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Submission by North Sydney Council to the Office of Local Government regarding
Local Government Rating System - IPART Final Report (December 2016)
Prepared September 2019
North Sydney Council (Council) welcomes the opportunity to provide feedback on the final recommendations by IPART concerning proposed changes to the NSW rating local government system. IPART recommends several changes to the current legislation that, if implemented, are intended to provide councils with greater flexibility to provide a more equitable and efficient rating system.
While we support, to varying degree, IPART’s final report, we express our disappointment that the NSW Government has not invited feedback on all IPART recommendations. It is noted that only 28 of the total 42 recommendations are marked open for comment. Some of the recommendations marked not for comment (as indicated by * in our submission) need to be considered as part of the holistic benefits to NSW councils and all ratepayers.
Council’s submission is informed by independent analysis commissioned from The Centre for International Economics (The CIE) - refer to Appendix, in order to understand the potential impacts, both positive and negative, of IPART’s recommendations on Council’s long term financial sustainably and our ratepayers.
Detailed modelling of the proposal, as commissioned by Council, has highlighted a high degree of sensitivity to the CIV methodology. It identified that the equity redistribution between high density and low density as anticipated to occur may not be achieved and will depend on the actual valuation methodology. Based on findings of the detailed modelling commissioned by Council, consideration should be given to allowing councils to apply a differential rate based on density, to achieve a greater equity in residential rating. Note: property addresses used for modelling have been removed from The CIE’s report for privacy reasons. If the OLG would like access to Council’s modelling, we would be happy to provide the property data.
The recommendation from IPART proposes that the minimum general rate mechanism be removed. Council’s detailed modelling identified the removal of the minimum general rate is likely to have a substantial detrimental affect. Council recommends that the two options, ad valorem/minimum and base/ad valorem, currently available in the legislation continue to apply. To remove one option would be contrary to the objective of providing local government with greater flexibility in rating.
Further consultation with councils and ratepayers is required, supported by more information from the NSW Government. In particular, further information is required on the detail of the
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proposed CIV methodology in order to full assess and model its impact. Note: The page references used within reference IPART’s final report (December 2016).
Use of the CIV valuation method to levy local council rates 1. The Local Government Act 1993 (NSW) should be amended to mandate Capital Improved Value (CIV) as the basis for setting ad valorem rates in the metropolitan council areas defined in Box 3.1. Council supports the introduction of CIV as an option for setting rates in NSW; noting that the ability to transition from UV to CIV is contingent on the availability of robust information from the Valuer General. Council raises the following concerns (not in any priority order) regarding the proposed mandatory change to CIV for metropolitan councils:
• A key challenge will be establishing a CIV for each property. The CIE has advised of challenges in estimating CIV using “the sales and land value data from NSW Land and Property Information (LPI)”, which is considered “the most robust information currently available on which to estimate CIV”, due to anomalies in the sales dataset e.g. “some very low prices compared to other sales in the same complex”. The CIE further notes “the use of recent sales transactions observed in the market will only provide a sample of properties on which to generate a CIV for each property. Ideally, the analysis would also be able to capture the size of homes” (e.g. number of bedrooms). Noting that “the task would be more challenging for multi-dwelling building, taking into account different build quality as well as other services (e.g. concierge, lifts, security) that add value”;
• In addition to the lack of proposed CIV methodology being provided, no indication has been given as to how long CIV would take to introduce, and when it is anticipated to commence. IPART suggests that 95% of ratepayers would fully transition to CIV within six years (p42). It is further noted that, as at 2016, IPART suggested phasing out UV from 2020/21 (p43) which is the year of the next local government election. Council suggests this is now more likely to align to the following election (2024), however confirmation by the NSW Government is required.
o Councils need to know the commencement timing to model long term financial planning, amend the Revenue Policy and ratepayers also need advance notice to anticipate and prepare for change.
o It is expected that any changes to the valuation basis be well publicised by the NSW Government, preferably to the same level recently employed by the NSW Government (e.g. TV and radio adverts) when promoting Fit for the Future (prior to amalgamations) and the proposed introduction of the Fire and Emergency Services Levy (FESL).
• IPART states that the gradual transition would ensure all NSW ratepayers would not experience excessive rate increases (p42); suggesting that if every NSW council adopted CIV, around 5% of residential ratepayers could face a total increase in rates of $500 per year or more, with most of these properties high value apartments in metropolitan councils that are paying minimum amounts (p42) including North Sydney LGA.
• The capacity to differentially rate residential properties by an apartment subcategory should be further considered, as this is a low-cost option to improve local government’s
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ability to provide equitable rating and has greater capacity to be targeted based on the local situation. It is disappointing that IPART’s final report does not recommend an apartment subcategory, as they consider such would increase the complexity of the rating system and create an arbitrary rating burden between apartments and houses; as this would be contrary to the horizontal and vertical equity principles and is unlikely to reflect the benefits received from council services (p41). However, in setting a differential rate on different density development, councils would be able to target rating revenue to the services provided.
At face value, we assumed a change to CIV would improve financial sustainability and bring about increased equity amongst our ratepayers; especially when only 45% of total revenue per annum is derived from rates, and approximately 76% of residential rate payers currently pay the minimum rate. However, The CIE analysis indicated that the anticipated improvement in equity distribution between low-density and high-density development from a CIV was not as significant as anticipated and under some assumptions could in fact be negative. The modelling demonstrated sensitivity to the actual applied CIV methodology on achieving the desired improvement to rating equity. This is discussed further in our response to Recommendation 4. 3. The Local Government Act 1993 (NSW) should be amended to facilitate a gradual transition of rates to a Capital Improved Value method. – The amount of rates that any ratepayer is liable to pay to the council should increase by no more than 10 percentage points above the rate peg (as adjusted for Special Variations) each year as a result of a council adopting a CIV method for setting rates. Councils could apply to IPART to exceed this 10% limit. The need for a review of the NSW rating system was driven by the recommendations of the Independent Local Government Review Panel (ILGRP) in its final report (October 2013). The ILGRP argued (in part) that:
• Rates are a tax, not a fee-for-service; they need to be set in accordance with principles of taxation - equity, efficiency, simplicity, sustainability and policy consistency;
• The level of rates paid relative to property values varies greatly from one local government area to another: this raises several equity issues (notably the relatively low rates paid by property owners in many affluent suburbs of Sydney);
• There is a need for more equitable arrangements for rating apartments; these might include a partial shift from Land Value to Capital Improved Value as the basis for rates;
• Other options to generate increased rate revenues from apartments also need to be explored; and
• Existing options for minimum rates, base charges and differential rates should remain, but overly complex use of those mechanisms should be discouraged.1
The ILGRP states that equity concerns are of significance in metropolitan Sydney, where councils in several affluent areas with high-value properties are charging low levels of rates (such as North Sydney LGA) compared to their counterparts in western and south-western Sydney2. North Sydney Council agrees with the ILGRP’s statement.
1 Page 38, Independent Local Government Review Panel, Final Report (October 2013) 2 Page 41, Independent Local Government Review Panel, Final Report (October 2013)
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Due to rate pegging, a significant issue has arisen over time in terms of the rating of apartments and other multi-unit dwellings. In 2013 The ILGRP noted that particularly in the inner suburbs of Sydney, such dwellings now constitute a large proportion of the housing stock, and this proportion is planned to increase considerably3 - this reality is currently being realised. North Sydney is consistent with the 2013 example given by the ILGRP, in the City of Sydney and Waverley Council areas where as at multi-unit dwellings already constitute 75% and 63% of the total respectively, and virtually all new housing will take that form4. As at 2016, high density constitutes 64% of total dwellings in North Sydney LGA5. As a result of the current use of UV, strata titles are each only rated a fraction of the total value. The ILGRP noted as a result, that the owners of apartments worth millions of dollars pay less in rates than owners of nearby houses worth much less, and all or most owners of apartments may pay the same minimum rate irrespective of the differing market values of their properties6. The ILGRP noted that not only are such outcomes inequitable, but they also mean that the rating system is raising far less revenue than it reasonably could. IPART’s suggested 10% limit or cap refers to the net amount a ratepayer pays, which may be influenced by other factors such as changes in domestic waste management services and pensioner rebate concessions. Council supports the need for transitional arrangements, however our modelling suggests that the adjustments are likely not to be achieved in an acceptable timeline under the very restrictive 10% cap proposed. This limit will negatively affect council areas such as North Sydney with a high proportion of high-density dwellings and current disparity between property values. A ‘blanket’ 10% cap does not take into consideration the complexities that may be unique to a council area. It would be more appropriate to define a transition period (say five years) and enable councils the capacity to smooth the rating impacts over this period. There should be a state level education campaign on the changes introduced to support individual engagement by councils with their ratepayers. 4. Section 497 of the Local Government Act 1993 (NSW) should be amended to remove minimum amounts from the structure of a rate, and section 548 of the Local Government Act 1993 (NSW) should be removed. IPART concluded that base amounts are more efficient and equitable than minimum amounts in recovering the fixed cost of servicing dwellings (p44); and, that base amount plus ad valorem more closely reflects the benefits received from council services, and differences in ratepayers’ ability to pay (p44). IPART’s conclusion was supported by theoretical principles rather than pragmatic real data analysis. The use of minimum rates has proven to be a practical tool to improve rating equity that is understood and accepted by ratepayers. Council would like to see more flexibility with setting rate structures and therefore wants to retain the provision of minimum rates. The introduction of CIV may (arguably) reduce the need for minimum rates, however this would not be known until CIV data sets were produced and rates modelling conducted. Whilst North Sydney LGA is currently disadvantaged due to its
3 Page 40, Independent Local Government Review Panel, Final Report (October 2013) 4 Page 40, Independent Local Government Review Panel, Final Report (October 2013) 5 https://profile.id.com.au/north-sydney/dwellings 6 Page 40, Independent Local Government Review Panel, Final Report (October 2013)
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high number of minimum rates, councils should be given the choice when determining their rating structure. The CIE suggests that this recommendation would have a significant impact on North Sydney ratepayers. Although IPART’s recommendations are suggested to have no initial impact on the total rate burden (i.e. total rates paid by ratepayers across the LGA), this will change the distribution of the rate burden across the ratepayers. Further to our comments in response to Recommendation 1, Council eagerly awaited the release of the IPART’s final report because we assumed that a change to CIV would bring about increased equity amongst ratepayers. However, The CIE found sensitivity to the valuation process, that ratepayers in high density (strata) properties will not necessarily pay more under CIV and conversely, low density properties will not necessarily pay less. The CIE estimates that around three-quarters of owners of separate houses in North Sydney LGA would be worse off, with most paying up to $500 per year in additional rates, and that surprisingly around two-thirds of owners of strata dwellings in North Sydney LGA would be better off, most by less than $200 per year. Similarly, the owners of separate business properties would pay slightly more in rates, while owners of strata property would pay slightly less7. Removal of the capacity to apply a minimum rate will unnecessarily restrict councils’ capacity to ensure an equitable rating methodology and increase the difficulty of the transition.
Allow councils' general income to grow as the communities they serve grow
5. The Local Government Act 1993 (NSW) should be amended so that the growth in rates revenue outside the rate peg is calculated using the formula based on changes in CIV, defined in Box 4.1. – For non-metropolitan councils, this formula would be independent of the valuation method chosen as the basis for setting ad valorem rates. Council supports this recommendation. The existing rate capping system results in growth through infill/increased density development being absorbed within the rate cap. This results in Council being required to service a growing population with rates capped at historical levels. Furthermore, the changing nature of housing development including medium and high density development put an increasing demand on council managed public space and recreation facilities. Rates revenue must be able to grow commensurate with this increase in demand and to meet the population’s expectations for services and quality public amenity. While Council acknowledges the CIV approach improves the correlation between growth and rates revenue and is supported by Council on this basis; it does not go far enough. Local Government should be provided with discretion to increase its general rates revenue commensurate with growth and community demand (as determined through the Integrated Planning and Reporting consultation process) within parameters that exceed the mere increase in historical service costs as currently determined by IPART. It is proposed that councils be given the discretion to apply annual rates increases using IPART’s rate capping methodology based on historical cost PLUS the average population
7 It is noted that The CIE has now confidence in this outcome due to uncertainties around their CIV estimates.
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growth rate. This would become the maximum increase cap and councils would retain the discretion to apply a lower level of increase depending on local needs. 6. The NSW Government fund the NSW Valuer General for the upfront cost of establishing the database to determine Capital Improved Values. Council supports the NSW Government funding both the upfront establishment costs and ongoing costs of maintaining a CIV database. The database would be used extensively by the NSW Government and further cost shifting should not occur based by passing the costs of establishing this database onto local government. 8. The Local Government Act 1993 (NSW) should be amended to allow councils to levy a new type of special rate for new infrastructure jointly funded with other levels of Government. This special rate should be permitted for services or infrastructure that benefit the community, and funds raised under this special rate should not: – form part of a council’s general income permitted under the rate peg, nor – require councils to receive regulatory approval from IPART. Council supports this recommendation. Council should have discretion to raise special rates for new infrastructure solely funded by Council, funded with a mix of council funds and developer contributions or jointly funded with other levels of government. 9. Section 511 of the Local Government Act 1993 (NSW) should be amended to reflect that, where a council does not apply the full percentage increase of the rate peg (or any applicable Special Variation) in a year, within the following 10-year period, the council can set rates in a subsequent year to return it to the original rating trajectory for that subsequent year. Give councils greater flexibility when setting residential rates Council supports this recommendation.,. It is noted that this amendment would benefit regional councils affected by hardship (drought, flood or other natural/economic disasters) and newly merged councils. The capacity to vary the timing of rate indexation to meet local circumstances is consistent with the objective of increasing rating flexibility and equity.
