Changing the System !

Mike Baird has really rattled the roost with his plan to force the merger of NSW's forty-one local councils to create just twenty amalgamated "Super Councils " to achieve economy of scale and even out the cost structure.  At present, many of the existing administrations are tottering on the brink of bankruptcy.

What many did not anticipate is that this merger may also come with a complete reversal of the way council rates are calculated.   At present the basis is the unimproved land value.  Now it is proposed that rates be directly linked to the value of whatever has been built on that land, and that will have a dramatic effect on the rates mix from one area to another.

For instance, 87,000 people live in the inner City of Sydney council - and 75% of them live in multi story apartments.  The ratio of land value multiplied by the number of apartments in a high rise building means that on average they pay only $430 a year in rates, but if the rating changes to the value of the apartment itself, that will probably bring in an extra seven million dollars a year.  It seems inevitable that the rates for apartment living would rise sharply.

People living on the city perimeter where most new housing is located would see an opposite effect. The resident who builds what are often termed "McMansions "would see a hike in rates in comparison with a resident living in an old style fibro "cottage " next door - and there would be a real reason to avoid improving the property value because that would hike the rate demand.

Some of the other states already calculate rates on this improved value basis and those with a long memory may remember the rorts that occurred after the end of the second world war.   In that era, many people bought a quarter acre block of land and promptly build a garage - and lived in that while they either accumulated funds to finance a house or did the building work themselves as owner/builders.

Councils levied an interim rate, awaiting the end of construction to apply a valuation and set the rate on that basis, hence there was a huge incentive to delay final completion - and in many cases that persisted for decades.  It became familiar to see a nice little home still awaiting a concrete path to the front door and missing any form of front fence, but otherwise complete - and with no intention of having that final work happen because to do so would see a rate hike.

In the distant past it was common for many families to have a holiday home in a small town somewhere near a beach.  In many cases the term "shack " would be an adequate description and it probably relied on a tank for water - and in some cases it was not even connected to the electricity supply - and it attracted just nominal rates.

The boom in land prices saw many of these either put on the rental market to defray costs or sold to those in the search for affordable permanent housing.  Country  land approximated city prices and should this improved value basis apply, many of those former holiday shacks will see a sharp drop in council rates.

You can be sure that the calculators are clicking away in council offices and the Mandarins up there in Treasury are furiously estimating how such a change will work out in delivering the bottom line of incoming revenue.   Obviously there will be winners - and losers.   It seems we are considering the greatest change in the way our economy works for the average householder since Federation !