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Sunday, May 2, 2010

Chasing a 'phantom value'

The City of Greater Geelong is increasing rates and levying Special Charges on the basis of a 'phantom value' whose existence it believes in but can't prove.

The 'phantom value' haunts CoGG's current proposals to re-zone parts of Drysdale & Clifton Springs. These proposals - in Amendments C103 and C194 to the Greater Geelong Planning Scheme - will re-zone areas as high-density housing ('R1'), triggering rates rises for many local people. (See earlier posts on drycliftdays under the title 'Re-zoning Drysdale & Clifton Springs'.)

CoGG argues that increased rates will merely reflect increased property values, but gives no evidence that this 'phantom value' exists. CoGG's belief in 'phantom value' leads them to charge rates on a re-zoned rural block (e.g. 2-5 acres) as if the owner has subdivided their block according to its new status as high-density housing - even if they haven't!

Of course, any 'phantom value' can be realised only when a re-zoned property is sold (generally following a sub-division). Until then, the property is no more valuable than it was before it was rezoned, yet its owner now faces higher rates bills.

'Phantom value' also haunts CoGG's current proposals to levy a Special Charge of thousands of dollars on landowners in the Central Road of Clifton Springs to pay for a drain for a proposed retirement village. (See 'A "Special Charge" for developer's drains' on drycliftdays.) As if that wasn't enough, CoGG also wants to re-zone the Central Road area as high-density housing and raise landowners' rates accordingly. CoGG argues that both the Special Charge and the re-zoning will increase property values - but gives no proof that this 'phantom value' exists. Indeed, CoGG cannot prove that either the Special Charge or the re-zoning would raise property values sufficiently even to cover the costs to each landowner, let alone generate a profit. Further, many landowners in the Central Road area say that they don't want to realise the 'phantom value', because they don't want to subdivide their homes and sell them.

The 'phantom value' is haunting CoGG's proposal to levy property owners in parts of Drysdale a Special Charge to pay for new footpaths outside their properties; and it also haunts CoGG's proposal to levy a similar Special Charge on property owners in parts of Ocean Grove.

'Rates increase only after a sale', says CoGG
In correspondence with CoGG officers about Amendments C103 and C194, DCSCA has been told that the 'phantom value' is invoked only when a landowner wishes to sell re-zoned land; until then, the rates on the property remain as they were before it was re-zoned. However, this is only half the story.

CoGG's policy is to increase rates after re-zoned land is sold OR after a rates review:

'Council valuations and rates will change in line with changes to sales values, not necessarily immediately in line with zoning. Although there is a rezoning, where the actual land use does not change and there is no other reason to do a supplementary valuation (e.g. building works) it has been Council practice not to change the valuation of a property until there is a sale or subdivision of the property or until the next municipal revaluation is completed. The last municipal revaluation was done as at 1 January 2008 and revaluations are conducted every second year.'

(This came from the CoGG website about Armstrong Creek, but it's general policy, not restricted to Armstrong Creek.)

In other words, if CoGG re-zones your property, you have a maximum of two years before your rates are likely to increase. People whose properties are targeted in Amendments C103 and C194, together with people in the Central Road area, should start saving up!

What can be done?
DCSCA accepts that when an area is rezoned as 'R1', landowners in the area may, if they wish, subdivide and sell parts or all of their property; and that if they do so, they may make a greater profit than if the land hadn't been re-zoned. However, DCSCA believes that current owners of re-zoned land should not have to pay increased rates until they benefit from owning that re-zoned land - i.e., until they sell it for an increased profit.

Similarly, we accept that installing new infrastructure (e.g. drains or footpaths) in an area may increase the value of properties in that area, which may be reflected in increased property prices. However, DCSCA believes that current owners of property in that area should not have to pay (via a Special Charge) for the new infrastructure until they benefit from owning property with an increased value - i.e., until they sell it for an increased profit.

How can this happen? DCSCA proposes that when a property is re-zoned and/or incurs a Special Charge, a caveat should be added to the deeds of that property. The caveat should state that:
1. When the property is sold, its rateable value will be reviewed and may be increased. Until the property is sold, its current owner (or her/his agent) will continue to pay rates as if the property had not been re-zoned.
2. When the property is sold, the current owner (or her/his agent) shall pay the proportion (without interest!) of any Special Charge allocated to the property, provided that this is covered by the increase in the property's price due to the new infrastructure associated with the Special Charge.

In this way, whoever benefits from a re-zoning or from new infrastructure contributes appropriately when the 'phantom value' associated with it becomes real value - in the form of increased profits from the sale of the property - and not before.


  1. I would be interested to know how DSCSA will move forward in putting these ideas to the CoGG. This is a major issue for all ratepayers as we all potentially face the phantom value. Well done raising this issue so clearly in this post.

  2. Thanks, Glenda. We put our proposal to Cllr. Rod Macdonald today (7 May), at our latest quarterly meeting with him. He said that the proposal could be considered by CoGG's internal Submissions Panel when it meets to hear submissions concerning the Central Road 'Special Charge'. DCSCA is scheduled to appear before that Submissions Panel and we will present our arguments strongly!