Give councils greater flexibility when setting residential rates 10. The Local Government Act 1993 (NSW) should be amended to remove the requirement to equalise residential rates by ‘centre of population’. Instead, the Local Government Act 1993 (NSW) should allow councils to determine a residential subcategory, and set a residential rate, by: – separate town or village, or – residential area. Council supports the ability to determine subcategories for separate town, villages or residential areas. This will provide councils with flexibility in setting rates that would more closely align the rates paid to the services received. Further, if a CIV mechanism is not pursued this should extend to allow councils to set a differential residential rate by land use density. This mechanism may in fact provide a simpler and less costly mechanism to facilitate equitable rates distribution without the expense necessary to change the valuation system.
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11. The Local Government Act 1993 (NSW) should outline that: – A ‘residential area’ is an area within a contiguous urban locality that has, on average, different access to, demand for, or costs of providing council services or infrastructure (relative to other areas in that locality). – Councils could use geographic markers to define the boundaries for a residential area, including postcode boundaries, suburb boundaries, geographic features (eg waterways, bushland) and/or the location of major infrastructure (eg arterial roads, railway lines). Council supports this recommendation, on the condition that there is ability to sub categorise residential properties within a residential area, as it allows councils to target revenue based on the area having different access, demand or costs to services within that area. 12. The Local Government Act 1993 (NSW) should be amended so, where a council uses different residential rates within a contiguous urban locality, it should be required to: – ensure the highest rate structure is no more than 1.5 times the average rate structure across all residential subcategories (ie, so the maximum difference between the highest and average ad valorem rates and base amounts is 50%), or obtain approval from IPART to exceed this maximum difference, and – publish the different rates (along with the reasons for the different rates) on its website and in the rates notice received by ratepayers. Council supports transparency in rating and therefore supports the recommendation to publish differential rates and a brief explanation for the differential rates. Council does not support the limits of a 1.5 times multiplier. IPART has provided no rationale for determining the 1.5 limitation. Councils are answerable to their ratepayers and this, rather than arbitrary applied limits, will ensure reasonableness in the application of discretion.
Better target rate exemption eligibility 16. Section 556(1)(i) of the Local Government Act 1993 (NSW) should be amended to include land owned by a private hospital and used for that purpose. Council does not support this recommendation. The level of exemptions already provided are a significant burden on ratepayers Many private hospitals operate as a commercial business, for profit and therefore should be rateable. Major owners/providers of private hospitals and medical services are listed on the ASX. Exemptions should not be extended to commercial enterprise. The mandating of exemptions through legislation should be narrowed and not extended. 22. A council’s maximum general income not be modified as a result of any changes to exemptions from implementing our recommendations. Council does not support this recommendation. IPART’s argument, that its recommendations should not alter the total rates revenue take, is counter intuitive and inefficient. Where there is an equity improvement, there should be capacity to attract revenues over and above the rate cap in order to address financial sustainability and the gap in public demand for local government services and councils’ capacity to provide services. Ratepayers currently wear the burden of subsiding the cost of services to exempt properties, which as detailed in response to Recommendation no. 14 significantly impacts the North
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Sydney LGA. If currently exempt properties are no longer except and become rateable, councils should receive a corresponding increase to general income. 23. A council may apply to IPART for a Special Variation to take account of the changes in exemptions using a streamlined process in the year that our recommended exemption changes come into force. The council would need to demonstrate: – it satisfies the first criteria for Special Variation applications in the OLG guidelines relating to the need for and purpose of a different revenue path for the council’s General Fund, and – that any subcategory rating structure applied to previously exempt properties is no greater than the average rate structure across the relevant rating category. Council supports this recommendation in principle, however greater discretion should be provided to local government without the need for the expensive and time-consuming special variation application process. To this end Council proposed the addition of a growth margin over and above the historic cost-based gap calculated by IPART (refer to Recommendation no. 5). 25. At the start of each rating period, councils calculate the estimated value of rating exemptions within the council area. This information should be published in the council’s annual report or otherwise made available to the public. Council supports this recommendation as it will provide transparency to ratepayers. This should include the number of properties and a breakdown by type e.g. churches, schools etc. It is further recommended that councils be encouraged (but not mandated) to disclose this information in their annual Revenue Policy and publicly exhibited IPR documentation.
Provide more rating categories 29. Section 493 of the Local Government Act 1993 (NSW) should be amended to add a new environmental land category and a definition of ‘environmental land’ should be included in the Local Government Act 1993 (NSW). – Land subject to a state conservation agreement is categorised as ‘environmental land’ for the purposes of setting rates. While Council supports this recommendation in principle. Adding a new environmental land category and definition in order to allow councils flexibility to levy lower rates on environmental land, is expected to have minimal benefit for the North Sydney LGA. 30. Section 529(2)(d) of the Local Government Act 1993 (NSW) should be amended to allow business land to be subcategorised as ‘industrial’ and or ‘commercial’ in addition to centre of activity. While Council supports amending the Act to allow sub-categorisation of business land (industrial and/or commercial) in addition to centre of activity, it is thought that this recommendation will have minimal impact on the North Sydney LGA. Never the less it provides additional flexibility in determining the most appropriate rating structure for individual LGAs. 33. Section 518 of the Local Government Act 1993 (NSW) should be amended to reflect that a council may determine by resolution which rating category will act as the residual category.
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– The residual category that is determined should not be subject to change for a 4-year period. – If a council does not determine a residual category, the business category should act as the default residual rating category. Council supports this recommendation as it increases rating flexibility and the capacity of local government to apply rating equity based on their specific local circumstances.
Recovery of council rates
36. The existing legal and administrative process to recover outstanding rates be streamlined by reducing the period of time before a property can be sold to recover rates from five years to three years. Council supports this recommendation, noting that the sale of land should be used as a last resort to recover unpaid rates. Fortunately, Council consistently experiences a low percentage of outstanding rates, due to the socio-economics of the North Sydney LGA as well as Council’s current debt recovery practices. 40. The Local Government Act 1993 (NSW) should be amended to remove section 585 and section 595, so that ratepayers are not permitted to postpone rates as a result of land rezoning, and councils are not required to write-off postponed rates after five years. Council supports changes to section 585 of the Act that prohibit the postponement of rates and the change to section 595 so that councils are no longer required to write of debt from postponed rates after five years.
Other recommendations 42. After the NSW Valuer General has established the database to determine Capital Improved Values for rating purposes (see Recommendation 3), councils be given the choice to directly buy valuation services from private valuers that have been certified by the NSW Valuer General. Council does not support this recommendation. Council is concerned on the potential inconsistency with valuations if there are multiple providers and the need for consistency for comparative purposes. Council recommends that the Valuer General maintain control over this function and utilise contract valuers at their discretion and under their supervision if necessary. This will ensure consistency in the application of valuation methodologies. Ratepayers can currently appeal against the Valuer General assessment of land valuation applicable for rating purposes. Any introduction of CIV may result in an increase in objections and consistency in the application of the CIV methodology will be essential.
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Other critical issues as identified by Council: The following section includes Council’s response to the recommendations marked not for comment by OLG but are applicable to or affect Council (listed in numerical order):
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14. Sections 555 and 556 of the Local Government Act 1993 NSW should be amended to: – exempt land on the basis of use rather than ownership, and to directly link the exemption to the use of the land, and – ensure land used for residential and commercial purposes is rateable unless explicitly exempted. * Council supports this recommendation and expresses disappointment that this was not open for comment by the NSW Government. The following provides an overview of the number of North Sydney LGA assessments currently exempt from paying rates based on land use, rather than land ownership; and that while this may only represent a small percentage of the total number of rateable properties, has a significant and often unrecognised impact on both the demand for Council services and the capacity to provide them. As at July 2019 there were 561 exempt assessments. The following table details the total number of exempt assessments for the previous five-year period:
Financial Year No. Assessments 2018/19 561 2017/18 552 2016/17 554 2015/16 486 2014/15 487
The following table provides an indicative breakdown of the non-rateable properties as at July 2019 including land values:
Category (non-rateable) Total Land Valuation No. Property Owners No. Assessments Charity $53,484,707 7 21 Government $268,954,479 31 157 North Sydney Council $121,817,470 4 191 Religious Institution $77,974,280 16 59 School $389,010,875 15 128 Utility $510,950 2 5 TOTAL $911,752,761 75 561
According to Council’s Education Institutions in North Sydney (2015)8, which presents the findings of a periodic survey:
• there are 5,128 primary school students total: o 1,341 students live in North Sydney LGA o 757 students are from outside North Sydney LGA9
• there are 8,523 secondary school students total: o 1,107 students live in North Sydney LGA o 6,274 students are from outside North Sydney LGA
8 Note: 21 institutions participated in the 2015 study and provided information on 19,296 students attending educational institutions in the North Sydney LGA. All education institutions are invited to complete the survey. Council periodically surveys local education institutions to identify the number and characteristics of students attending education within the North Sydney LGA. 9 Neutral Bay Public School and North Sydney Public School did not provide data regarding where students reside.
