Thousands of Auckland homeowners who let their properties online could find their homes impossible to sell at market value. Auckland Council is in the process of slapping commercial ratings and other additional charges on around 4000 Auckland homes let on the short-term rental market.
Should homeowners wish to sell their homes, commercial rates, which in some cases amount to more than $25,000 a year, will pass to the new owner.
The reason for that, says Joanna Pidgeon, president of the Auckland District Law Society, is that when a property is sold, it is with its current rates.
“If a purchaser is not carrying out that commercial rateable activity any longer, they can apply for the property to be re-rated, but that will only take effect from the next rating year,” says Pidgeon.
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Airbnb host and residential property investor Sian Draper says the move to commercially rate residential properties will lead to one of two scenarios for owners who need to sell: “Having to discount significantly the asking price for such properties and difficulty selling them; or the new owners facing an unfair (rates) burden.”
Real estate agents are also watching the developments. Daniel Coulson, national residential manager at Bayleys, says commercial rating of homes will either have the effect of limiting the buyer pool, or affecting the amount buyers are willing to pay.
Should the buyer be looking to carry on the same business in the property, it might not depress the value, says Coulson. But not all buyers are suited to or want to run commercial accommodation (or a business from home). It’s a view shared by Ashley Church, chief executive of the Property Institute of New Zealand.
“If buying property as an investor you would absolutely expect a discount on the price relative to the full rates differential over what you would pay on domestic property rates. That could be $20 grand. Any canny investor would expect a discount on the price.”
Likewise, valuer Frank Spencer of Logan Stone says given two identical properties a purchaser would pay less for the one that was commercially rated. The situation was fixable at the end of the following year, so the discount in a perfect market would equate to the additional rates the new buyer was inheriting.
Good agents would aim their marketing at buyers looking for an income, says Coulson. But commercial rates do limit the buying pool.
Homeowners who let standalone properties, sleepouts and guest suites in their homes through online platforms including Airbnb, Bookabach, Bachcare, Booking.com and others started receiving letters from Auckland Council in June stating they would be charged commercial rates, plus an Accommodation Provider Targeted Rate (APTR) to fund Auckland Tourism, Events & Economic Development (ATEED).
In addition, some have had parts of their homes reclassified as separately used or inhabited part of a rating units (SUIP). This attracts a third layer of additional council charges amounting to around $600 a year.
Auckland Council says it has identified around 8000 standalone spaces let online that could be liable for the higher rates charges. It believes that around 4000 are letting for more than 28 nights a year and will, as a result, be charged.
The new rates are set on a graduated scale, but once properties reach 180 visitor nights in the year full commercial rates apply, says Aaron Matich, principal adviser at Auckland Council.
That’s regardless of how much the owner is earning a night. Airbnb listings that could fall under the commercial rates umbrella in Auckland if rented for more than 28 nights range in price from $30 a night up to $10,000 a night.
So far 1200 letters have been sent out to owners. Those who replied are rated according to the number of nights and the percentage of the property being used for holiday rentals, says Matich. Owners who didn’t reply have been rated 100 per cent commercial for the entire property.
The commercial rating applies only to homeowners who let out entire spaces, not rooms sharing facilities in their own home. However, Andrew Duncan, Auckland Council manager financial policy, says the council plans to commercially rate other properties running businesses from home, such as hairdressers and lawyers.
This means that any home-based business including bed & breakfast rooms in houses could eventually face the same rating system, which is something hotel owners have been lobbying for.
Council staff members who have fronted for the media on the issue believe the new system is “fair”. Council analysis shows it amounts to around $3 to $4 a night for some of the properties staff members have looked at, says Matich. Owners and the platforms they advertise on do not agree.
Owners argue that renting a home to holidaymakers is little different to renting to long term tenants, but one is now rated as commercial and the other residential.
Attempts by letting websites such as Bachcare to engage with Auckland Council have been unsuccessful.
“We provided a submission and requested to be included in their public hearing,” says Leslie Preston, of Bachcare. “No one from Council contacted us.”
She says discussions Bachcare has had with council were “confusing, unclear, and inconsistent, and tend to change from week to week”.
Bindi Norwell, chief executive at the Real Estate Institute (REINZ), says the issue highlights the importance of undertaking due diligence before buying a property and the importance of talking to a lawyer before signing a sales and purchase agreement.
Michael Barnett, chief executive Auckland Chamber of Commerce, has come out batting for homeowners, calling the council’s moves “foolish”. Barnett has been approached by a number of homeowners who fear they may lose their homes as a result of rates bills that have escalated by several hundred per cent.
In one case, rates jumped from $3000 to $25,000, because the homeowner was letting for more than 180 nights a year. The increase to the 80-year-old woman’s rates amounted to more than she had earned from Holidayhouses.co.nz in the entire year.
On Airbnb, nightly charges for standalone spaces start from $30 a night in Auckland, with more than 300 charging less than $100 a night. Yet all are rated as if they were earning $213 a night.
Barnett says he has spoken with a husband and wife in Ponsonby who were letting a room to help make ends meet, but now face losing their home of 50 years.
“Do they want other people in their home? No. Do they want to stay in their home? Yes. But council’s latest tax grab (rates bill) means no.”
Matich says anyone concerned that they have not been rated correctly should contact the council and will be reimbursed should it be incorrect. This may be relevant where the entire property has been rated commercial but only a portion of it is being let to short-tenants.
Or they could have been rated as letting for more than 180 days a year when they had let for less.
Pakuranga resident Ray Pitch was hit with a triple whammy of commercial rates, APTR and additional charges for a portion of his basement that is now classified as a SUIP, thanks to having a microwave for guests to use.
It could not be let as a residential tenancy. He worries that it may be impossible to have the SUIP classification removed from what is, in effect, a part of his main home. Many owners say they’re dammed if they do or if they don’t.
Homeowners who first heard of the new rating in June are being charged as a result of their earnings from the previous year, which they say is retrospective. Even if they stop hosting immediately, they would still need to pay the commercial rates and other charges and should they want or need to sell it would be subject to commercial rating.
Simply stopping letting now is not a case for reimbursement because homeowners are being rated on their activity for the previous year’s activity. Draper says home owners would have done things differently if they had known they would need to rent their home for a considerable period of the year simply to pay the rate increase.
“They are now unable to change things and even if they cease their activity for the 2018 to 2019 rating year, they will still be liable to pay business rates and APTR for non-existent business activity, leaving them worse off than if they had not rented out their spaces.”
Homeowners and many of the platforms they list on say they would be happy to pay a pass-through bed tax for each night of accommodation. However, that would require an amendment to the Local Government (Rating) Act 2002 and the council was not prepared to wait, says Pitch, who has removed his property from the Airbnb site.
Bookabach and other platforms have also seen homeowners remove their properties. The worst hit by the charging that Miles describes as an “ill-fitting instrument” are not the minority who are out to maximise profit, but those in the marginal space who are looking to offset some of their expenses of owning a holiday home or home.
Airbnb's head of public policy Australia and New Zealand Brent Thomas couldn’t provide numbers for those that had pulled out, but said his company’s priority was to educate its hosts about the new rates and their obligations.
Homeowners caught by the new rating system have also faced a barrage on social media. The public believes Airbnb hosts are not paying tax, whereas they are liable for every cent of earnings.
