In July next year Auckland Council will set rates for the coming year based upon the updated property valuations released to Aucklanders a few days ago. Because council rates are at heart simply a property tax used to fund council services, arguments from people that above average increases come without any increase in council services will gain no traction with the council or compensation.

Those who experience above average rates rises will be the ones who have seen their property valuation rise more than the average of 46% between 2014 and 2017. There is a very good chance that many of the people who see their rates rise by between 5% and 10% will be older folk living in suburbs which have become a lot more desired by people in the past few years.
The ability of these property owners to easily find the cash needed to pay higher rates will be limited as many will be in retirement. Some might seek to take advantage of a council scheme to defer some rates until the property is sold. But one thing older people tend to pride themselves on is retiring without debt and with the option of leaving a property legacy to their children.

Deferring rates means building up a debt. To avoid that situation, older owners will have a number of options. They might take in a boarder, they might place a room on Airbnb, they might rent their house out and shift elsewhere. Frankly none of these options are likely to be all that attractive and the option of taking in a boarder is about to disappear for many people as the new government looks to cut out some 20,000 students from moving to NZ each year.

Instead, the rates shock coming next year for some older people will encourage them to leave Auckland entirely, sell their house, and buy elsewhere. In the process they will free up cash to spend on retirement enjoyment – perhaps to compensate for loss of connection with the people and places they may have spent their entire lives with.

The flow of people out of Auckland choosing this option is not going to be large enough to cause any noticeable impact on the Auckland housing market. But the flow might be noticeable in the regions which as they face slowing housing markets in the coming year might usefully consider advertising in Auckland to attract retiring people.

One group likely to try and assist this internal migration is real estate agents. The nationwide turnover of properties peaked in the year to June 2016 at almost 95,000 sales. That total has fallen to below 75,000 now in the year to October and a further decline toward 65,000 looks likely.

Faced with decreasing sales and income, especially in Auckland, canny real estate agents may look at actively facilitating the flow of older people to the regions. That is, organising the sale of the mover’s house in Auckland whilst scouting out a suitable property in the location targeted by the person moving.

Older people contemplating this move to the regions need to take into consideration the availability of health services in their destination, proximity of an airport, vulnerability of roads to slips and flooding, identified urban flood zones, planned infrastructure developments, proximity of rural activities like milking and spraying, entertainment options, ease with which friends and relatives can visit, and of course the weather.

Written by Tony Alexander
(BNZ Chief Economist)