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The high proportion of students from outside the area is attributed to the high concentration of schools located in the North Sydney LGA. The LGA collectively caters to over 20,000 students (including tertiary level) and this is steadily growing. Demand is demonstrated by the opening of two new public schools in recent years, Anzac Public School and Cammeraygal High School (junior campus), and the former TAFE campus in Crows Nest is currently being redeveloped into the senior campus of the Cammeray High School. Many existing campuses are expanding, which involves acquiring more properties which in turn become non rateable. Increasingly, schools are relying on Council sporting and recreational facilities. Many schools make use of public parks for morning tea and lunch breaks because they don’t have enough general recreational space on school grounds. As student attendance continues to grow, open space on school grounds is being utilised for building and demand for recreational space transferred to Council managed recreational facilities. The combination of the large quantum of students travelling into North Sydney and the increasing reliance on Council facilities by schools is increasing the burden on residential ratepayers. Councils should have greater direction to determine what properties are exempt. 15. Land that is used for residential care as defined in Section 41-3(1) of the Aged Care Act 1997 (Cth) be proportionally rateable according to the share of places whose maximum Refundable Accommodation Deposit is above the level set by the Minister for Health and Aged Care (currently $550,000). * Council supports this recommendation. Aged care is often a commercial operation. It is, however, noted that the “proportionally rateability” creates another layer for complexity in determining exemption status. 17. The following exemptions be removed: – land that is vested in, owned by, or within a special or controlled area for, the Hunter Water Corporation, Water NSW or the Sydney Water Corporation (Local Government Act 1993 (NSW) section 555(1)(c) and section 555(1)(d)) – land that is below the high water mark and is used for the cultivation of oysters (Local Government Act 1993 (NSW) section 555(1)(h)) – land that is held under a lease from the Crown for private purposes and is the subject of a mineral claim (Local Government Act 1993 (NSW) section 556(1)(g)), and – land that is managed by the Teacher Housing Authority and on which a house is erected (Local Government Act 1993 (NSW) section 556(1)(p)). * Council supports this recommendation. Land use that increases demand for council services should contribute to the cost of providing the services from which they benefit. 19. The following exemptions not be funded by local councils and hence should be removed from the Local Government Act and Regulation: – land that is vested in the Sydney Cricket and Sports Ground Trust (Local Government Act 1993 (NSW) section 556(1)(m)) – land that is leased by the Royal Agricultural Society in the Homebush Bay area (Local Government (General) Regulation 2005 reg 123(a))
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– land that is occupied by the Museum of Contemporary Art Limited (Local Government (General) Regulation 2005 reg 123(b)), and – land comprising the site known as Museum of Sydney (Local Government (General) Regulation 2005 reg 123(c)). The NSW Government should consider whether to fund these local rates through State taxes.* Council supports this recommendation in principle for the reason outlined in Recommendation 18 above. 20. Where a portion of land is used for an exempt purpose and the remainder for a non-exempt activity, only the former portion should be exempt, and the remainder should be rateable. * Council supports this recommendation. Council currently applies these criteria to any partial exemptions. 21. Where land is used for an exempt purpose only part of the time, a self-assessment process should be used to determine the proportion of rates payable for the non-exempt use. * Council does not support this recommendation. Land use only be exempt if it is only used for exempt purposes. 26. For new and existing eligible pensioners, introduce a rate deferral scheme operated by the NSW Government, where: – Eligible pensioners would be allowed to defer payment of ordinary council rates up to $1,000 per annum and indexed to CPI, or any other amount as determined by the NSW Government.* 27. Give existing eligible pensioners the option to access, either: – the current pensioner concession, or – the rate deferral scheme, as defined in Recommendation 26. * 28. Funding pensioner assistance: – The current pensioner concession funding arrangements would continue. – The rate deferral scheme (defined in Recommendation 26) would be funded by the NSW Government. The loan should be charged interest at the NSW Government’s 10-year borrowing rate, and could become due when property ownership changes. * Council supports in principle any assistance to pensioners in financial difficulty, including a possible deferral scheme. 35. Councils have the option to engage the State Debt Recovery Office (SDRO) to recover outstanding council rates and charges. * Council supports this recommendation in principle, as an alternate to Council’s current debt recovery processes. However, North Sydney Council has a low level of debt arrears and there is no current need for increased support in debt management. 37. All councils adopt an internal review policy, to assist those who are late in paying rates, before commencing legal proceedings to recover unpaid rates.* Council supports this recommendation. Council has a Hardship Policy in place. Council’s
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current rate recovery procedures exhaust all possible avenues before commencing legal action. Council’s current outstanding rates ratio is 1% and is a direct result of current actions taken by Council to provide payment options. 38. The Local Government Act 1993 (NSW) should be amended or the Office of Local Government should issue guidelines to clarify that councils can offer flexible payment options to ratepayers. * Council supports the ability for councils to be able to offer flexible payment options. Council currently offers the ability to enter into flexible payment agreements and legislative change is not considered necessary. 39. The Local Government Act 1993 (NSW) should be amended to allow councils to offer a discount to ratepayers who elect to receive rates notices in electronic formats, eg, via email. * Council supports efficiency gains through electronic rates notices. Council currently offers electronic delivery of rates notices, however only 14.3% if total ratepayers (5,784 assessments) have opted to receive their notices electronically. 41. The valuation base date for the Emergency Services Property Levy and council rates be aligned. – The NSW Government should levy the Emergency Services Property Levy on a Capital Improved Value basis when Capital Improved Value data becomes available state-wide. * Council supports this recommendation. Councils are merely acting as a collection agency in collecting this charge which is then passed onto the NSW Government. Therefore, it should be excluded from the rates cap and be separately identified on the rates notice for transparency in rating.
*** The following section includes response to the recommendations open for comment by OLG but which are not applicable to North Sydney Council (listed in numerical order): 2. The Local Government Act 1993 (NSW) should be amended to allow non-metropolitan councils to choose between the CIV and Unimproved Value (UV) methods as the basis for setting ad valorem rates at the rating category level. 7. The NSW Government fund the cost for a non-metropolitan council to set up a Capital Improved Value database for the purposes of implementing our recommended formula for calculating growth in rates revenue outside the rate peg, where the Unimproved Value method for setting rates is maintained. 13. At the end of the 4-year rate path freeze, new councils determine whether any pre-merger areas are separate towns or villages, or different residential areas. – In the event that a new council determines they are separate towns or villages, or different residential areas, it should be able to continue the existing rates or set different rates for these pre-merger areas, subject to metropolitan councils seeking IPART approval if they exceed the 50% maximum differential. It could also choose to equalise rates across the pre-merger areas, using the gradual equalisation process outlined below.
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– In the event that a new council determines they are not separate towns or villages, or different residential areas, or it chooses to equalise rates, it should undertake a gradual equalisation of residential rates. The amount of rates a resident is liable to pay to the council should increase by no more than 10 percentage points above the rate peg (as adjusted for Special Variations) each year as a result of this equalisation. The Local Government Act 1993 (NSW) should be amended to facilitate this gradual equalisation. Better target rate exemption eligibility 18. Section 555(1)(b1) of the Local Government Act 1993 (NSW) should be amended to remove the current rating exemption for land that is the subject of a conservation agreement and instead require it to be rated using the Environmental Land category. 24. The Local Government Act 1993 (NSW) should be amended to remove the current exemptions from water and sewerage special charges in section 555 and instead allow councils discretion to exempt these properties from water and sewerage special rates in a similar manner as occurs under section 558(1). 31. Sections 493, 519 and 529 of the Local Government Act 1993 (NSW) should be amended to add an optional vacant land subcategory for residential, business and mining land. 32. Section 529 (2)(a) of the Local Government Act 1993 (NSW) should be replaced to allow farmland subcategories to be determined based on geographic location. 34. Any difference in the rate charged by a council to a mining category compared to its average business rate should primarily reflect differences in the council’s costs of providing services to the mining properties. Council supports the above recommendations in principle, however they do not currently occur/apply within the North Sydney LGA and therefore we defer to other councils with greater practical experience/those who are impacted by these proposals. Contact Person: Jenny Gleeson, Manager Integrated Planning and Reporting Phone 9936 8463 Email [email protected]
R E P O R T
Review of Local Government Rating System
Estimated impacts on North Sydney
Prepared for North Sydney Council
6 September 2019
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Review of Local Government Rating System iii
Contents
Summary 2
2 Background 10
The rate-setting framework in NSW 10
IPART’s review of the local government rating system 11
Purpose of this report 12
3 Dwelling structure and current rating arrangements in North Sydney LGA 13
Dwelling structure 13
North Sydney Council’s Revenue Policy 16
4 Estimating Capital Improved Value 18
Difference between Capital Improved Value and unimproved value 18
Estimates of CIV 19
Caveats in CIV estimates 23
5 Initial impact of IPART’s recommendations 25
Initial impact of IPART’s recommendations in North Sydney 25
Case studies 30
Alternative rate structures 32
6 Impacts over time 34
Revenue increases outside the cap 34
Impact on North Sydney Council 36
A IPART’s recommendations 42
B Characteristics of other Councils 45
BOXES, CHARTS AND TABLES 1 Change in total rates paid — residential ratepayers 4
2 Distribution of impacts on residential ratepayers — Approach 1 4
3 Distribution of impacts on residential ratepayers — Approach 2 5
4 Residential strata ratepayers — distribution of unimproved land value 5
5 Residential separate dwellings ratepayers — distribution of UV 6
6 Change in total rates paid — business ratepayers 7
7 Distribution of rates, Residential rate payers 8
8 Distribution of rates, Business rate payers 9
3.1 Area of land by type of use 13
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iv Review of Local Government Rating System
3.2 Number of ‘parent’ properties in the North Sydney LGA (as at 1 April 2019) 14
3.3 Unimproved land value ($m, 1 July 2018) across North Sydney LGA 15
3.4 Number of sales transactions 15
3.5 IPART approved increases to Council’s permissible general income (PGI) 16
4.1 Methodology for estimating Unimproved Land Values 18
4.2 Unimproved Land Value and Sale Price (Non-Strata, Residential) 20
4.3 Unimproved Land Value and Sale Price (Non-Strata, Non-Residential) 20
4.4 UV, Sale Price and the number of lots (Strata, Residential) 21
4.5 UV, Sale Price and the number of lots (Strata, Non-Residential) 21
4.6 Median CIV/UV mark-up values 22
4.7 Valuation base for UV compared to alternative CIV approaches 22
5.1 Change in total rates paid — residential ratepayers 27
5.2 Distribution of impacts on residential ratepayers — first approach to CIV 27
5.3 Distribution of impacts on residential ratepayers — second approach to CIV 28
5.4 Residential strata ratepayers — distribution of unimproved land value 28
5.5 Residential separate dwellings ratepayers — distribution of UV 29
5.6 Change in total rates paid — business ratepayers 30
5.7 Single dwelling Residential properties, rate impacts 31
5.8 Strata Residential properties, rate impacts 31
5.9 Distribution of rates, Residential rate payers 32
5.10 Distribution of rates, Business rate payers 33
6.1 Zoning premium, zones in North Sydney LGA that enable the delivery of residential accommodation 35
6.2 Dwelling projections for North Sydney LGA, 2020-21 to 2026-27 37
6.3 Indicative general income under the CIV method and the UV method 38
6.4 General income under different methods 39
6.5 Methodology for estimating growth in general income 40
B.1 Total Number of properties as at 1 April 2019, by LGA 45
B.2 Unimproved land value ($m 2018) as at 1 April 2019, by LGA 45
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2 Review of Local Government Rating System
Summary
The Task
In 2016, the NSW Government asked the Independent Pricing and Regulatory Tribunal of NSW (IPART) to review the equity and efficiency of the local government rating system in order to enhance councils’ ability to implement sustainable fiscal policies in the long term. IPART’s final report, published December 2016, made 42 recommendations.
In June 2019, the NSW Government released IPART’s final report and called for feedback from the local government sector.
North Sydney Council is seeking to understand the potential impact on the Council and its ratepayers of the following IPART recommendations:
■ use of Capital Improved Value (CIV) instead of Unimproved Value (UV) (Recommendation No. 1)
■ removal of minimum rate (Recommendation No. 4)
■ allowing general income to increase in line with growth in CIV from new development (Recommendation No. 5)
■ allowing councils to determine a residential subcategory and set a residential rate by separate town or village or residential area (Recommendation No. 10).
The NSW Land Valuer General currently provides a valuation of all land parcels in NSW. This is described as the Unimproved Value of land. No information is currently available on the CIV of properties in NSW although, in the future, this information would also be collected by the NSW Land Valuer General if the Government adopts IPART’s recommendations.
Our approach
A key task for this project has been to estimate the CIV for all properties in the North Sydney Local Government Area (LGA). We utilise a database of UV’s for all properties available from the NSW Land and Property Information (LPI) collects information on UV for all properties in NSW (on which rates are currently based), as well as, LPI’s database of property sales transactions in NSW. We also utilise the Council’s rates database which provides information on the number of units within each multi-dwelling properties.
Two alternative methods are used for calculating the CIV:
■ Approach 1. The first approach uses statistical techniques to establish the relationship between the UV and sale price of the property over the past 2 years. For multi-
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Review of Local Government Rating System 3
dwelling properties we also account for the number of units within a multi-dwelling premise.
■ Approach 2. The second approach uses the CIV to UV ‘mark up’ for properties where there are observed sales that have occurred over the past 2 years. We apply the median CIV to UV ‘mark up’ for 4 categories (residential strata, residential non-strata, commercial strata, commercial non-strata). For strata properties we also estimate different mark-up ratios for different size buildings.
We use the CIV estimates to calculate new rates for all properties in the LGA, removing the minimum bill. The increase in the valuation base from moving to a CIV means that the ad valorem rate needs to fall so that the Council receives the same total revenue as under the existing UV approach.
Impacts on rate payers
A key theme from the IPART report is that low density properties would pay less under the CIV method and that multi-dwelling properties (many which are currently on the minimum charge) would pay more under CIV. Our results show that this is not necessarily the case and it would depend largely on the relativity between the UV and CIV estimates for each property.
Impact on residential ratepayers
To ensure that the total rate burden on residential ratepayers is the same under IPART’s proposed changes as they would be under current arrangements, the ad valorem rate would need to be adjusted.
■ Under the first approach to estimating CIV, we estimate that that the ad valorem rate applied to residential ratepayers would need to decrease from 0.095263 cents in the dollar to 0.050264 cents in the dollar.
■ Under the second approach to estimating CIV, we estimate that the ad valorem rates applied to residential ratepayers would need to fall to 0.051953 cents in the dollar.
Based on the assumption outlined above, the net impact on various ratepayer groups varies depending on the approach to estimating CIV (table 1).
■ Under the first approach to estimating CIV, we estimate:
– owners of separate dwellings in the North Sydney LGA would pay around $1.3 million extra in rates in aggregate as a result of IPART’s proposed recommendations — this implies that on average, the increase in the property value (as a result of the change to CIV) outweighs the impact of the reduction in the ad valorem rate for these ratepayers
– this would be offset by a net reduction in the total rates paid by owners of residential strata properties.
■ Under the second approach to estimating CIV, we estimate:
– owners of separate dwellings in the North Sydney LGA would pay around $550 000 less in aggregate under IPART’s proposed approach
– owners of strata properties would collectively pay around $550 000 more.
