Do Local Property Taxes Affect New Building Development? Results from a Quasi-Natural Experiment in New Zealand

We utilise a quasi-natural experiment in local property tax reform arising from a compulsory amalgamation of several local councils in 2010 in Auckland, New Zealand, to form a unitary local authority. The reform involved changes in property taxes (known as ‘Rates’ in New Zealand) including a shift i...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2019-02, Vol.58 (2), p.310-333
Main Authors: Gemmell, Norman, Grimes, Arthur, Skidmore, Mark
Format: Article
Language:English
Subjects:
Amalgamation
Councils
Economics
Economics and Finance
Financial Services
Flexibility
Property development
Property taxes
Regional/Spatial Science
Tax reform
Taxation
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Summary:We utilise a quasi-natural experiment in local property tax reform arising from a compulsory amalgamation of several local councils in 2010 in Auckland, New Zealand, to form a unitary local authority. The reform involved changes in property taxes (known as ‘Rates’ in New Zealand) including a shift in the local tax base from land-value to capital-value in some of the former councils; changes in relative levels of Rates across former councils; and changes in levels of a separate tax (Development Contributions) levied on new building. These exogenously imposed reforms enable us to test several hypotheses related to the effects on property development of these tax switches using a difference-in-difference approach, controlling for other influences. We find support for tax effects on building alterations but no evidence of effects on new building development after amalgamation. Our dataset covers only two post-amalgamation years, and we speculate that this apparent difference may arise from greater flexibility of building alterations to respond quickly compared with new developments.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-017-9651-y