public goods than one based on capital value.
Here, I observed a large degree of variation in responses. The majority, 46%, either agreed or strongly agreed, 25% were uncertain, and 24% either disagreed or strongly disagreed. I found little weight on extremes, with less than 20% of weight put either on strongly agreed or strongly disagreed. This suggests a reasonably high level of uncertainty. I found little differences between respondents in academia vs. those in government.3
Promoting horizontal equity?
Q3. A rating system based on land value is more horizontally equitable (i.e. treating individuals with similar land holdings more equally, regardless of the capital improvements they’ve made) than is one based on capital value.
I found that about 72% of respondents agreed or strongly agreed, while 20% either disagreed or strongly disagreed. Interestingly, respondents in the government sector tended to agree/strongly agree, while opinions among respondents in academia vary from strongly disagree to agree, with a substantial mass among those who disagree/strongly disagree.4
In summary
Overall, the majority of respondents agreed that a land-value based rating system would more likely promote faster and more intensive development compared to a capital-value based system, and that the land-value based system would be more horizontally equitable. When it comes to whether such a system would provide a fairer mechanism for meeting the costs of public goods, the respondents tended to agree, albeit with substantial heterogeneity.
Weighting
The survey also elicits the confidence in the answer to each of the three questions. This information can be used to weight the responses. I present the unweighted (raw) and weighted survey responses below.5 The results reported above are unweighted, unless otherwise specified. We found little divergence between the weighted and unweighted results for the questions in this survey.
A big thank you to the members who participate in our surveys. Visit the Surveys section of the Asymmetric Information website for the results of all of our member surveys.
Descriptive statistics
Q1. A land-value based rating system promotes development?
Q2. A land-value based rating system promotes fairness?
Q3. A land-value based rating system promotes horizontal equity?
Without an optimal weighting approach, we weight the survey responses as follows. We first compute the mean confidence for each question. Then, for each respondent, we compute the absolute distance from the confidence mean, weighted by the confidence standard deviation. If the response is above (below) the midpoint (i.e. disagree and strongly disagree) and the confidence is above mean confidence, we add (subtract) the weighting factor. If the response is above (below) the midpoint (i.e. disagree and strongly disagree) and the confidence is below mean confidence, we subtract (add) the weighting factor. We also multiply this weighting factor by the number 0.49 to smooth the overall weighting effect.
Do you have any thoughts regarding land value-based rating in rural areas, as opposed to urban? I find that these discussions are often very city-focused, however the majority of NZ's land area is non-residential and used in a variety of different ways, even within large metropolitan authorities (e.g. Chch City Council also covers Banks Peninsula).
According to the Georgist doctrine, every parcel of land should be valued out and made liable to pay the land value tax. Therefore, if central government owns properties under the local government administration, then it needs to pay the correct amount of land-value based rates. It's really not fair to the rest of us that schools, hospitals, police stations, state highways and scenic reserves.... are all taken out of consideration, and no rates are paid on these properties.... No wonder our local councils can't replace the water pipes, et c.,