Rates and property values: it’s the relativity that matters

I have a very minor quibble with today’s article in the herald titled “Higher rates the flipside of soaring house prices“.

The crux of the article is this redacted quote

If you live in Auckland and neighbouring houses have sold for unheard-of prices in the past two months, you can expect your home’s official value to shoot up.

…

The flipside? The new values will be taken into account when setting new rates next year.

While I’m not privy to the precise detail of how rates are calculated (nor do I want to be!), my understanding is that the council sets a fixed amount they want to raise via rates, and then allocates that across houses via relative values.

Because the pot is fixed as such, if all house values increase by the same amount, we would expect the share of rates that each house pays to stay the same (this is where I expect someone with an intricate knowledge of rates calculations to jump in and correct me…).

Therefore it is only if your property value  increases by more than other properties, we would expect your share of rates to increase. So if you own a house in an area that has rapidly gentrified since rates were last set (Guessing places like Onehunga, New Lynn etc…), then the share of rates you pay will probably increase, since your property value has likely increased by more than the city wide average.

The first sentence of the article I have quoted is probably getting at this, but I just thought it was worth making it explicit that the general increase in house prices in Auckland doesn’t necessarily mean you are going to pay more rates.