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Rates and Funding Advisory Panel
19 March 2018
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Rating method for residential properties being
used for short-term visitor accommodation
Department: Finance
EXECUTIVE SUMMARY
1 This
report provides information on how residential properties used for short-term
visitor accommodation are currently rated and outlines alternative options for
consideration. This issue has been researched following a request by the Rates
and Funding Advisory Panel (the Panel).
2 This
report identifies potential issues and challenges, the actions of the other
councils and provides two options for rating properties providing short-term
visitor accommodation in Dunedin for the Panel to consider.
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RECOMMENDATIONS
That the Committee:
a) Considers the
discussion points identified within this report.
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BACKGROUND
3 The Rates
and Funding Advisory Panel (the Panel) at its meeting on 24 October 2017
discussed residential properties providing short-term visitor accommodation
(commonly known as Airbnb). It was agreed that staff would investigate
rating options and report back to a future meeting of the Panel.
4 Home-owners
are increasingly letting out their houses to short-term paying visitors.
Property owners can list a single room or a number of rooms within the
residence or the residence as a whole. The means by which this is undertaken is
generally through online booking sites, such as Airbnb and Bookabach.
5 These
properties include entire residences, bed and breakfast (B & B) or homestay
establishments. They differ from other commercial accommodation providers, such
as motels and hotels, as the properties are not always operated for
predominantly commercial purposes. In many cases, they are residential
properties with a partially commercial nature.
6 Traditional
commercial accommodation providers such as motels and hotels pay commercial
rates, residential short-term visitor accommodation providers, in most cases,
pay residential rates.
7 The table
below provides a summary of how the different types of short-term visitor
accommodation is currently rated by the Dunedin City Council.
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Type of accommodation
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General
rate differential category
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Hotels, motels,
backpackers and camping grounds - traditional commercial accommodation
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Commercial:
2.45
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Commercial B & B* –
B & B’s with greater than four bedrooms.
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Commercial:
2.45
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Heritage B & B*
– B & B’s with greater than four bedrooms, meets
‘heritage’ criteria and the owner lives at the facility. The
differential is set at a lower level to ease the rates burden on these
operators.
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Residential
Heritage B & B: 1.75
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Residential B & B
– B & B’s with four bedrooms or less.
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Residential:
1.00
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Homestays - B & B
style accommodation with four bedrooms or less, where the usual occupants of
the residence remain in occupancy while hosting paying guests.
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Residential:
1.00
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* B
& B properties in this category are those the Council has knowledge of or
has been advised of.
8 It is
difficult to determine exactly how many residential properties are used for
short-term visitor accommodation in Dunedin. In January 2018, staff sourced
data from an online data and analytics website (www.airdna.com) which showed
372 properties for the entire home and 407 for homestays in the Dunedin area.
9 The data
also indicated that 41% of the properties were booked for less than 28 nights
over the past year, 49% were booked for more than 28 nights and 11% were booked
for more than 6 months (roughly 180 nights).
10 At the time that
this data was sourced, there may have been more short-term visitor
accommodation available due to events in the city eg Masters Games and Ed
Sheeran.
DISCUSSION
Issues
for consideration
11 Short-term visitor
accommodation plays an important role in Dunedin. It is important that
potential consequences are identified and considered prior to any changes being
introduced to the rating method.
12 Fairness and equity
with traditional accommodation providers needs to be considered as well as the
potential for unintended consequences such as discouraging property owners from
operating as accommodation providers or capturing homeowners providing short-term
accommodation to international students. Building Act and District Plan
requirements also need consideration.
Fairness
and equity with traditional accommodation providers
13 Current rating
methods generally allow residential properties to be used for short-term
visitor accommodation with no increase in rates. Traditional accommodation
providers such as hotels and motels have expressed concern over this
discrepancy.
14 Both categories of
property benefit from Council services. They derive a direct benefit from
Council expenditure on Marketing and Economic Development, such as event
attraction as well as major events. In most cases, due to the size of
residential property being used for short-term visitor accommodation, they will
not place greater requirements on water supply and drainage services than
other, similar size residential properties. It is possible that they might
place higher requirements on parking services, though this may not be
significant.
15 Many of the
residential providers tend to be family homes and therefore likely to be
supplementing their household income rather than generating material revenue.
In general, they charge lower prices and have lower occupancy rates, so they do
not generate a similar level of revenue to motels and hotels.