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4 Review of Local Government Rating System
1 Change in total rates paid — residential ratepayers
Current IPART recommendations
Changea
$ million $ million $ million
Approach 1
Residential – separate 9.13 10.43 - 1.30
Residential – strata 18.12 16.82 1.30
Totalb 27.25 27.25 0.00
Approach 2
Residential – separate 9.13 8.58 0.55
Residential – strata 18.12 18.67 - 0.55
Totalb 27.25 27.25 0.00 a A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates are set to be the same under both scenarios. Source: CIE estimates.
Within these ratepayer groups, the outcomes are mixed (see chart 2). Under the first approach to estimating CIV:
■ Around three-quarters of owners of separate houses would be worse off, with most paying less than $500 per year in additional rates. The remaining owners of separate houses would be better off.
■ Around two-thirds of owners of strata dwellings would better off, most by less than $200 per year. Of those owners of strata dwellings that would be worse off, most would pay less than $100 in extra rates per year.
2 Distribution of impacts on residential ratepayers — Approach 1
Note: A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates. Data source: CIE estimates.
0
2000
4000
6000
8000
10000
12000
14000
16000
<-$500 -$400 to -$300
-$200 to -$100
$0 to $100 $200 to $300 $400 to $500 >$600
Num
ber o
f rat
epay
ers
(No.
)
Separate dwellings Strata
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Under the second approach to estimating CIV:
■ rate savings for most owners of separate dwellings would be less than $100 per year
■ outcomes for strata ratepayers are more mixed, with some pay less and some paying more (chart 3).
3 Distribution of impacts on residential ratepayers — Approach 2
Note: A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates. Data source: CIE estimates.
Under North Sydney Council’s current revenue policy, any residential property with an unimproved land value of less than $590 995 pays the minimum rate. The unimproved land value for more than 80 per cent of ratepayers with residential strata properties is less than $400 000 (see chart 4 for a frequency distribution). For residential separate dwelling properties, only 1 per cent of ratepayers reside in properties with a land value less than $400 000 (see chart 5).
4 Residential strata ratepayers — distribution of unimproved land value
Data source: Data provided by North Sydney Council.
0
1000
2000
3000
4000
5000
6000
7000
8000
<-$500 -$400 to -$300
-$200 to -$100
$0 to $100 $200 to $300 $400 to $500 >$600
Num
ber o
f rat
epay
ers
(No.
)
Separate dwellings Strata
0
2000
4000
6000
8000
10000
12000
14000
16000
<$200k $200k -$400k
$400k -$600k
$600k -$800k
$800k-$1m
$1m-$1.2m
$1.2m-$1.4m
$1.4m-$1.6m
$1.6m-$1.8m
>$1.8m
Num
ber o
f pro
perti
es
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6 Review of Local Government Rating System
5 Residential separate dwellings ratepayers — distribution of UV
Data source: Data provided by North Sydney Council.
Under the CIV approach recommended by IPART, we estimate that the CIV of the property would need to be around $1.23 million to pay more than the current minimum rate (as the ad valorem rate would need to decrease). This implies that any residential ratepayer currently paying the minimum rate with a CIV less than $1.23 million would pay lower rates under IPART’s proposed approach. As this is above the median apartment price in many suburbs within the North Sydney LGA, this will apply to a significant number of residential strata ratepayers.
■ The re-distribution of the rate burden across ratepayers will depend on the CIV estimates determined by the Valuer-General, which are currently not known.
■ Nevertheless, our analysis suggests that ratepayers in high density units do not necessarily pay more under CIV and, conversely, low density properties do not necessarily pay less.
Impact on business ratepayers
As for residential ratepayers, the ad valorem rate for business ratepayers would need to be adjusted to ensure that the same amount of revenue is collected from business ratepayers in total.
■ Under the first approach to estimating CIV, we estimate that that the ad valorem rate applied to residential ratepayers would need to decrease from 0.523707 cents in the dollar to 0.114063 cents in the dollar.
■ Under the second approach to estimating CIV, we estimate that the ad valorem rates applied to residential ratepayers would need to fall to 0.213120 cents in the dollar.
The net impact on different ratepayer groups also depends on the approach to estimating CIV (table 6).
■ Under the first approach, business owners of separate properties pay around $90 000 more in rates, while business owners of strata properties pay the same amount more.
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■ Under the second approach, business owners of separate properties would pay around $1.52 million less in rates, while strata owners would pay around $1.52 million more.
6 Change in total rates paid — business ratepayers
Current IPART recommendations
Change
$ million $ million $ million
First approach to estimating CIV
Business separate 14.62 14.71 - 0.09
Business – strata 3.06 2.98 0.09
Total 17.69 17.69 0.00
Second approach to estimating CIV
Business separate 14.62 13.10 1.52
Business – strata 3.06 4.58 - 1.52
Total 17.69 17.69 0.00
Source: CIE estimates.
As for residential properties, the changes across individual ratepayers within these groups vary significantly.
Impacts over time
In addition to the abolition of minimum rates and the change to CIV as the basis for rates, IPART has also recommended that general income should be allowed to increase in line with growth in CIV from new development (Recommendation 5).1 IPART’s recommendations would not have any impact on the maximum general income that the Council is able to raise initially, however, the recommendation will increase maximum general income over time, as new development occurs in the LGA.
Further development is planned over the near to medium term, which will have significant impacts on the demand for services provided by North Sydney Council (i.e. more people collectively demand greater service levels). The current rate base is not sufficient for the council to meet their financial obligations (as evidenced through the various Special Variations council has applied for and granted). As densification continues, and the gap between the rate base and the cost of services (to Council) increases, it is likely to result in ongoing requests to IPART for special variations to avoid degradation of existing services, or foregoing new services.
We found that the rate base may increase between 0.7 per cent and 1 per cent, per year, based on the level of density (and our assumptions on CIV estimates). This growth reflects the difference between sale price and unimproved value for developments that have been rezoned and for new stock, that is expected, but not yet rezoned. While the
1 IPART (2016), Review of the Local Government Rating System, December 2016, p 50.
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8 Review of Local Government Rating System
annual increase may be small, it is the cumulative impact of these changes that can provide a significant uplift in general income.
Alternative rate structures
In the analysis presented above, we have assumed that the Council maintains its existing rate structure such as requiring 60 percent of revenue to be recovered from residential ratepayers. We have modelled a number of alternatives which also incorporate the use of the CIV. One alternative is the combination of a base rate (which assumes that each ratepayer uses some base level of Council services) and an ad valorem component using the CIV. Under this alternative each ratepayer pays a base rate of $400 with the balance recovered through the ad valorem charge.
Charts 7 and 8, illustrates the bill impact for residential and business ratepayers, assuming that 60 percent of revenue is recovered from residential ratepayers. For example, there are 2,305 ratepayers living in residential separate properties that pay between $3,000 to $5,000 per annum. There are almost 300 ratepayers residing in separate properties identified for business use that pay between $5,000 to $10,000 per annum.
7 Distribution of rates, Residential rate payers
Data source: The CIE estimates
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8 Distribution of rates, Business rate payers
Data source: The CIE estimates
Conclusions
While IPART’s recommendations, in principle, lead to a theoretically better rating system, the Council should be aware that applying IPART’s recommendations could lead to differential impacts for ratepayers.
The results are sensitive to the estimates of CIV for each property in the LGA. Importantly, the conclusions drawn from the analysis could differ depending on the CIV estimates. The relativities between the CIV and UV, combined with the changes required to the ad valorem rate (so as to maintain the same rates revenue) can generate rate impacts which may appear ‘counterintuitive’. For example, a unit with a high sale price may not necessarily have a higher rate under the CIV approach.
This presents a challenge for Council in interpreting how IPART’s recommendations can impact on the ratepayers. If the NSW Land Valuer General, for example, estimates CIVs that are different to our estimates then this could have differing impacts.
An added complexity is that, IPART has also stated,
The Local Government Act 1993 (NSW) should be amended to facilitate a gradual transition of rates to a Capital Improved Value method.
- The amount of rates that any ratepayer is liable to pay to the council should increase by no more than 10 percentage points above the rate peg (as adjusted for Special Variations) each year as a result of a council adopting a Capital Improved Value method for setting rates. Councils could apply to IPART to exceed this 10% limit.
We have not incorporated this recommendation in our modelling as yet. The impact on Council would depend on how the application of this cap would impact on rate revenue.
While the impact on individual rate payers is difficult to predict with certainty, the CIV approach does have the added benefit of increasing the Council’s revenue base for areas which are increasing in density. Therefore, over time the Council’s rates revenue base can be expected to increase.
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10 Review of Local Government Rating System
2 Background
The rate-setting framework in NSW
Rates form part of a council’s general income and are collected to provide essential infrastructure and services such as roads, playgrounds, parks, swimming pools and other public amenities. Rates are one source of funding for costs incurred by councils.2
The Local Government 1993 (LG Act) sets out the two types of rates that can be collected in NSW:
■ ordinary rates3
■ special rates4
There are three features to the NSW rate system:
■ Rate structure
– an ad valorem amount set as a proportion of the unimproved land value5 or a minimum amount,6 which is a fixed charge, which is typically greater than the ad valorem amount), or
– a base amount,7 which is a fixed charge, levied equally against all rateable properties within a given category, which is added to the ad valorem amount.
■ Rating categories
– councils may levy different rates for residential, business, farmland and mining uses, for example, use a different percentage of the unimproved land value to calculate the ad valorem amount. The four rating categories are residential,8 business, farmland and mining and councils may also establish sub-categories.
2 In addition to rates, councils fund their costs from charges for specific services, grants from the
State and Federal Government, other charges (such as developer charges), fines, as well as funds raised through borrowing.
3 Ordinary rates are calculated and levied on all rateable land in the area. There are four categories of rateable land – residential, business, farmland and mining.
4 Special rates are at the discretion of council and may be levied due to the works or services provided or prosed, or any other special purpose. Special rates can be applied to properties in a specific area, or to a subgroup of ratepayers.
5 The unimproved capital value of the land, as determined by the Valuer-General under the Valuation of Land Act 1916, see Local Government Act, 1993. It is the value of land subject to its highest and best use as permitted under the current zoning.
6 The minimum amount cannot exceed a statutory limit unless approved by IPART.
7 Revenue generated from the base amount cannot exceed 50 per cent of the total revenue from any particular rating category.
8 Residential rates for all properties within a centre of population area calculated the same way.
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Review of Local Government Rating System 11
■ Treatment of apartments in multi-unit dwellings
– A single land variation (based on the unimproved value) is divided across apartments depending on each apartment’s unit entitlement.
Not all land is rateable. Some exceptions include national parks, charities, and education institutions.
There are three ways to increase councils’ general income:
■ The rate peg is the amount by which councils can increase their general income on an annual basis, as approved by IPART, adjusted for improvements in productivity
■ Special variations occur where additional costs to council are incurred, for example, to provide additional services, replace ageing assets or improve financial stability
■ Supplementary variation process is an additional approval sought through IPART to recognise changes in the property stock (land rezoning, and/or the newly rateable properties).
IPART’s review of the local government rating system
In 2016, the NSW Government asked IPART to review the equity and efficiency of the local government rating system in order to enhance councils’ ability to implement sustainable fiscal policies in the long term.
IPART reviewed the:9
■ valuation method to calculate rates
■ exemptions and ratings categories
■ way in which councils’ income increases as population increases
■ distribution of rates across different ratepayers
■ design of exemptions and concessions.
IPART’s final report made 42 recommendations including:
■ using the CIV valuation method to levy council rates
■ allowing councils' general income to grow as the communities they serve grow
■ giving councils greater flexibility when setting residential rates
■ better targeting rate exemption eligibility
■ improving assistance for pensioners
■ providing more rating categories
■ changes relating to the recovery of council rates
■ other recommendations (relating to Emergency Services Property Levy and the access of valuation data from the private sector).
9 https://www.ipart.nsw.gov.au/files/sharedassets/website/shared-files/investigation-section-9-
legislative-review-of-the-local-government-rating-system/final-report-review-of-the-local-government-rating-system-december-2016.pdf, p 1.
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12 Review of Local Government Rating System
The NSW Government has ruled out implementing a number of IPART’s recommendations on the basis of them impacting adversely on vulnerable members of the community. This includes recommendations relating to:10
■ Fundamental restructure of the current rates exemption framework, including the removal of a number of important rates exemptions. Instead the Government will address clear anomalies with existing rating exemptions (recommendations 14, 15, 17 and 19-21)
■ The creation of a rates deferral scheme for eligible pensioners to replace the existing pensioner concession framework (recommendation 26-28).
