Where are the cheapest rates for property investors?

After your mortgage, the highest cost on an investment property is council rates.

These local property taxes cost several thousand dollars a year and vary for each council area. For instance, the most expensive rates are more than double the most affordable.

This article breaks down where property investors can find properties with the most affordable rates.

The Difference It Makes

How much of a difference does this really make?

When we talk about how expensive rates are within an area, we're not talking about the dollar value itself, e.g. the fact that the average rates in Auckland are $3,469.

Because different properties around New Zealand earn different amounts of rent.

Say you had two properties, based in different towns, that both have rates of $2,500 per year.

If one property earns $250 per week in rent, and the other rents for $500 a week, then the rates are more expensive for the first property.

That's because it takes more weeks of rent to pay the rates.

When you run this analysis over the whole country, you start to see significant differences.

Let’s compare the areas with the most expensive and most affordable council taxes.

Rates in the Waitomo district make up an average of 18.59% of rent received per year.

That's because the average property rents for $295 per week and the rates are $2,837.

Investment properties in Waitomo are cheap ($261,907 on average) and earn fair rent … but the average rates are expensive.

It would take 9.6 weeks of rent to pay them.

Compare that with Hutt City Council in Lower Hutt. The average annual rates are $2,239, $598 less than in Waitomo.

But properties in Lower Hutt are worth more – $697,171 – and earn $490 per week on average.

That means Lower Hutt rates make up only 8.79% of the rent received, so would only take 4.6 weeks of rent to pay.

If you invested in Lower Hutt, that's an extra 5 weeks' rent hitting your bank account, all else being equal.

Put another way, the local council rates are 2.09x cheaper in Lower Hutt than in Waitomo.

The Cheapest Areas

Where are the cheapest rates in the country for property investors?

When you apply this analysis to the whole country, you can see that local rates tend to be cheaper in higher populated areas, like the bigger cities.

Lower Hutt has the country's cheapest rates, followed by Upper Hutt and Napier City.

Wellington City, Tauranga and Hamilton also feature in the top 10 cheapest rates.

It takes less than 5.3 weeks' of rent to pay the local rates in each of the above areas.

Here’s the full list of the top-10 most affordable areas:

The Expensive Areas

Where are the most expensive rates in the country for property investors?

On the other hand, the country's more expensive rates tend to be in smaller towns.

Waitomo district, where rates are the most expensive, has a population of just 9,640.

Each of the other four districts where rates are most expensive has a population under 13,000. They are Hurunui, Ruapehu, Carterton and Gore.

Here’s the full list of the top-10 most expensive areas:

That leads to the question:

Why Rates Are Expensive in Small Towns

Why are rates more expensive in smaller towns and districts?

No matter how many people live within a council area, there are still costs that need to be paid.

You need to pay a mayor, councillors and a chief executive, whether you have a population of 4,690 (MacKenzie district) or 1,695,900 (Auckland).

Smaller council areas have fewer people to spread those costs between.

In addition, a council’s primary purpose is to provide infrastructure for its residents.

That's easier and cheaper if residents live close together as they do in bigger cities.

Exceptions To The Rule

How strong is this trend and are there exceptions?

It's important to note that while this is the trend, it's not the rule.

It's fair to say that cities tend to have cheaper rates. But it’s not fair to claim that all cities have low rates.

While cities like Hamilton, Tauranga and the Hutts (highlighted in the below chart) have high populations and cheap rates, Auckland is the exception.

It has the highest population, but its rates are middle of the pack. They are ranked 30th out of 61 councils in terms of having the most expensive rates.

Similarly, while smaller districts generally have more expensive rates, not all sparsely populated areas have high rates.

While Waitomo, Carterton and Gore (highlight below) have low populations and expensive rates, Mackenzie and Kawerau are exceptions.

For instance, Kawerau has a population of just 7,080. The trend would suggest that council rates would therefore be higher. But, like Auckland, it comes in the middle of the pack. It has the 38th most expensive rates, out of 61. Not bad at all.

Use the table, below, to check the rates on every council district in the country, where there is data.

Data For the Whole Country

What Are The Rates On My Investment Properties?

Use the search function in the table below to check how expensive or cheap the rates are for each council area in New Zealand.

Where to Invest

So Where Should I Invest?

You may be thinking "so where should I invest? Is it in Lower Hutt, since that's where rates are cheapest?"

Not necessarily.

Rates are just one of the seven essential costs you'll pay as an investor. Each of these costs will differ based on the property.

That’s why, if you're evaluating a property purchase, you need to run a cashflow with all costs included.

This allows you to see the bottom line … and know how much a property will earn or cost you per week.

Some in the property investment community argue in favour of investing in smaller districts because they have higher gross yields. While this analysis suggests that is true, it also indicates they have higher costs in some cases.

When running the numbers on an investment property, don't make the gross yield (rent/purchase price) the first thing you look at.

Instead, figure out how much money is left over from the property once all the costs are paid (net yield).

After all, gross yields are vanity, net yields are sanity.

Related Articles

Want To Learn More About Property Taxes?

If you're keen to learn more about property tax, then check out these articles: Top Property Accountants in NZ; Will We See a Capital Gains Tax in NZ?; Beginner's Guide to the Bright-Line Test; and A Guide To Interest Deductibility.


Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.