Revealed: Where council rates are hurting property investors

ANALYSIS: Local rates aren’t a concern for just homeowners, they are a worry for landlords too.

They are often the second largest cost for property investors, behind mortgage repayments, far outstripping property management fees, maintenance costs and insurance premiums.

Rates vary across all 67 council areas in New Zealand, and some have seen significant lifts in 2023. Auckland Council has raised local rates by an average of 7.7% this year, and is expected to hike them further in 2024.

For landlords, the rates burden depends on how much they charge in rent.

For example, let’s say your rates are $2800 a year, and you have an investment property, which you rent out at $700 a week. You’d need four weeks of rental income to cover the your rates bill.

But if you only charged $400 a week in rent, you’d need seven weeks’ worth of rental income to cover the same bill.

This underscores just how important location is when choosing to invest in property, with analysis below highlighting the cost disparity around New Zealand.

The most expensive location for investors is Kaikoura District, in Canterbury, where rates are almost $3000 a year but the average rent is only $320 a week, meaning it would take just over nine weeks of rental income to cover the rates bill.

In second place is Carterton District, in Wellington, followed by Westland District, in West Coast.

Most councils with expensive rates tend to have small populations, with Kaikoura, Carterton and Westland all boasting populations of fewer than 15,000 people.

Some investors will argue in favour of investing in smaller districts, because areas with smaller populations tend to have higher rental yields. But in some cases, those areas also have higher costs.

After all, a council’s main job is to provide infrastructure, water, rubbish collection and local services. These all cost money, and councils in rural areas have fewer people to spread the costs over.

Lower rates tend to be in larger districts and cities, with the lowest in Upper Hutt City. There, the average bill comes in at just under $2200, yet the average rent is $625 a week.

This means the average property investor in Upper Hutt only needs to set aside 3.5 weeks of rental income to cover their rates and can enjoy an extra month’s worth of rental income compared to an investor in Kaikoura.

The second cheapest council rates are in Whangarei District. Rates there make up 4.2 weeks of rent. That’s closely followed by Napier City, with 4.3 weeks of rent to cover the rates.

Most of the areas with cheaper rates are small geographically. As previously stated, the council’s primary purpose is to provide local services for its residents, and its easier and cheaper if residents live close together like they do in smaller cities.

So, the areas with cheaper rates tend to have populations between 50,000 and 100,000 people.

Use the search function in this table to check how expensive the rates are in your area.

- Ed McKnight is the resident economist at property investment company Opes Partners