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

Journal of Real Estate Finance and Economics February 2019, Volume 58, Issue 2, pp 310–333

Posted: 8 May 2019

See all articles by Norman Gemmell

Norman Gemmell

Victoria University of Wellington - Victoria Business School

Arthur Grimes

Motu Economic and Public Policy Research Trust

Mark Skidmore

Michigan State University - Department of Agricultural Economics

Date Written: February 2019

Abstract

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.

Keywords: Property taxes; Land tax; Development contributions; Impact fees; Property development

Suggested Citation

Gemmell, Norman and Grimes, Arthur and Skidmore, Mark L., Do Local Property Taxes Affect New Building Development? Results from a Quasi-Natural Experiment in New Zealand (February 2019). Journal of Real Estate Finance and Economics February 2019, Volume 58, Issue 2, pp 310–333, Available at SSRN: https://ssrn.com/abstract=3376766

Norman Gemmell

Victoria University of Wellington - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

Arthur Grimes (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand

Mark L. Skidmore

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States

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