Variable council rates for investors is blatant revenue raising and discrimination

Brisbane, like other metropolitan cities in this first half of 2014, has had somewhat of a buying frenzy amongst both home buyers and investors.

Having recently procured a property there, I uncovered something rather alarming during my due diligence process.

It turns out that some councils within the metropolitan area of Brisbane have introduced different pricing for their council rates based on the type of buyer you are. If this sounds unfair, it is probably because it is. In fact, the story has recently gained momentum in Property Observer, with industry expert Margaret Lomas adding her views to the matter.

The thinking behind this policy is that home owners are ‘doing it tough and need a helping hand’. There is an assumption by some Queensland councils – such as Mackay, Brisbane City, and Logan City – that investors can afford to pay higher council rates simply because they are investors.

I purchased a property on 5 May in Zillmere (Brisbane’s northern suburbs) and was advised that my dwelling and ownership/usage structure (as an investor, so non owner-occupier) placed me on a ‘Category #14’ pricing of 42.8 cents per unit. Had I been an owner-occupier, my rate for the same property would fall under ‘Category #1’ (incurring a rate of 30 cents per unit).

This is clearly discrimination based on the ‘assumed’ status that investors are more cash-flow rich than owner-occupiers. The rate structures are not means-tested so there is no factual base for this pricing, rather just an assumption.

This discriminatory approach in some councils throughout Queensland is merely a price-gauging and revenue-raising strategy at the expense of those trying to secure their financial future. 

It’s unfair because council rates are paid to ensure that services to the suburb area such as rubbish collection, council clean-ups, bushland and fire levies, library and park maintenance; are provided for all dwelling occupants living in the area. Regardless of the occupant residing there, all occupants are entitled to the same services provision.

The biggest mistake these councils have made in their assumption of investor wealth, is that investors are cashed up and aren’t also ‘doing it tough’.

If councils want to penalise those who scrape together their savings to try and provide a better future for themselves and their families via investment, is this not discrimination? 

Regardless of how small or seemingly inconsequential the rate difference is between the two ownership types, it is the principle of the matter that needs to be challenged. This is because this council initiative may set future a precedent that other property related service industries may enlist.

I’ve observed in my investment career instances where one council will form a new policy and other neighbouring councils will adopt a similar policy in the years ahead.

Imagine if you were an investor and needed to send a plumber out, yet the plumber advised you that their service rate to you would be higher because you are an investor. Or if strata management companies gave owner-occupiers a discount at the expense of a rate hike for those lot owners who happen to be investors.

What makes this more embarrassing for some of the councils involved, particularly Brisbane City Council (BCC), is that the owner-occupier rate is not discounted, meaning that the rate hike for investors is clearly a revenue raising strategy.

Article continues on next page. Please click below.

Are councils neglecting the value that investors bring to their suburbs?

Investors actually bring revenue to an area when they buy and in some instances greater revenue than owner-occupiers. 

Why?

Think of the housing they provide for residents who aren’t yet able to afford their own ‘owned home’. Think of the job creation for the local community in terms of ongoing real estate agents managing and representing the property, bringing wage growth into that local business and council area.

Even when looking at the logical rationale behind this move; there simply isn’t one. Why? Because rates are currently structured to be paid per-household regardless of occupant volume residing in that household. If discrimination is to occur based on ownership status, why are these councils not also discriminating based on occupant volume?

Is occupant-volume a fairer way to price-structure council rates?

Think about what these rates cover. These are things that if rate pricing structure is to be introduced logically should be based on occupant volume of the property, not the type of occupant that resides there. 

For instance, a single person occupying a four bedroom house is likely to produce much less rubbish and stormwater drainage wastage each week, than say a family of five, occupying that same house.

The single occupant may only even put their bins out once every two to three weeks, yet the family of five may be putting an overflowing bin out, every single week. Surely this would be a better standard of measure to determine the rates that occupants pay.

This kind of ‘user-pays’ services approach is employed in several places around the world such as Singapore and ensures that services usage is minimised and costs kept down as much as possible, for all.

Is this pure discrimination and revenue-raising?

This discriminatory approach in some councils throughout Brisbane and greater Queensland is merely a price-gauging and revenue-raising strategy at the expense of those who are just trying to establish and secure their financial future. 

Oh and the other thing is this, specifically the Logan City Council (LCC) as well as Brisbane City Council (BCC) have formed these policies in recent times. Is it just coincidence that these two council areas (and their encompassing suburbs) have had the highest investor penetration in the last two years out of all of Brisbane metropolitan area and would stand to benefit most from an increased rate revenue from the investor community?

The trend could be on the rise with other city and municipal council areas in Brisbane and Queensland. So if you are either an owner of an investment property or you are thinking of buying one in this state, ensure you call the council of the area your property falls under during your due diligence phase.

How can investors stand up against this?

My recommendation as a due diligence point for any investor, in any Australian suburb, is to call the local council and find out what their rate policies and pricing structures are. If you feel you are being charged a higher rate unfairly, you should challenge them on this in writing. 

It is likely that the matter is not financially viable to pursue from a legal perspective; however, the more noise created about this strategy the more the spotlight is placed on councils to consider changing their pricing policies.

I personally will be challenging my higher-rate status with Brisbane City Council in light of this, purely out of principal.