Effect
of imposing higher rates
16 Creating a new
differential for residential providers of short-term visitor accommodation in
between residential and commercial might be more appropriate than imposing full
commercial rates to strike a balance between the residential and commercial use
of the property.
17 The table below
shows how a change in the rating method would impact general rates. A
‘mixed-use’ example (defined as 75% residential and 25% commercial)
is provided as a possible new category. These examples are based on the average
capital value of residential properties of $326,800.
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Residential
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Mixed-use
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Commercial
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General rates
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$1,036
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$1,412
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$2,540
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$ increase
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-
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$376
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$1,504
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% increase
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-
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36%
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145%
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18 It should be noted
that by increasing rates, residential providers may be deterred from providing
this service which could be detrimental to the wider interests of the city,
especially given the limited supply of short-term visitor accommodation in
Dunedin City. Accommodation is often scarce when the city is hosting major
events such as rugby matches or concerts at Forsyth Barr Stadium.
Identifying
and monitoring
19 It would be
difficult to identify and monitor residential properties being used for short-term
visitor accommodation. If the Council wishes to rate these properties in a
different way, new processes would need to be introduced to identify and
monitor them. It is likely that this would require a lead-in time and ongoing
monitoring work would need to be undertaken.
20 The Council is
likely to need to use several sources of information including online booking
sites such as Airbnb and Bookabach, internet research, mail-outs as well as
self-policing by other property owners.
21 For comparison
purposes, the Queenstown Lakes District Council (QLDC) uses a registration
system to maintain a record of short-term accommodation properties in the
district. It incentivises property owners to register by offering free
advertising of their property. This could be considered by the Council as a
method of identifying and monitoring short-term accommodation providers.
Consents
and compliance
22 Traditional
providers have to meet higher standards, including consents, health and safety,
fire safety requirements. The Building Act 2004 requires different fire safety
and construction requirements of buildings between residential and commercial
properties. As commercial providers, hotels and motels are subject to stricter
requirements than residential properties being used for short-term visitor
accommodation.
23 Currently,
residential properties undertaking commercial residential activities, such as
short-term visitor accommodation are required to obtain resource consents to
operate a homestay with more than 5 guests and/or to let out an entire
residence regardless of the number of guests.
Actions
of other councils
24 Other councils
around New Zealand currently have, or are, proposing rating methods for
residential properties being used for short-term visitor accommodation. The
most notable of these are the Queenstown Lakes District Council, the Auckland
Council, and the Rotorua Lakes Council.
Queenstown
Lakes District Council (QLDC)
25 QLDC currently has a
system in place to rate residential properties being used for short-term
visitor accommodation. Collection of information is enforced through provisions
in the operative District Plan and a registration system.
26 Properties are rated
based on their intended booked nights and are categorised into rating differential
categories including residential, mixed use and accommodation.
27 Homestay properties
intending to host five or fewer guests are rated as residential if they are let
for 28 nights or less. If they are let out for more than 28 nights, the
property is rated as mixed-use, which is defined as 75% residential and 25%
commercial.
28 Entire homes being
let out and homestay properties intending to host more than five guests can be
rated under one of three differentials based on their intended booked nights:
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Intended nights booked
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Classification
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Rates differential
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Up to 28
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Residential
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Residential
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29 to 180 – entire home
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Mixed-use
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75% residential, 25% commercial
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29 to 365 - homestay
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Mixed-use
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75% residential, 25% commercial
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More than 180 – entire home
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Accommodation
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Accommodation
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29 The mixed-use
differential results in a 25-35% increase in rates and the accommodation
differential results in a 50-80% increase in rates compared to residential
rates.
30 QLDC has proposed
changes to how the district plan enables and manages residential visitor
accommodation. There are no proposed changes to the rating method, however the
changes proposed will ensure appropriate rates are applied, the Rating policy
makes use of the District Plan definitions.
Auckland
Council
31 The Auckland Council
applies a higher business rating differential to B & B’s and
homestays where either the entire property is used for accommodation purposes
or an identifiable part (eg. a separate flat or dwelling on the property) is
being used for short-term visitor accommodation. This means that, in
general, individual bedrooms being let out do not incur business rates.
