Do Local Property Taxes Affect New Building Development? Results from a Quasi-Natural Experiment in New Zealand
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.
KeywordsProperty taxes Land tax Development contributions Impact fees Property development
We are grateful to the Lincoln Institute of Land Policy, especially Joan Youngman and Semida Munteanu, for their support of the project on which this paper is based: “Auckland Agglomeration: An Inquiry into the Impacts of Agglomeration, Development Contributions and Land Taxation on Rate and Density of Development”. Arthur Grimes also acknowledges support from the Building Better Homes, Towns and Cities National Science Challenge. We are grateful to a referee who provided several insightful suggestions, and to our research assistants – Marc Reinhardt, Yen Le and Loc Nguyen – for their inputs to the project.
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