All other recommendations are under consideration by the Government, which is currently conducting a public consultation of the report, with submissions closing on 13 September 2019.11
Purpose of this report
North Sydney Council is seeking to understand the potential impact on the Council and its ratepayers of the following IPART recommendations:
■ use of Capital Improved Value (CIV) instead of Unimproved Value (UV) (Recommendation No. 1)
■ removal of minimum rate (Recommendation No. 4)
■ allowing general income to increase in line with growth in CIV from new development (Recommendation No. 5)
■ allowing councils to determine a residential subcategory and set a residential rate by separate town or village or residential area (Recommendation No. 10).
10 Office of Local Government, Government Response, Release of the IPART Reviews into Local
Government, available at: https://www.olg.nsw.gov.au/sites/default/files/Government%E2%80%99s%20Interim%20Response%20to%20Reports_0.pdf, accessed 9 August 2019.
11 https://www.nsw.gov.au/improving-nsw/have-your-say/ipart-review-of-government-regulation/
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3 Dwelling structure and current rating arrangements in North Sydney LGA
This chapter provides some background information on the dwelling structure in the North Sydney LGA and the Council’s current rating arrangements.
Dwelling structure
The dwelling structure across the North Sydney LGA has evolved over time, with an increase in the densification of residential properties being the dominant trend. The NSW Land Property Information provides data on the properties (defined as a block of land with a separate title) currently registered throughout NSW.12 It also includes other attributes of the properties such as the land area and the existing land use zone of the land. In some instances, the current use of the land may not align with the existing zoning and use.13 For example, land zoned for higher density use may still have lower density housing on the site. The land valuation by the Land Valuer General, however, should reflect the existing zoning, although it is possible that this is not the case if a separate valuation under the new zoning has not been conducted.
In terms of land area, properties defined as non-strata comprise 2.3 km2 of the land area in the North Sydney LGA compared to 2.5 km2 for strata properties. The majority of land is zoned for residential use, with just over 2 km2 of land zoned for low density developments. Land zoned for high density residential in strata blocks comprise 1.3 km2
of land. Of the 3.12 km2 of non-residential land, 1.35 km2 is zoned for recreational activities (RE1).
3.1 Area of land by type of use
Landuse zone Strata Non-Strata
. km2 km2
Residential use . .
Low density (R2) 0.43 1.64
Medium density (R3) 0.44 0.55
High density (R4) 1.28 0.28
Subtotal 2.15 2.47
12 All land value data and property characteristics data from the land valuer general is a snapshot
as at 1 April 2019. https://valuation.property.nsw.gov.au/
13 The land value would reflect the land use zoning, height restrictions and other factors such as restrictions imposed through heritage conditions.
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14 Review of Local Government Rating System
Landuse zone Strata Non-Strata
. km2 km2
Other use 0.32 2.80
Total 2.47 5.27
Note: There are properties with land use zoning of B4 (Mixed Use) which are predominantly residential. We have not separately identified these properties in the table but in order to the estimate of CIV we use data from the Council to identify these properties. Source: NSW Land and Property Information
Table 3.2 provides an overview of the existing number of properties in the North Sydney LGA. The Non-Strata properties on residential zoned land are the dominant category (comprising 6,322 properties) compared to Strata properties on residential zoned land (comprising 2,095 properties). Strata and non-strata properties located on land zoned for non-residential use total around 1,956 properties.14 Some of the properties have multiple dwellings (i.e. units/flats). The Council’s 2019/20 Revenue Policy identifies 28,617 the rateable individual lots.
3.2 Number of ‘parent’ properties in the North Sydney LGA (as at 1 April 2019)
Suburb Strata, Residential
Strata, Other use
Non Strata, Residential
Non Strata, Other use
Total
. . . . . .
Cammeray 241 16 1,011 186 1,454
Cremorne 397 23 1,107 201 1,728
Cremorne Point 133 - 238 6 377
Crows Nest 90 41 885 309 1,325
Kirribilli 143 3 313 52 511
Kurraba Point 103 - 143 10 256
Lavender Bay 34 1 147 17 199
McMahons Point 71 7 368 110 556
Milsons Point - 29 - 61 90
Neutral Bay 391 43 900 136 1,470
North Sydney 106 73 617 313 1,109
St Leonards - 25 - 50 75
Waverton 107 6 318 107 538
Wollstonecraft 279 6 275 124 684
Total 2,095 273 6,322 1,683 10,373
Source: NSW Land and Property Information
In terms of land values (as at 1 July 2018), residential properties have the greatest value with around $9.2 billion for strata properties and $11.4 billion for non-strata properties. Land values for non-residential properties total around $7.95 billion.
14 Note that a property is a separate parcel of land title. Within a property there may be multiple
lots or units.
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3.3 Unimproved land value ($m, 1 July 2018) across North Sydney LGA
Suburb Strata - Residential
Strata, Other use
Non Strata, Residential
Non Strata, Other use
Total
. $m $m $m $m $m
Cammeray 798 59 1,538 432 2,828
Cremorne 1,571 162 2,051 615 4,399
Cremorne Pt 580 - 629 4 1,213
Crows Nest 275 291 1,196 788 2,549
Greenwich - - - - -
Kirribilli 977 3 852 116 1,948
Kurraba Pt 492 - 495 8 995
Lavender Bay 207 23 421 25 676
McMahons Pt 474 21 710 151 1,356
Milsons Point - 612 - 214 825
Naremburn - - - 0 0
Neutral Bay 1,528 295 1,473 373 3,668
North Sydney 549 691 961 1,957 4,158
St Leonards - 331 - 333 664
Waverton 437 23 582 179 1,222
Wollstonecraft 1,315 16 521 231 2,083
Total 9,203 2,526 11,429 5,425 28,583
Source: NSW Land and Property Information
In terms of property sales, we draw on the property sales database from NSW Land and Property Information for the past 5 years. In total, across all property types there have been close to 13,500 transactions over the past 5 years. Table 3.4 provides an overview of the 12,081 sales transactions where data was available on the zoning category.15
3.4 Number of sales transactions
Number of sales Strata Residential
Strata Other use
Non-Strata Residential
Non-Strata Other use
Total
. no. no. no. no. no.
2014 856 754 269 52 1,931
2015 1,319 1,180 414 86 2,999
2016 1,094 940 362 97 2,493
2017 1,083 761 448 90 2,382
2018 941 483 346 46 1,816
2019 253 120 82 5 460
Total 5,546 4,238 1,921 376 12,081
Note: In some instances, for strata properties (e.g. ‘off the plan’ properties) the same sale price may be observed. Source: NSW Land and Property Information
15 LPI’s sales database does not have information on the landuse zone of the property. Therefore,
we have utilised LPI’s land values database to generate a linked database using a unique street address. Not all sales transactions could be matched.
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16 Review of Local Government Rating System
LPI’s property sales database provides the most robust basis currently available on which to estimate the CIV of the property although, as discussed in chapter 3, estimating the CIV is not a straight-forward process.
North Sydney Council’s Revenue Policy
Rates currently contribute approximately 45 per cent of the Council’s revenue per annum.16
North Sydney Council’s current rating structure is based on:
■ 2 rate categories (residential and business)
■ calculation of the ad valorem based on unimproved land value, but subject to a minimum amount (i.e. whichever is higher)
■ allowable annual increases which include the annual Rate Peg and a Special Rate Variation.
In 2018, North Sydney Council submitted a request for a special variation that would fund services in line with community expectations (as reflected in the Community Strategic Plan consultation) and would also allow council to expand services to meet growth and changing demands.17
IPART partially approved North Sydney Council’s application for a special variation and minimum rate increase. From 2019-20 to 2021-22, the Council may permanently increase its general income by 7.0 per cent per annum (a cumulative increase of 22.5 per cent). Beyond 2021-22, the Council can increase rates by the Rate Peg, or as approved by a future Special Variation.
3.5 IPART approved increases to Council’s permissible general income (PGI)
1 July 2019
2019-20 2020-21 2021-22
Total permissible general income ($m) 45.6 48.5 51.9 55.5
Increase to permissible general income due to rate peg ($m pa) 1.23 1.21 1.3
Increases to permissible general income due to SV ($m pa) 1.96 2.18 2.34
Increase in permissible general income (%)
Rate peg 2.7 2.5a 2.5a
Above rate peg 4.3 4.5 4.5
Total increase 7.0 7.0 7.0
16 https://www.northsydney.nsw.gov.au/Council_Meetings/Financial/Rates
17 North Sydney Council (2018), North Sydney Council Resourcing Strategy 2018-2028, available at: https://www.northsydney.nsw.gov.au/files/sharedassets/public/webmeetings/2018/jun_25_2018_700pm/corporate_services_division_25_jun_2018/28_-_post_exhibition.pdf, p 5.
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Review of Local Government Rating System 17
1 July 2019
2019-20 2020-21 2021-22
Approved minimum rate ($)
Business customers 563 602 644
Residential customers 563 602 644 a Assumed rate peg Note: Permanent from 2021-22 Source: IPART (2019), Special variation and minimum rate increase North Sydney Council 2019-20, available at: https://www.ipart.nsw.gov.au/Home/Industries/Local-Government/Reviews/Special-Variations-Minimum-Rates/Special-Variations-Minimum-Rates-2019-20?qDh=2&cid=ec03231e-ab23-4e80-80b7-a37bf2dea8c8, p 43,
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4 Estimating Capital Improved Value
If the NSW Government adopts the CIV approach recommended by IPART then the NSW Land Valuer General would be responsible for calculating the CIV. In the absence of this information we have adopted different approaches to estimate the CIV.
Difference between Capital Improved Value and unimproved value
A key change recommended by IPART is to move to ‘capital improved value’ as the basis for setting rates, rather than ‘unimproved value’ (UV), as is currently the case.
UV reflects the value of the land subject to its highest and best use as permitted under current zoning, excluding the physical structure/building on the land. The UV does, however, reflect the ‘underground’ services to the land (e.g. water and wastewater, electricity, gas and roads). It also reflects the intrinsic value of the particular location. For example, a vacant block of land located close to public transport and other amenities would have a higher value compared to land located further away.
The UV currently used in rate setting utilises data from the NSW Land Valuer General. The Land Valuer General utilises observed sales transactions as a basis for deducing the underlying value of the land compared to the value derived from the building structure. Chart 4.1 provides an overview of the Valuer General’s valuation approach.
4.1 Methodology for estimating Unimproved Land Values
Source: https://www.valuergeneral.nsw.gov.au/land_values/valuation_method
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Review of Local Government Rating System 19
The CIV, on the other hand, includes the value of the structure. IPART describes the CIV as follows,
The CIV accounts for a property’s permitted highest and best use, but also includes the net economic value of capital improvements (which will usually, but not necessarily, be greater than zero). A property’s CIV includes the value of permanent capital structures, but does not include the value of production processes, moveable capital or economic goodwill.18
This difference between the UV and CIV means the two methods produce very different assessed values for properties with significant capital improvements, such as a block of apartments or other high density buildings. As IPART notes,
For example, to value an apartment under the UV method, the aggregate land value for the entire apartment block is first derived. Then, the value for each individual apartment is calculated by dividing the total land value according to each apartment’s unit entitlement. This often results in values much lower than the combined market value of all the apartments, because the underlying land value is only a small component of the total value of the unit block.19
Estimates of CIV
One option to estimate the CIV would be to use the estimated current cost of replacing a building. However, this would not take account, for example, the age and depreciation of the building. The market value of a property (or units within a property), based on observed sales, provides a more accurate reflection of the CIV value.
For the purpose of this report, we have utilised the NSW LPI sales transactions database to extract transactions in the North Sydney LGA over the past 2 years as a basis for estimating the CIV for all properties. We apply two alternative approaches to estimating the CIV.
Approach 1
We apply the following approach:
■ For single dwelling properties. We identify transactions and link it to other property characteristics (e.g. unimproved land values in each year over the past 2 years, current land use zone for the property) from LPI’s land values database. This enables us to generate a statistical relationship between sale price and land values (separately for residential and business).
■ For multi-dwelling properties. The same approach is adopted for multi-dwelling properties. However, sales transactions for multi-dwelling properties typically relate to an individual unit within the property. Where there have been sales of multiple units within the same apartment block we have taken the average of all sales in the past 2 years.
18 IPART (2016), Review of the Local Government Rating System, p.27.
19 IPART (2016), Review of the Local Government Rating System, p.27.
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20 Review of Local Government Rating System
The statistical relationship established for non-strata properties using 2018-19 sales transactions is presented in the charts below. The CIV can be determined by using the formula in the charts. For example, for non-strata residential properties, a property with an unimproved land value of $1m has an estimated CIV of $2.36m. For Non-Residential (Non-Strata) a property with an unimproved land value of $1m has an estimated CIV of $3.02m.
