Modest relief confirmed as Westpac flags risks for indebted councils
The New Zealand government has confirmed it intends to proceed with a cap limiting annual council rates increases to a range of 2% to 4%, but Westpac economists warn much of the relief households might expect could resurface through other charges.
Rates have far outpaced wages
Westpac senior economist Satish Ranchhod's (pictured) report notes the average rates bill has risen 88% over the past decade, while average hourly earnings have grown only around 50% over the same period.
Rates increases have also run well ahead of general inflation — since 2010, council rates have risen by an average of 5.6% a year, against 2.5% for the Consumers Price Index. Much of that increase reflects rising infrastructure and service costs, with council debt effectively doubling since 2017.
The government has since confirmed it's pressing ahead with the policy — though with a caveat that undercuts the relief narrative.
Local government minister Simon Watts said the legislation would put "a brake on excessive increases and [give] ratepayers greater certainty," but confirmed the average household would save just $34 a year.
The government won't be able to pass the legislation until next term, pushing final enactment beyond the current parliamentary cycle, RNZ reported.
Little room to manoeuvre for indebted councils
For some larger councils, the cap would sit below the rate increases already built into their long-term financial plans, particularly in the near term. Westpac notes this could create tension with debt-to-revenue projections and interest-cost covenants that some councils are already approaching.
Credit ratings agency S&P Global has flagged the risk directly, saying "a cap on annual increases in property rates could strain the finances of New Zealand's debt-laden local councils." The agency added that "unless the cap is matched over time with cuts to spending growth, we believe this will be credit negative for the sector."
That tension is already playing out publicly — mayors have this week warned that communities will "have to sacrifice" services if the cap proceeds without additional funding relief, with other reforms, such as changes to the Resource Management Act, also expected to add to council costs regardless of the cap, 1News reported.
What it means for advisers
For mortgage advisers, the practical takeaway is that a rates cap won't necessarily translate into meaningful savings for homeowners.
Westpac's report cautions that "some of that reduction is likely to be offset by increases in other household costs (for instance, increases in user pays charges)," meaning any inflation relief from the policy is likely to land "at the more modest end of estimates" — Westpac puts the overall inflation impact at just 0.1 to 0.2 percentage points a year, a modest impact now echoed by the government's own estimate that the typical household will save just $34 a year.
Councils facing funding shortfalls may also turn to borrowing, targeted rates, or public-private partnerships to fund infrastructure, all of which could indirectly affect regional lending and development conditions.
With the legislation not expected to pass until next term, advisers have time to factor this into conversations with clients concerned about long-term cost-of-living pressures tied to property ownership.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
