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Urbanism dividend: return on rates

The continuing weight of major centers, is in a way countersensical..dispersal would seem to be a good option given the high cost – Saskia Sassen, Global Networks, Linked Cities

I’m still fascinated with the results from earlier posts looking at land value in relation to cbd location. I figured there would be a premium to centrally located land, but I didn’t imagine it would be so extreme. If the three factors of production are land, labour and capital than it seems logical that many businesses would disperse to cheaper land outside of the cbd. But of course this is not happening since there remains a demand for highly connected and central land in the cbd.

Cross section of land values across Auckland’s city centre

Here’s a related look at land value but in this case it’s how much money is returned to the City in the form of rates (tax). This exercise has been inspired by the work of Peter Katz and Joseph Minicozzi as documented in this article in Better Cities Best bet for tax revenue: mixed-use downtown development. In their study they looked at various forms of development and concluded that there is a tax-revenue premium associated with high density, high floor area coverage, centrally located developments.

The studies, by Public Interest Projects, show that on a per-acre basis, sprawling single-use developments such as big-box stores do a poor job of providing governments with needed tax revenue. Dense, mixed-use development, usually downtown or adjacent to transit, is financially much more beneficial.

What is so interesting about the study is that it runs counter to many city’s development ambitions of attracting large stores for their sales tax generation ability. While we have a different property tax structure, in particular in regards to sales tax, I thought it would be worth sampling some areas around Auckland to determine the revenues for various types of development. Auckland’s rates are calculated by combining land value and improvement value into a ‘capital value’ for rates assessment. Below is a look at the various rate levels on a hectare basis.

Annual rates per hectare: Auckland, New Zealand

Besides the value of the CBD being off the chart, there are some other interesting revelations that I will explore later such as the role urban form, walkable neighbourhoods, land value taxes, and yes, even parking has on sustainable development patterns. For now, I’ll leave you with another quote from the earlier mentioned article:

The findings from the two studies, Katz says, “reinforce a concept advanced in the mid- to late 1800s by Henry George: the idea that land is our most precious shared resource. Since land is the raw material from which government derives most of its working capital in the form of property taxes, it makes sense to evaluate different forms of development in terms of their potential for revenue return.

20 comments to Urbanism dividend: return on rates

  • obi

    So if the Council wanted to re-energise the dreary bits of and around Queen St, the best thing they could do would be to lower the rates and hope that some economic activity currently located outside the CBD moves back in to the CBD?

  • Kent Lundberg

    I think a pure land value tax (instead of a tax on improvements) would be a good start. Queen St doesn’t seem to be a problem IMO.

    • obi

      Depends what you mean by “problem”. If you’re only interested in how much rates you can collect, then it isn’t. But it’s a bit scruffy; not half the street Lambton Quay is; and really isn’t the quality shopping location destination that Auckland should have at its heart.

      • What largely isn’t in Lambton Quay but is in Queen? Yup; cars.

        • obi

          That’s a significant part of it. LQ has cars… I don’t think any of it is bus-only… but for some reason the traffic is light. Auckland Council could fix the issue with a vote, some cones or planters, and changing a few traffic lights. I’m genuinely baffled as to why they don’t go for this obvious win.

      • Kent Lundberg

        I was referring to your comment of “dreary bits of and around Queen St”. I’m not much of a shopper but isn’t there a Prada or similar down there? Also, there are some places down on lower Queen that are simply amazing. As nice as New York.

      • Mr Anderson

        Obi, are you channeling Cameron Brewer by thinking that because some of Queen St’s shops cater for people other than rich white folk that it must be struggling?

        • obi

          Just a sense that the buildings generally look a bit tatty; there is too much traffic; and whatever audience the shops cater for, it isn’t the audience of people who are shopping at Auckland’s suburban malls. This might be unavoidable… For heritage reasons, Queen St is mostly stuck with the buildings it has now. So new development is happening along the harbour front and on the CBD edge. It’s turning from a north-south aligned CBD in to a waterfront west-east aligned CBD.

          Rates reductions could make it more viable for suburban retailers to move to the CBD. When I was living in the UK (pre-2000), rates were pushing retailers out of CBDs. However charity shops were rates exempt, so town centers often comprised a few boring chain stores and a ton of charity shops. It wasn’t a great look in my opinion, although I’m obviously judging this from my “rich white folk” position. (Oh and before anyone raises the point, none of this applied to London where the retail obviously worked differently to most of the rest of the country.)

          • Kent Lundberg

            There’s a smart new building on Queen and Fort. A few historic buildings are being massively restored and repurposed. Do we need a Sniggles down there?

          • Peter M

            Kent’s previous post actually highlighted the value is still generated by Queen Street much more than the waterfront. I was sure surprised by that – perhaps it’s because Quay Street is so utterly horrific?

            Interesting how low the value of the place on Nelson Street is. Wonder what the potential land-value uplift of a dramatic humanisation of Nelson Street would be?

  • More evidence that more ‘city-ness’ is goooood. Nice work Kent.

  • Mr Anderson

    Nothing wrong with Queen St at the moment except the stupid amount of roadspace dedicated to cars. The shops seem thriving.

    Lambton Quay is dead outside office hours.

  • Harry McDonald

    I’ve lived in Auckland for 36 years and I have never seen Queen Street with so many people; too many burger joints imo but nowhere is perfect. And Mr. Anderson is dead right about Lambton Quay – there’s tumbleweed aplenty down there after 7.
    The problem area is obviously on the western side with the de facto motorways blighting the space as well as any decent rate of return for the council.

  • Luke C

    Agreed about Lambton Quay after work hours, during cricket dinner break on A Saturday evening walked around for ages along Lambton Quay and surrounds and could only find McDonalds open.
    Of course Courtenay Place, Cuba St etc make up for it.

  • Stu Donovan

    the equation is quite simple: The city is subsidising the suburbs. The sooner we let the latter stand (or fall) on it’s own two feet the more compact we will be – because suburbs just ain’t cost effective unless they’re subsidised by a dense urban core.

    All those sprawl addicts need to realise that the market would choose the “city” if it was left to it’s own devices. Unfortunately it’s not, and money is squirreled away from the city to the suburbs, thereby subsidising sprawl. Someone should tell Quax …

  • Ari

    is the city subsidising the suburbs? there are a lot more low rate suburbs than high rate CBD.

    • Stu Donovan

      Yes, the city centre is definitely subsidising the suburbs

      I should say, however, that I don’t really like to split the city into parts too much because it is generally a symbiotic relationship, which simplistic conversations about cross-subsidies gloss over.

      Ideally the city centre and the suburbs would respect the role of the other in creating a wonderful city. But what I see in Auckland is a lack of respect for the city centre from people who live in the suburbs.

      This I think is unfortunate because the economic power of the city centre contributes greatly to quality of life across the wider city, if only because of the rates it generates that are used to fund infrastructure/services in less dense parts of the region.

      • Exactly! Well said, in other places, New York, perhaps, it may be the other way around with the centre sneering at the ‘burbs? There is that famous insult in Manhattan: ‘Bridge and Tunnel” meaning suburban; if you had to use a bridge or a tunnel to get to the Island it means you’re definitely déclassé.

        But here we certainly have the reverse problem.

      • Kent Lundberg

        One thing that doesn’t stand out too much in the graphic above is the big (4-8x) difference between that bank in Onehunga and something in a mall or “drivable” suburban setting.

        • Max

          Wow – my girlfriend operates the charity shop directly opposite that bank in Onehunga. I bet she didn’t know how valuable the area is, comparatively speaking. Though she IS already worried about her landlord knowing…

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