32 As part of the
2017/18 annual budget, the Auckland Council introduced a targeted rate on
accommodation providers to help fund the costs of visitor attraction, major
events and destination and marketing, raising $13.45 million (previously funded
from general rates). B & B’s and homestays are not currently
liable for the accommodation provider targeted rate (APTR).
33 Feedback in Auckland
from traditional accommodation providers included concern about the competitive
advantage given to short term accommodation providers paying residential rates
and not paying the APTR. An example of the inequity is serviced apartments
within hotel buildings where the apartment is not part of an established
traditional accommodation provider.
34 The Auckland Council
is proposing, as part of this year’s 10 year plan consultation, to
introduce a graduated differential for online accommodation providers for
general rates and the APTR.
35 It has been proposed
to classify properties being let out in their entirety into three categories to
determine how they will be rated. Previous booked nights are used as the
measurement method. The table below shows the proposed rating method based on
how many nights a residence is booked for.
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Low occupancy
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Medium occupancy
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High occupancy
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Booked
nights per year
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<28
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28 to 135
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>135
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General
rate
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Residential rate
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25% business
75% residential
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Business rate
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APTR
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No APTR
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25% APTR
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Full APTR
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36 The changes proposed
by Auckland Council will apply to serviced apartments (bookable on-line),
stand-alone residences or clearly identifiable parts of residences.
On-line providers who let a part of their residence, such as a bedroom will
remain unchanged.
Rotorua
Lakes Council
37 Rotorua Lakes
Council currently has a rating method for short-term accommodation. Residential
properties that are used for short-term accommodation for up to 100 nights are
rated as residential, if let for more than 100 nights, it is rated as
commercial. There is no mixed use category. Business properties pay 1.72
times the residential rates and are also liable for business and economic
development targeted rates.
38 Rotorua Lakes
Council has no provisions to enforce the collection of information from
property owners in regards to how many nights a property is let for. The
council relies on voluntary disclosure of information by property owners or
their neighbours.
OPTIONS
Option
One – Maintain the current rating method
39 This option involves
maintaining the status quo. Residential properties with greater than four
bedrooms available for short-term visitor accommodation would continue to be
included within the commercial or residential heritage B & B categories.
Properties with four bedrooms or less would continue to be rated within the
residential category.
Advantages
· No
administrative costs required to identify and monitor these properties.
· No
increase in rates for small providers of short-term visitor accommodation in
Dunedin.
· Would
not deter home owners for making their homes available as short-term visitor
accommodation at peak times, such as rugby games or concerts at Forsyth Barr
Stadium.
Disadvantages
· Does
not address the current perceived inequity in rates paid by traditional
commercial accommodation providers.
Option
Two – Establish new criteria for the rating of residential short-term
visitor accommodation
40 This option involves
establishing a new ‘mixed-use’ differential rating category and new
criteria for residential short-term visitor accommodation. The
‘mixed-use’ category could be rated using the existing Residential
Heritage Bed and Breakfast rating differential, 1.75 times the residential
differential. Alternatively, a factor of 75% residential and 25% commercial,
1.35 times the residential differential.
41 Residential
properties with greater than four bedrooms available for short-term visitor
accommodation would continue to be included within the commercial or
residential heritage B & B categories.
42 Providers with
either the entire residence, or with four bedrooms or less available would fit
into one of two options - the number of booked nights (option 2a) or the number
of booked nights and available rooms (option 2b).
43 Past booked nights
would be used as the basis for determining the rating differential
category. Past booked nights would be based on the previous calendar year
and obtained via an annual declaration from relevant properties.
Option 2a – number of booked nights
44 Option 2a applies to
residential short-term visitor accommodation where there is either:
- four bedrooms or
less or
- the entire
residence is available or
- a separately used
or inhabited part of the property is available.
These properties would be categorised as follows:
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Booked nights
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Differential Category
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Up to 28
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Residential
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29 to 180
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Mixed-use
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More than 180
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Commercial
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45 A lower boundary of
28 nights allows for property owners to let out their property for up to four
weeks, for example while on holiday and recognising the limited revenue
generated. This is consistent with the approach taken by QLDC and
Auckland Council. It reflects a predominantly domestic activity
supplementing the resident’s income, often for a small portion of the
year. These properties would be included in the residential category.
46 An upper boundary of
180 nights, approximately half a year, can reasonably be held to be reflecting
a commercial venture when the property is used for short-term visitor
accommodation this often. This is consistent with the approach taken by QLDC,
but not Auckland Council (who are proposing 135 nights). These properties
would be included in the commercial category.