4.2 Unimproved Land Value and Sale Price (Non-Strata, Residential)
Note: Based on sales transactions in the 2018 and 2019 calendar years. The scales to remove larger transactions for presentation purposes. This does not change the statistical relationship in the equations. Data source: CIE estimate based on NSW Land and Property Information databases.
4.3 Unimproved Land Value and Sale Price (Non-Strata, Non-Residential)
Note: Based on sales transactions in the 2018 and 2019 calendar years. The scales to remove larger transactions for presentation purposes. This does not change the statistical relationship in the equations. Data source: CIE estimate based on NSW Land and Property Information databases.
For Strata lots, we have used the Council’s rates database to identify the number of units/lots within a property. Adjustment has been to take account of the size of
y = 0.9446x + 1.7921
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Review of Local Government Rating System 21
buildings, reflecting the fact that there is a different relationship between the land value and the number of units in the apartment. That is, for larger apartments the value of the building is significantly larger than land value, compared to smaller apartments.
For strata lots, we have also refined the categorisation of land zoned B4 (Mixed Use). Using the Council’s rates database, the have calculated the proportion of units that have a residential or business use. For properties with more than 50% residential use, we have defined these properties as residential. Properties with less than 50% residential use are defined as ‘other use’.
4.4 UV, Sale Price and the number of lots (Strata, Residential)
Note: Based on sales transactions in the 2018 and 2019 calendar years. The scales to remove larger transactions for presentation purposes. This does not change the statistical relationship in the equations. Data source: CIE estimate based on NSW Land and Property Information databases.
4.5 UV, Sale Price and the number of lots (Strata, Non-Residential)
Note: Based on sales transactions in the 2018 and 2019 calendar years. The scales to remove larger transactions for presentation purposes. This does not change the statistical relationship in the equations. Data source: CIE estimate based on NSW Land and Property Information databases.
y = 1.1744x - 5.9136
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Approach 2
We also apply an alternative approach which estimates the CIV to UV ‘mark-up’ for properties where sales data for the past 2 years is available. For example, if a property with a UV of $1m and a sale price of $2m this results in a 2:1 mark-up. Separate mark-up values are generated for residential and non-residential properties.20 For strata properties, separate mark-up values are also separately estimated for four categories (less than 10 units, 10-30 units, 30-100 units and greater than 100 units.
We choose the median mark-up for each category as indicated in table 4.6. The median, rather than average, was adopted to remove the impact of outliers. For strata properties, the higher mark-up for progressively larger buildings highlights that the value of the building becomes a greater proportion of the overall property value. For single dwelling residential properties the land value is a larger component of the overall CIV value.
4.6 Median CIV/UV mark-up values
Category Residential Non-residential
ratio ratio
Single dwelling properties 1.73 2.21
Strata properties
less than 10 units 2.69 3.26
10-30 units 3.74 3.58
30-100 units 4.57 5.2
more than 100 units 8.54 8.55
Note: The median, rather than average, was removed to remove the impact of outliers Source: CIE estimates
Valuation results
The use of the alternative approaches generates different CIV results. Table 4.7 provides a summary of results. In total there is $22,224m in UV, compared to $67,753m in CIV under Approach 1 and $60,741m in CIV under Approach 2. The higher base under Approach 1 also means that the ad valorem rate would be lowest under this approach in order to collect the same total rate revenue under all approaches.
4.7 Valuation base for UV compared to alternative CIV approaches
Category UV CIV - approach 1 CIV approach 2
$m $m $m
Residential
Separate 9,542 20,748 16,507
Strata 9,351 33,456 35,935
20 For properties in B4 zoning, we have assumed that if there is greater than 50% of properties
have a residential use it is defined as a residential property. Otherwise it is defined as a non-residential property.
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Review of Local Government Rating System 23
Category UV CIV - approach 1 CIV approach 2
Business . . .
Separate 2,782 12,895 6,149
Strata 549 654 2,150
Total 22,224 67,753 60,741
Source: CIE estimates
Caveats in CIV estimates
There are a number of caveats in the approach to estimating the CIV above:
■ The sales and land value data from NSW LPI is the most robust information currently available on which to estimate the CIV across all properties in the LGA. Nevertheless, there are some anomalies that arise in the sales dataset in particular. For example, the database includes some very low prices compared to other sales in the same complex. This may reflect, for example, where there is only a part share in the property (e.g. where there is a divorce settlement). In other instances, there are some very high prices observed, however, these appear to be the purchase of all units in the complex. Where possible, we have excluded these apparent anomalies so as not to distort the analysis, nevertheless, some anomalies are likely to remain in a large database.
■ The Council’s rates database, like the NSW LPI databases, provides a snapshot in time. There may be some properties identified as ‘strata’, however, construction hasn’t completed and there is only one unit identified in the database. Again, we have sought to identify these transactions and exclude it from the database.
■ Finally, in the case of multi-dwelling properties, the sales data provides information on a transaction within a property. We utilise these sales to apply it equally to all units within the building. However, in reality each unit may have different characteristics which impacts on the sale price. This is challenging to take account of without a more detailed valuation at a site-specific scale.
While there are individual transactions that may be anomalies, the large majority of transactions would be ‘normal’ and by using an averaging approach to generate the CIV we avoid the biases arising from the outliers.
Nevertheless, if (at a later stage) the NSW Land Valuer General generates CIVs it would examine each site in much more detail than possible for our report. Ideally, the analysis would also be able to capture the size of homes. Proxy values such as building footprint and building height would provide some guidance on building size, although this information is still emerging with satellite imagery providing greater guidance.21 Other data such as the number of bedrooms is only available at a Meshblock level and this information is only collected as part of the ABS Census.22 The task would be more
21 Companies such as Geoscapes provide such information at a cost.
https://geoscape.com.au/data/
22 ‘Mesh Blocks’ are the smallest geographical area defined by the Australian Bureau of Statistics (ABS) and form the building blocks for the larger regions of the Australian Statistical Geography Standard. All other statistical areas or regions are built up from or, approximated
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24 Review of Local Government Rating System
challenging for multi-dwelling buildings, taking account different build quality as well as other services (e.g. concierge, lifts, security) that add to the sale value. Given the complexities, the Land Valuer General’s CIV estimates could differ at an individual property level to our estimates.
At this stage, it is difficult to predict whether Approach 1 or Approach 2 would result in a CIV that is closer to that would be estimated by the NSW Land Valuer General in the future.
by whole Mesh Blocks. They broadly identify land use such as residential, commercial, primary production and parks, etc.
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5 Initial impact of IPART’s recommendations
In this section we focus on the potential impact on the North Sydney LGA. Appendix B provides further information around the dwelling structure in other LGAs in NSROC.
Initial impact of IPART’s recommendations in North Sydney
The recommendations that would have an initial impact on North Sydney ratepayers are:
■ The abolition of minimum rates (Recommendation 4)
■ The use of the CIV as the basis for the ad valorem rates, rather than UV (Recommendation 5).
Impact on North Sydney Council
The above recommendations will not initially change the maximum amount that North Sydney Council is able to raise through rate revenue (although the maximum amount will increase at a faster rate over time due to IPART’s proposed changes to the way rate increases outside the rate peg — see chapter 5).
■ IPART’s recommendations will have no initial impact on the total general income North Sydney Council is permitted to raise.
Impact on ratepayers
■ Although IPART’s recommendations will have no initial impact on the total rate burden (i.e. the total rates paid by ratepayers across the LGA), they will change the distribution of the rate burden across ratepayers.
Under IPART’s proposed recommendations, councils will continue to have significant discretion in the way that rates are applied in the LGA, within the parameters set out in the Local Government Act 1993. The way the rate burden is distributed across ratepayers will therefore depend on decisions made by North Sydney Council.
There will be 3 inter-related impacts on ratepayers in North Sydney.
■ Abolition of minimum rates — this will directly affect more than 70 per cent of North Sydney ratepayers.
■ Change to CIV as the basis for ad valorem rates — as the CIV will, in almost all cases, be higher than the UV, the base on which the ad valorem rates are applied will be higher under IPART’s recommendations.
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26 Review of Local Government Rating System
■ Changes to ad valorem rate — as noted above, the maximum amount of revenue that the Council can raise through rates will not change. As such, an adjustment to the ad valorem rates will need to be made to ensure that this condition holds.
To estimate the impacts of IPART’s recommendations on North Sydney ratepayers we make the following assumptions in relation to the Council’s decision on how to allocate rates across ratepayers.
■ The proportion of rates collected from residential and business properties would be unchanged from current policy, unless the Council was to change its split which is currently 60:40 (residential/business).
■ Ad valorem rates are adjusted to ensure that total rates collected from residential and business properties in aggregate is unchanged.
■ We use two different approaches to estimating CIV (as outlined in chapter 3).
Note that the Council could choose to vary some of these parameters. For example, the Council could choose to change the split between residential and businesses or choose to apply a base amount (rather than an ad valorem rate only).
Impact on residential ratepayers
To ensure that the total rate burden on residential ratepayers is the same under IPART’s proposed changes as they would be under current arrangements, the ad valorem rate would need to be adjusted.
■ Under the first approach to estimating CIV, we estimate that that the ad valorem rate applied to residential ratepayers would need to decrease from 0.095263 cents in the dollar to 0.050264 cents in the dollar.
■ Under the second approach to estimating CIV, we estimate that the ad valorem rates applied to residential ratepayers would need to fall to 0.051953 cents in the dollar.
Based on the assumption outlined above, the net impact on various ratepayer groups varies depending on the approach to estimating CIV (table 5.1).
■ Under the first approach to estimating CIV, we estimate:
– owners of separate dwellings in the North Sydney LGA would pay around $1.3 million extra in rates in aggregate as a result of IPART’s proposed recommendations — this implies that on average, the increase in the property value (as a result of the change to CIV) outweighs the impact of the reduction in the ad valorem rate for these ratepayers
– this would be offset by a net reduction in the total rates paid by owners of residential strata properties.
■ Under the second approach to estimating CIV, we estimate:
– owners of separate dwellings in the North Sydney LGA would pay around $550 000 less in aggregate under IPART’s proposed approach
– owners of strata properties would collectively pay around $550 000 more.
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5.1 Change in total rates paid — residential ratepayers
Current IPART recommendations
Changea
$ million $ million $ million
Approach 1
Residential – separate 9.13 10.43 - 1.30
Residential – strata 18.12 16.82 1.30
Totalb 27.25 27.25 0.00
Approach 2
Residential – separate 9.13 8.58 0.55
Residential – strata 18.12 18.67 - 0.55
Totalb 27.25 27.25 0.00 a A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates are set to be the same under both scenarios. Source: CIE estimates.
Within these ratepayer groups, the outcomes are mixed (see chart 5.2). Under the first approach to estimating CIV:
■ Around three-quarters of owners of separate houses would be worse off, with most paying less than $500 per year in additional rates. The remaining owners of separate houses would be better off.
■ Around two-thirds of owners of strata dwellings would better off, most by less than $200 per year. Of those owners of strata dwellings that would be worse off, most would pay less than $100 in extra rates per year.
5.2 Distribution of impacts on residential ratepayers — first approach to CIV
Note: A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates. Data source: CIE estimates.
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28 Review of Local Government Rating System
Under the second approach to estimating CIV:
■ rate savings for most owners of separate dwellings would be less than $100 per year
■ outcomes for strata ratepayers are more mixed, with some pay less and some paying more (chart 5.4).
5.3 Distribution of impacts on residential ratepayers — second approach to CIV
Note: A negative number indicates that the group of ratepayers would pay more rates in aggregate (i.e. would be worse off), while a positive number indicates that the group of ratepayers would pay less rates in aggregates (i.e. would be better off). b Note that total residential rates. Data source: CIE estimates.
Under North Sydney Council’s current revenue policy, any residential property with an unimproved land value of less than $590 995 pays the minimum rate. The unimproved land value for more than 80 per cent of ratepayers with residential strata properties is less than $400 000 (see chart 5.4 for a frequency distribution). For residential separate dwelling properties, only 1 per cent of ratepayers reside in properties with a land value less than $400 000 (see chart 5.5).
5.4 Residential strata ratepayers — distribution of unimproved land value
Data source: Data provided by North Sydney Council.
0
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>$1.8m
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Review of Local Government Rating System 29
5.5 Residential separate dwellings ratepayers — distribution of UV
Data source: Data provided by North Sydney Council.
Under the CIV approach recommended by IPART, we estimate that the CIV of the property would need to be around $1.23 million to pay more than the current minimum rate (as the ad valorem rate would need to decrease). This implies that any residential ratepayer currently paying the minimum rate with a CIV less than $1.23 million would pay lower rates under IPART’s proposed approach. As this is above the median apartment price in many suburbs within the North Sydney LGA, this will apply to a significant number of residential strata ratepayers.
