Land valuations in Wonderland: correspondence from Alice

The setting: Alice has been invited by the Mad Hatter to attend a morning tea meeting with two representatives of the Wonderland State Department of Natural Resources to discuss property valuations.

The reason: she wished to discuss the 40 per cent increase in her property valuations, with which she was not impressed. Alice was concerned about this hike in the valuation because two other taxes are based on this valuation: land tax (a state tax), and rates (a council tax). While she acknowledges taxes are a necessary evil, she has an issue with taxes that are applied inequitably, seeing these as based on a system of assessment that appears flawed.

The result: By the end of the meeting, Alice was even less impressed by the attitude of the Mad Hatter's representatives.

A valuation is assessed on the value of the unimproved capital value (UCV) of a property. This is the value of vacant land prior to any improvements such as a dwelling, fencing, dams, services, and retaining walls. If a valuer were to take an allotment of land, objectively assess its value at $xxx a square metre and apply this same rate to all land in that suburb, all would be well but this does not happen. Instead a valuer uses the vacant land sales figures for a suburb to establish a bench-mark for valuations. This appears logical until seen in practice. In outer suburban housing estates where land is in plentiful supply, lots are similar in size and outlook, and numerous sales occur, statistics can easily provide a realistic and reasonable valuation of unimproved land. In the 'burbs, the law of supply and demand maintains its own equilibrium, keeping prices and increases fairly steady. There are not the 40 per cent plus increase in valuations that Alice sees with inner-city and coastal property. In the 'burbs, discrepancies in valuations rarely occur, if ever, so all property owners end up paying similar rates and land tax assessments.

Is it the same for property owners who own property in inner-city and coastal areas? Are their valuations as equitable, fair and reasonable? Do property owners in the same street receive comparable valuations; and therefore pay similar rates and land taxes? Alice's research into inner-city valuations suggests discrepancies occur and pre-2004 the Department of Natural Resources has been recalcitrant in picking up these discrepancies. Alice believes the fault lies in the current system of assessment which cannot be applied across the board.

There are several reasons values are distorted in inner-city valuations. Once again, valuations are based on the sale price of vacant land. However inner-city land sales are few in number and recent sales may not represent a true cross-section of land in the area. Unlike an outer-suburban estate where land is similar, inner-city land is often unique with rarity, view, address, shape, and land area factors being significant in the eventual sale price. This makes it more difficult for a valuer to set a benchmark based on sales of unimproved land.

Inner-city land values are affected by demand, council regulations and snobbery. These are subjective factors, not objective ones so how can one reach an objective conclusion? In recent times, rare inner-city land with views is in such demand that prices have achieved "out of line" prices. Simultaneously, less desirable land that flooded in 1974, has increased substantially in value due to scarcity. In future years property above 450 square metres with a 15 metre plus frontage will become more valuable. Why? Factors involve the effect of council regulations governing sub-divisions, renovations and removal of property in heritage-listed areas. Other factors are the GST and shortage of building industry workers. Another is the ongoing cost of maintaining or updating a pre-1945 home such as a Queenslander. The end result is astute buyers will seek out land, pay whatever it costs and end up with a home that costs the same as renovating a Queenslander, yet is more energy efficient, better suited to contemporary life-style, quieter acoustically and has lower on-going maintenance costs. This type of demand creates aberrations in sales figures, setting benchmarks that do not necessarily reflect the value of every property in the area. Strangely, valuers say it does, yet real estate agents and locals call these ridiculously high sales "out of line sales" and describe the buyers as "trailblazers".

At the meeting, there was no logical reply given to Alice's revelation that these discrepancies occur within just one inner-city suburb. In one street, the UCV of property is calculated at $235,000 (for 463 square metres), $185,000 (for 556 square metres) and  $162,500 (for 519 square metres), with the value per metre ranging from $263 to $507. In the same street the value per square metre ranged from $263 to $507. In another street, two adjacent properties with similar slope, aspect and views are valued at $666 per square metre and the other at $475. In another street, Alice found a property that she regarded as more valuable because consumers often demand elevation, breezes and level land yet it was valued at $583 per square metre while a steeply sloping property Alice considered inferior was valued at $741 per square metre.

How can state valuers justify these discrepancies? Only the Mad Hatter knows. The Mad Hatter's Representatives talked to Alice about corner allotments, elevation, large 809 metre square blocks having less value per square metre than smaller 405 metre square blocks. In one case, the subjective value of a view was ascertained by valuers through "drive by" and standing "kerbside". It all seemed like a lot of gobbly gook to Alice who was waiting for the Queen of Hearts to appear and say "off with their heads".

Instead the Mad Hatter's Representative told Alice her valuations would stand because if you could knock down the worker's cottage on Alice's properties in a heritage-listed area, she could sell the land to someone for a hugely exorbitant amount. Unfortunately none of the mad Hatter's Reps were making an offer Alice couldn't refuse. And thank you, Alice, because you researched so well, the Mad Hatter's representatives will use your information to increase the valuations on all those naughty people who have not been paying their dues because our valuers missed the discrepancies within the system. (Well actually, they didn't say the last little bit).

So if you find your valuation dramatically increases in 2005 you know whom to blame - dear Alice. The Department Dormice would probably never have found these discrepancies in a million years or more if Alice had just kept her mouth shut.
The final word from Alice is "Sorry, fellow tax payers. Sometimes good intentions back fire when you deal with bureaucrats."