47 It is proposed that
entire residences being let for between 29 and 180 nights would be classified
as mixed-use, a new rating differential category. This would represent a medium
occupancy category and allows for providers that are operating in a partially
commercial manner to be rated accordingly.
48 Development of these
criteria will need careful consideration to ensure the distinction between
residential rental properties or student homestay accommodation and residential
short-term visitor accommodation is clear.
Option 2b – number of booked nights and available
rooms
49 Option 2b applies to
residential short-term visitor accommodation where there is either:
- between two and
four bedrooms or
- the entire
residence is available or
- a separately used
or inhabited part of the property is available.
These properties would be categorised as follows:
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Booked nights
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Differential Category
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Up to 28
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Residential
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29 to 180
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Mixed-use
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More than 180
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Commercial
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50 The booked night
boundaries are the same for options 2a and 2b.
51 This would exclude
homestay providers of only one room. This is because it is likely that
this type of short-term visitor accommodation is unlikely to be placing higher
demands on Council services and competing with traditional accommodation
providers.
Advantages:
· Enables
the medium to large scale residential accommodation providers to be rated in a
more equitable way compared to traditional accommodation providers
· The
approach recognises those providers who don’t wish to operate on a
partial or fully commercial basis
· Supports
the supply of short-term accommodation in Dunedin city
· Increased
rates from the proposed changes will result in reduced rates being paid by
other ratepayers
· Provides
an opportunity to co-ordinate with Building Services and the Resource Consent
Team to align the change with a review of compliance.
Disadvantages:
· It
will be difficult to identify and monitor providers based on the limited
available information.
· May
drive avoidance behaviour, in which providers attempt to avoid being identified
as an accommodation provider
· Increases
rates for some residential accommodation providers
· There
will be additional costs incurred identifying and monitoring residential
short-term visitor accommodation providers
· Properties
are rated under the same differential for the full rating year. A property
purchased during the year that has been classified as mixed-use or commercial
will continue paying rates under the mixed-use or commercial differential for
the remainder of the rating year, even if the property is no longer used for
short-term visitor accommodation purposes.
NEXT STEPS
52 If the Panel wishes
to proceed with developing a new rating method for residential properties used
for short-term visitor accommodation, staff will continue to refine/develop the
criteria, begin the process of identifying affected properties, consult with
other Council departments on potential impacts and report back on an
implementation plan to the next meeting of the Panel. The implementation
plan could include a review period, post implementation, of say one or two
years.
Signatories
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Author:
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Carolyn Allan - Senior Management Accountant
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Authoriser:
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Gavin Logie - Financial Controller
Dave Tombs - General Manager Finance and Commercial
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Attachments
There are no attachments
for this report.
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SUMMARY OF CONSIDERATIONS
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Fit with purpose
of Local Government
The review of rating policies enables democratic local
decision making and action by, and on behalf of communities by considering
whether any changes are required.
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Fit with strategic
framework
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Contributes
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Detracts
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Not applicable
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Social Wellbeing Strategy
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Economic Development Strategy
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Environment Strategy
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Arts and Culture Strategy
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3 Waters Strategy
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Spatial Plan
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Integrated Transport Strategy
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Parks and Recreation Strategy
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Other strategic projects/policies/plans
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Aspects of the review of rating policies may touch on the
strategies selected including the Revenue and Financing Policy.
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Māori Impact
Statement
There are no known impacts for tangata whenua.
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Sustainability
There are no known impacts for sustainability.
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LTP/Annual Plan /
Financial Strategy /Infrastructure Strategy
If rating method changes are recommended by Council they
will need to be consulted on with the community. This could be during
consultation on the 2019/20 Annual Plan or an amendment to the 10 year plan.
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Financial
considerations
There are no financial implications at this stage.
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Significance
There are no impacts on the Council’s significance
and engagement policy at this stage.
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Engagement –
external
There has not been any external engagement at this stage.
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Engagement -
internal
Internal engagement has occurred with staff in the
relevant departments.
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Risks: Legal /
Health and Safety etc.
Legal advice will be sought prior to any change in the
rating method being implemented.
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Conflict of
Interest
There are no known conflicts of interest.
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Community Boards
Community Boards may be interested in any rating policy
changes.
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