■ The re-distribution of the rate burden across ratepayers will depend on the CIV estimates determined by the Valuer-General, which are currently not known.
■ Nevertheless, our analysis suggests that ratepayers in high density units do not necessarily pay more under CIV and, conversely, low density properties do not necessarily pay less.
Impact on business ratepayers
As for residential ratepayers, the ad valorem rate for business ratepayers would need to be adjusted to ensure that the same amount of revenue is collected from business ratepayers in total.
■ Under the first approach to estimating CIV, we estimate that that the ad valorem rate applied to residential ratepayers would need to decrease from 0.523707 cents in the dollar to 0.114063 cents in the dollar.
■ Under the second approach to estimating CIV, we estimate that the ad valorem rates applied to residential ratepayers would need to fall to 0.213120 cents in the dollar.
The net impact on different ratepayer groups also depends on the approach to estimating CIV (table 5.6).
■ Under the first approach, business owners of separate properties pay around $90 000 more in rates, while business owners of strata properties pay the same amount more.
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■ Under the second approach, business owners of separate properties would pay around $1.52 million less in rates, while strata owners would pay around $1.52 million more.
5.6 Change in total rates paid — business ratepayers
Current IPART recommendations
Change
$ million $ million $ million
First approach to estimating CIV
Business separate 14.62 14.71 - 0.09
Business - strata 3.06 2.98 0.09
Total 17.69 17.69 0.00
Second approach to estimating CIV
Business separate 14.62 13.10 1.52
Business - strata 3.06 4.58 - 1.52
Total 17.69 17.69 0.00
Source: CIE estimates.
As for residential properties, the changes across individual ratepayers within these groups vary significantly.
Case studies
In this section we present a range of case studies to illustrate the potential impact of applying the CIV, while adjusting the ad valorem rate to maintain the same aggregate amount of revenue as achieved under the current UV approach.
Table 5.7 provides a range of case studies for single dwelling (non-strata) properties. The impact on the individual household will depend largely on the sale price/CIV compared to the existing UV.
■ Properties that have a large unimproved value (e.g. Property 6) can yield quite different CIV estimates ($13m under approach 1 and $21m under approach 2). In these instances, if the CIV approach is adopted it results in a reduction in rates compared to current, the rate reduction is substantial under approach 1 (a fall to $6,646 per annum).
■ Properties where the UV is small (e.g. Property 8) can result in an increase in rates under the CIV approach, if approach 1 is adopted (a rise from $429 per annum to $1,114 per annum).
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5.7 Single dwelling Residential properties, rate impacts
Properties Area UV CIV Approach 1
CIV Approach 2
Rate UV
Rate Approach 1
Rate Approach 2
m2 $m $m $m $/pa $/pa $/pa
Property 1 1 144 3.37 4.98 5.83 3 210 2 501 3 029
Property 2 363 6.22 7.67 10.76 5 925 3 854 5 590
Property 3 276 2.28 3.95 3.94 2 172 1 983 2 049
Property 4 250 1.21 2.94 2.09 1 153 1 475 1 088
Property 5 746 1.33 3.05 2.30 1 267 1 532 1 195
Property 6 1 935 12.10 13.22 20.93 11 527 6 646 10 875
Property 7 422 3.80 5.38 6.57 3 620 2 705 3 415
Property 8 307 0.45 2.22 0.78 429 1 114 404
Note: CIV based on observed sales value over the past 2 years. The UV is based on the valuation as at 1 July 2018. Source: NSW Land and Property Information
For Strata Residential properties, the story becomes more challenging. This, in part, reflects the additional information required to identify the number of individual units within each Strata property. We have utilised the most recent sales data and assumed that all units in the building are equal in value (i.e. we have not adjusted for the unit share of the property sold).
Table 5.8 presents a number of examples of rates. In all instances the individual unit holders would be subject to the minimum rate.23 If approach 1 is adopted, many properties could receive a reduction in rates (assuming that the minimum charge is removed). Property 12 would receive higher rates under the CIV approach. However, for large complexes such as Property 10 could be lower depending on the approach to calculating the CIV.
5.8 Strata Residential properties, rate impacts
Strata Lots UV CIV Approach 1
CIV Approach 2
Rate UV Rate Approach 1
Rate Approach 2
no. $m $m $m $/pa $/pa $/pa
Property 9 69 8.79 30.81 40.17 563 224 302
Property 10 257 40.10 46.26 342.45 563 90 692
Property 11 3 1.15 3.42 3.09 563 573 536
Property 12 15 4.54 17.06 16.98 563 572 588
Property 13 6 1.75 5.13 4.71 563 430 408
Property 14 8 2.74 7.97 7.37 563 500 479
Note: Note: The UV is based on the valuation as at 1 July 2018. CIV based on observed sales value over the past 2 years. For the last two properties we adopt the second most recent sale in the property. Source: NSW Land and Property Information
23 We assume that the unit entitlements are equal across all lots. In practice, some lots may have
a higher value and generate rates above the minimum amount. However, in these instances their CIV rate would also be higher than that presented in the table above.
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32 Review of Local Government Rating System
An alternative scenario is to shift to a CIV approach but maintain the minimum bill for strata units. This would provide Council with the choice when determining their rating structures. Setting a minimum rate allows a council to determine the minimum amount one parcel of rateable land should contribute to the running of the local government area. This goes toward ensuring that, at a minimum, the extent to which those who receive the benefits of council's services also pay for those services regardless of the value of the land.
Alternative rate structures
In the analysis presented above, we have assumed that the Council maintains its existing rate structure such as requiring 60 percent of revenue to be recovered from residential ratepayers. We have modelled a number of alternatives which also incorporate the use of the CIV.
Base rate $400, plus ad valorem
One alternative is the combination of a base rate (which assumes that each ratepayer uses some base level of Council services) and an ad valorem component using the CIV. Under this alternative each ratepayer pays a base rate of $400 with the balance recovered through the ad valorem charge.
Charts 7 and 8, illustrates the bill impact for residential and business ratepayers, assuming that 60 percent of revenue is recovered from residential ratepayers. For example, there are 2,305 ratepayers living in residential separate properties that pay between $3,000 to $5,000 per annum. There are almost 300 ratepayers residing in separate properties identified for business use that pay between $5,000 to $10,000 per annum.
5.9 Distribution of rates, Residential rate payers
Data source: The CIE estimates
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Review of Local Government Rating System 33
5.10 Distribution of rates, Business rate payers
Data source: The CIE estimates
The implications and impact on individual ratepayers could be quite different depending on the CIV estimates used. This again highlights the importance of undertaking modelling to fully understand the impacts before adopting the CIV, rather than the UV.
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34 Review of Local Government Rating System
6 Impacts over time
In addition to the abolition of minimum rates and the change to CIV as the basis for rates, IPART has also recommended that general income should be allowed to increase in line with growth in CIV from new development (Recommendation 5).24
As noted above, IPART’s recommendations would not have any impact on the maximum general income that North Sydney Council is able to raise initially, however, the above recommendation will increase maximum general income over time, as new development occurs in the LGA.
Revenue increases outside the cap The current process to determine increases to the councils’ rate base as a result of community growth, is known as ‘growth outside the rate peg’, (or more technically, a ‘Supplementary Valuation’). When changes to land occur outside the normal 3-4 year valuation cycle, a Supplementary Valuation is issued by the Valuer General. This valuation reflects changes registered on the Register of Land Values. Some examples of triggers for a Supplementary Valuation include:
■ subdivision;
■ changes to property record or zoning; or
■ if a land value is amended (other than through the objection process).25
A Supplementary Valuation is given effect through the Valuation of Land, 1916 (section 49).
Chart 6.1 shows the zoning premiums for average land values in North Sydney LGA. The land value reflects the highest value use of the land.
24 IPART (2016), Review of the Local Government Rating System, December 2016, p 50.
25 NSW Valuer General (2016), Information about your Notice of Valuation, Fact Sheet, January 2016, ISSN: 2203-1642, available at: https://www.valuergeneral.nsw.gov.au/__data/assets/pdf_file/0007/208249/Information_about_your_notice_of_valuation_2016.pdf
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6.1 Zoning premium, zones in North Sydney LGA that enable the delivery of residential accommodation
Data source: Valuer General, CIE.
Under the proposed CIV method for the calculation of general income, IPART has recommended calculating growth in rates revenue from changes in development using the following formula.
Income2 = Income1 x (1+ rate peg) x (1 + % increase in CIV due to supplementary valuations)
Where:
- Income1 refers to the council’s general income in year one
- Income2 refers to the council’s general income in year two
IPART considers this approach would allow councils to grow general revenue in proportion to the increased cost of providing council services over time. The growth is not influenced by councils’ rate structure (i.e. proportion of fixed to ad valorem charges); is more consistent and sustainable; and is most appropriate for areas that have high levels of densification.
IPART considers their approach to be more sustainable over the long term because it:26
■ does not require current ratepayers to fund (cross-subsidise) the costs of servicing a growing community
■ provides a way to reduce the funding supplied by the NSW Government to cover the costs of servicing new residents and businesses
■ benefits future ratepayers from the increase in investment, development and urban renewal, which could lower the prices for new people entering communities
■ is better than the current approach, which makes current ratepayers worse off through higher rates and state taxes to fund services provided to new communities
■ better reflects the new ratepayers’ demand for council services, which is not the case under the current, UV approach.
26 IPART (2016), Review of the Local Government Rating System, December 2016, pp 52-55.
0
1000
2000
3000
4000
5000
6000
7000
R2 R3 R4 B4 B1 E4 IN2
Aver
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36 Review of Local Government Rating System
Furthermore, moving to a CIV approach will deliver additional revenue benefits to the local government sector. IPART estimated that under current arrangements councils’ growth in rates income from new ratepayers is typically around 0.2 per cent per year. This compares to population growth, which averages about 1.3 per cent. The proposed method is estimated to deliver real growth in income of about 0.9 per cent per year as a result of new residences and businesses.27
Impact on North Sydney Council
North Sydney Council LGA is densely populated, with most suburbs having greater than 50 per cent of properties in high density development. Furthermore, the population of North Sydney continues to grow rapidly. Between 2006 and 2016 the population increased by almost 17 per cent. For the 10 years following that, the population is expected to grow by another 12 per cent.28
The increase in population will have significant impacts on the demand for services provided by North Sydney Council (i.e. more people collectively demand greater service levels). The Council has relied on multiple Special Variations to support this growth and maintain services and infrastructure within the LGA. As densification continues, and the gap between the rate base and the cost of services (to council) increases, it is likely to result in ongoing requests for Special Variations to avoid degradation of existing services or foregoing new services.
The proportion of CIV that is the “land component” varies between different types of properties (i.e. for strata titles, non-strata titles and single blocks). As such, the rates charged to these ratepayers do not necessarily reflect their willingness to pay,29 nor may this be the most equitable approach.30
New development in North Sydney
According to the Draft North Sydney Local Housing Strategy, the housing supply required for North Sydney LGA in the near to medium term includes:31
■ 2 160 dwellings between 2018-19 and 2021-22
■ 2 835 dwellings between 2022 and 2026
■ 3 160 dwellings between 2027 and 2031.
27 IPART (2016), Review of the Local Government Rating System, December 2016, p 56.
28 North Sydney Council (2019), North Sydney Draft Local Housing Strategy, p 33.
29 IPART illustrates this point with an example – a wealthy person building and moving into a $20 million harbourside mansion should have a greater willingness to pay for council services such as coastal walks and parks, compared to a family of four moving in to a $300 000 two bedroom apartment that was previously occupied by one person. See page 61 of IPART’s report Review of the Local Government Rating System.
30 In terms of both vertical and horizontal equity.
31 North Sydney Council (2019), North Sydney Draft Local Housing Strategy, p 60.
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Review of Local Government Rating System 37
This is on top of the 2 826 dwellings that were completed in North Sydney LGA between 2012-13 and 2017-18, of which 99 per cent were multi-unit dwellings.32
Table 6.2 shows dwelling estimates for North Sydney Councils’ rate base on a per year basis (we have used the figures from the Draft Local Housing Strategy and assumed a constant level of development in each year).
6.2 Dwelling projections for North Sydney LGA, 2020-21 to 2026-27
2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
No. No. No. No. No. No. No.
Housing supply forecast 720 108 108 108 108 108 0
Current active planning proposals
0 130.4 130.4 130.4 130.4 130.4 0
Capacity in existing zones 0 208.6 208.6 208.6 208.6 208.6 394
St Leonards-Crows Nest Planned Precinct
0 120 120 120 120 120 238
Total 720 567 567 567 567 567 632
Source: North Sydney Council (2019), North Sydney Draft Local Housing Strategy, p 61.
