How can local authorities help older people with housing costs?

Two reports, one from the Productivity Commission and one from Local Government New Zealand, have recently looked at the functions of local government and how these might change to become more efficient and responsive to local needs[1]. This is an important question, but here I want to narrow my focus to look at local authorities in their role of assisting older people with housing costs.

The Rates Rebate Scheme (RR)

This was introduced in 1973, designed to assist low-income and older ratepayers/homeowners having difficulty with housing costs. The maximum RR is $630 a year but the amount granted

depends on income and the level of rates. A single person with New Zealand Superannuation (NZS) as their only income will be eligible for the full rebate if their total yearly rates are $1,050 or higher. A couple with only NZS will get a full rebate if their rates bill is $3,450 or higher. The RRS is not subject to an asset test.

In 2018, the Government amended the Rates Rebate Act 1973 to provide RSS eligibility for residents in licence-to-occupy retirement villages.

The number of RR recipients peaked in 2011 at over 115,000. Since then the total has declined, to 98,000 households in 2017, when 78% were households of New Zealand superannuitants. The decline is related to the fact that the income abatement threshold has not kept pace with increases in the value of NZS payments.

There are other issues which may have reduced the uptake of the RR. One is a cumbersome application process. Ratepayers must apply, generally in person, to their council to receive the rebate and submit a statutory declaration about their income and family composition (often every year). Although ratepayers apply to their local council, central government provides the rebate through the Department of Internal Affairs.

In addition, the RR provides a very small dollar amount (the maximum rate is just over $12 a week) and people on higher incomes may not bother to apply for it. There have been many calls for an increase in the rebate and for it to be indexed to inflation. It is hard to assess at any point in time just how many older people might be eligible.

Overall the RR does provide a means for older homeowners on low incomes meet their rates bills without eating too far into their day-to-day incomes. Many have large rates bills due to the rapidly increasing value of their properties. However, older mortgage-free homeowners are not the group likely to be experiencing the greatest material hardship. The rebate may be seen as inequitable as it is not available to renters who are likely to be worse off financially than homeowners. And owners have access to home equity which could be mobilised to help with housing costs.

Other ways to give assistance

 Local authorities can use other methods to help older people with housing costs. Some add to the RR, for example Kāpiti Coast District Council supplements the RR with additional assistance of up to $350 a year, targeted to the neediest ratepayers.

The Local Government Act allows local authorities to develop a rates remission policy which may waive penalties for late or non-payment of rates.

Rates postponement, under the same legislation, is when a local authority agrees to delay the date of rates payment until a specified time or a specific event occurs, such as the sale of the property. This can help ratepayers who are asset rich and cash poor. Some councils offer postponement of rates for older people if they choose to let their rates be paid out of their estate when they die, or when their property is sold. This is a form of equity release (see my blogs in mid 2014). However, councils may not be keen on this form of assistance as it delays the time when they will receive the rating funds, often by many years.

 

Can rates postponement schemes be improved?

Each council is responsible for its own rates postponement arrangements, if they have them, and these vary greatly. Financial firms have offered reverse mortgages for many years and payment of rates may have been among the uses, of the funds released. Yet the reluctance to take up reverse mortgages is at least partly due to perceived high fees and doubts about the security of the arrangements. The Commission suggests that improved arrangements on a national basis, based on similar principles, could reduce the problems and lead to greater acceptance of rates postponement.

Potential customers are likely to be more attracted to a nationally recognised product designed specifically to facilitate rates postponement and offered by a well-trusted public or private financial entity. A single provider (or a few large providers) are more likely to have sufficient scale to support moderate fees.

The Commission concludes that the RRS should be phased out. Central and local government should collaborate with suitable financial providers to develop, implement and promote an improved scheme. It will be worth following the progress (or otherwise) of this proposal.

 

 

 

 

 

 

[1] Productivity Commission, (2019) Local government funding and financing: Draft report.  Wellington. http://www.productivity.govt.nz

Local Government New Zealand (2019) Reinvigorating local democracy: The case for localising power and decision-making to councils and communities. http://www.localism.nz