North Sydney Council has identified that there is potential for additional development with the capacity of current zoning and planning controls across residential land in North Sydney LGA. Development in this category is expected across all suburbs in North Sydney LGA, delivering 1 043 dwellings by 2026. Development will be a mixture of low-rise (under six storeys), and mid to high rise apartment blocks along major transport corridors and in centres. Our analysis assumes a constant level of development in this category each year to 2026.
The growth in St Leonards Crows Nest Planned Precinct is expected to be developed over the next 6 to 20 years plus with predominately multi-unit apartment blocks in mid to high rise mixed use buildings. The planned precinct has the potential for an additional 7525 dwellings, of which, 3515 are in the North Sydney LGA. For the purposes of our analysis, we have used the total figure of 600 new dwellings in this area, an assumed constant development every year, from 2021-22 to 2025-26. We understand that the land for this development will not be rezoned, but buildings will be able to be higher. We consider this relaxation of height constraints akin to rezoning in our analysis (ie. we have added a premium to the land value, which would be provided through a Supplementary Valuation, to reflect higher levels of densification).
Impact on rates
Under current arrangements, the impact of the planned new dwellings on rate revenue would depend on whether the development would change the unimproved value of the land and trigger a supplementary valuation.
■ For new dwellings that will be accommodated within current planning and zoning controls (which accounts for most of the expected new development within the LGA
32 North Sydney Council (2019), North Sydney Draft Local Housing Strategy, p 53.
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38 Review of Local Government Rating System
over the next 8 years), North Sydney Council is unlikely to receive any additional rate revenue under current arrangements. As no rezoning will be required, the unimproved value of the land is unlikely to change because the land should be valued based on the highest and best use, the potential for higher density development should already be reflected in the value of the land. Furthermore, it appears that there would be nothing to trigger a supplementary valuation. Without a supplementary valuation, there would be no associated increase in the cap on general income.
■ Alternatively, developments within the St Leonards Crows Nest Precinct are likely to require changes to height restrictions. This is akin to a rezoning and is likely to trigger a supplementary valuation. As a result, land value should increase and this would flow through to some increase in general income.
Under IPART’s proposed approach, all new mid to high rise developments would increase the CIV of the land. If that triggers a supplementary valuation, these developments would flow through into an increase in the cap on general income. That said, it is not clear that a supplementary valuation would be a trigger without a change to the relevant legislation.
We found that using the CIV method to capture new development allowed general income to grow at a quicker rate compared to using the unimproved value (chart 6.3).
6.3 Indicative general income under the CIV method and the UV method
Note: Under both the UV and CIV method, IPART’s approved Special Variations for North Sydney Council have been included to the rates calculations.
Data source: CIE using data from valuer general.
On a year to year basis, the increases to CIV are proportionally small, ranging from 0.7 to 1 per cent. However it is the cumulative impact of these changes that can provide a significant uplift in general income (table 6.4).
45
50
55
60
65
70
2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Rat
es ($
mill
ion)
UV method CIV method
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6.4 General income under different methods
2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
$million $million $million $million $million $million $million $million
UV method 45.6 48.5 51.9 55.5 56.9 58.4 59.9 61.4
CIV method 45.6 48.5 52.4 56.5 58.4 60.3 62.2 64.3
Difference 0.00 0.51 0.96 1.41 1.88 2.38 2.89 3.47
Note: The methodology used to estimate these values is at Box 6.5 below. Source: CIE
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40 Review of Local Government Rating System
6.5 Methodology for estimating growth in general income
Establishing baseline CIV and UV (2019-20)
UV baseline figures are sourced from the NSW Land and Property Information database for North Sydney LGA, and are current as at 1 July 2018. CIV baseline figures are estimated using our approach discussed at Chapter 4 of this report. All references to CIV refer to our estimated values.
Estimating the supplementary valuation for UV (2020-21 to 2026-27)
The supplementary valuation for UV reflects the change in height restrictions in the St Leonards-Crows Nest Precinct in years 2021-22 to 2026-27. This is done by applying a zoning premium to the number of parcels of land to be developed where:
■ The zoning premium is considered akin to the uplift in land value resulting from a zoning change, R2 to R4
■ The number of parcels of land to be developed is estimated by dividing the total number of dwellings to be delivered each year, by our density assumption of 50 dwellings per block.
The UV base is updated each year to reflect changes in land values (from the St Leonards-Crows Nest Precinct) and an annual per cent change is calculated.
Estimating the supplementary valuation for CIV, 2020-21 to 2026-27
The supplementary valuation for CIV reflects the increase in new development (dwellings to be accommodated in current zoning and planning controls, as well as those for the St Leonards-Crows Nest Precinct), net of land value by:
■ Calculating the increase in CIV from new development using the formula Increase in CIV from new development = 1.3268 + 0.8098y, where y is the number of dwellings on each parcel of land
■ Multiplying the increase by the number of parcels of land (as above).
The CIV base is updated each year to reflect new development, and an annual per cent change is calculated.
Applying the differences to estimate general rates
General income is calculated using IPART’s proposed formula:
Income2 = Income1 x (1+ rate peg) x (1 + % increase in CIV due to supplementary valuations)
Council’s permissible general income for 2019-20 forms the base amount, which includes North Sydney Council’s approved Special Variation (under both the UV and CIV method) to 2021-22. Percentage changes in CIV/UV due to supplementary valuations (estimated above) are also applied.
Assumptions
■ From 2022-23 onwards, an assumed rate peg of 2.5 per cent.
■ Density assumption is 50 dwellings per development.
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Impact on stakeholders
A higher cap on general income is likely to mean that North Sydney Council raises more revenue over time to fund services for the growing population. In practice, this is likely to mean that North Sydney Council could avoid the need for some future special variations, which is a cumbersome and resource-intensive process. IPART’s proposed approach will also allow for a greater dispersion of rates – that being, current ratepayers will pay rates akin to their willingness and capacity to pay (as captured through property values).
The corollary of the Council raising more revenue is that the burden on ratepayers would be higher under IPART’s proposed recommendations. However, in the longer-term ratepayers would be likely to pay higher rates through special variations. Alternatively, ratepayers could benefit either through: service levels that keep pace with LGA growth and service standards of ratepayers.
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42 Review of Local Government Rating System
A IPART’s recommendations
Impact of IPART’s recommendation to use Capital Improved Value (CIV) instead of Unimproved Value
Unimproved land values in NSW are currently supplied by the Valuer General and are used to set the ad valorem amount for rateable properties.
IPART made the recommendation to shift to CIV33 because:
■ CIV performs better against tax principles —efficiency, equity, sustainability and simplicity.
■ CIV more efficiently captures:
– the cost of supplying council services as these costs increase with growth in capital and people in a council area;
– the benefit received from ratepayers from council services (footpaths, libraries, pools, etc.) as those with higher value properties would typically have higher ratepayers’ willingness to pay for council services
■ CIV is more equitable:
– It meets the ability to pay principle better than unimproved value as it is more highly correlated with the ratepayer’s income and wealth.
– Removes limitations associated with UV, where the land value might be only a small proportion of the overall property value, particularly for apartments
– Ensures that non-strata apartments are charged appropriately for their services rather than a single minimum or base amount (divided by all apartments), which occurs under the UV method.
■ CIV is more sustainable:
– It captures the increased cost of servicing new development and maintains councils’ ability to finance services over the long term as densification continues
– It responds better fluctuations in property prices which are reflected to a greater extent in land values as capital improvements are fairly constant.
■ CIV is simple:
– It is easily to calculate and communicate with ratepayers as most ratepayers have a better understanding of the market value of their property, rather than the unimproved land value.
■ CIV is consistent with best practice overseas and in other jurisdictions in Australia.
33 CIV accounts for a property’s permitted highest and best use, but also includes the net
economic value of capital improvements (i.e. permanent capital structures).
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■ The use of CIV removes the biases councils adopted under the UV method to use fixed charges.
– As densification increases, councils tend to increase the share of rates they collect from minimum amounts to raise a more equitable share of revenue from apartments.
Removal of the minimum amount from the LG Act
IPART considers that using CIV to set rates in metropolitan areas will remove the need to establish minimum rates.34 Maintaining a base amount however, provides a way to equitably and efficiently recover fixed costs that are common to all dwellings, with the addition of the ad valorem amount reflecting the additional benefit ratepayers receive from council services, as well as differences in ratepayers’ ability to pay.35
Furthermore, IPART does not recommend changing the current 50 per cent restriction on revenue collected from base rates as these amounts do not reflect a customer’s ability to pay. As such, higher base rates place greater burden on less well-off ratepayers because owners of low value dwellings effectively pay a higher rate of tax than owners of expensive dwellings.36
Allowing general income to increase in line with growth in CIV from new development
IPART recommends that Councils’ rates income be allowed to increase over time in line with the growth in CIV arising from new capital investment. This means rates per household, on average, would not rise in real terms, but new ratepayers would fund the extra local services, such as parks, walkways, roads and libraries, provided by councils over the coming years to support a growing community. This removes the cross subsidy that current ratepayers (or developers through developer contributions) provide for future ratepayers under the UV system.37
This approach supports the financial sustainability of a council and encourages urban renewal.
Allow councils to determine a residential subcategory and set a residential rate by separate town or village or residential area
Councils will be given the flexibility to set different rating structures in residential areas to reflect the diverse communities and different demands for, and costs of, services.38
34 IPART (2017), Review of the Local Government Rating System, p 43.
35 IPART (2017), Review of the Local Government Rating System, p 44.
36 IPART (2017), Review of the Local Government Rating System, p 45.
37 IPART (2017), Review of the Local Government Rating System, p 55.
38 IPART (2017), Review of the Local Government Rating System, p 72.
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44 Review of Local Government Rating System
Conditions surrounding IPART’s recommendations ■ The use of CIV should not lead to an increase in the total share of rates paid by
businesses because their analysis shows that councils are already approximating CIV rating for businesses using narrow subcategories and higher ad valorem rates as density increases. 39
■ Councils should be able to maintain consistent service levels over time without resorting to Special Variations
■ There will be a four year transition path for councils that choose to set different residential rates. Increases to ratepayers should be no more than 10 percentage points over the rate peg (as adjusted for special variations) each year as a result of a council adopting a CIV method (higher increases are likely to occur for those living in apartments).
– Councils could still apply to IPART to exceed this limit, particularly after the four year period of equalisation and for developments that have not been strata titled.40
New development
■ Councils can levy development contributions on property developers if new development is expected to increase the demand for council services. The contributions are capped by NSW Legislation:
– $30 000 per dwelling or residential lot in greenfield areas)
– $20 000 per dwelling or residential lot in all other areas.
■ Local Infrastructure Growth Scheme (LIGS) funds the gap between the maximum contribution that councils can charge and what it actually costs to deliver essential infrastructure.
– The NSW Government pays this as the developer does not need to pay the full cost of all infrastructure
– In 2016-17, the NSW Budget provided $60 million in LIGS funding to support infrastructure for new homes in The Hills and Blacktown LGAs.
39 IPART (2017), Review of the Local Government Rating System, p 37.
40 IPART (2017), Review of the Local Government Rating System, p 42.
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B Characteristics of other Councils
B.1 Total Number of properties as at 1 April 2019, by LGA
LGA Residential Non-residential
Strata Non Strata Strata Non Strata Total
no. no. no. no. no.
HORNSBY 972 35,420 146 4,734 41,272
HUNTERS HILL 164 3,285 20 252 3,721
KU-RING-GAI 528 25,564 71 7,421 33,584
LANE COVE 411 6,727 46 655 7,839
MOSMAN 733 5,683 70 428 6,914
NORTH SYDNEY 2,095 6,322 273 1,688 10,378
RYDE 1,373 22,616 278 1,870 26,137
WILLOUGHBY 528 12,433 181 4,232 17,374
Total 6,804 118,050 1,085 21,280 147,219
Source: NSW Land and Property Information
B.2 Unimproved land value ($m 2018) as at 1 April 2019, by LGA
LGA Residential Non-residential
Strata Non Strata Strata Non Strata Total
$m $m $m $m $m
HORNSBY 2,470 30,800 384 6,350 40,004
HUNTERS HILL 725 8,640 116 632 10,113
KU-RING-GAI 3,230 36,300 330 8,520 48,380
LANE COVE 1,740 11,900 221 1,270 15,131
MOSMAN 2,860 15,100 429 883 19,272
NORTH SYDNEY 9,200 11,400 2,530 5,450 28,580
RYDE 3,750 28,400 2,270 5,630 40,050
WILLOUGHBY 2,760 20,500 1,430 9,550 34,240
Total 26,735 163,040 7,710 38,285 235,770
Note: The land values are estimates as at 1 July 2018. Source: NSW Land and Property Information
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46 Review of Local Government Rating System
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