Dear Campbell Live: market price beats Capital Value every time

Did you watch Campbell Live last night? If not, you missed out on a doozy of an article:

Campbell Live Facebook

“Is the Government profiteering from Auckland’s skyrocketing housing market?” their Facebook admin ominously asked yesterday.

The New Zealand Transport Agency recently put up for sale several of their Mt Albert properties. One of them had a Capital Value (CV) of $420,000, and as the above teaser suggests, the NZTA asked for a fair bit more than that.

Here’s a link to the Campbell Live article for your perusal.

So is the Government profiteering from these house sales? We should all jolly well hope so.

There are three important points to consider here.

Firstly, the Government owns assets on behalf of you, me, everyone. Asking for the market price doesn’t rip off the buyer – but asking for less would definitely be ripping off the New Zealand taxpayer.

If this house was sold for what the guy in the article wanted to pay, that means a lower return for us, and less money to spend on public services.

Secondly, to sell the house for lower than market value makes it likely that whoever bought it will on sell it for the higher, market price. Why should the Government let the buyer profit, when they can sell it themselves at that higher price and put the money to use on our behalf?

Thirdly, despite the reporter’s constant, grating referrals to the house’s Capital Value throughout the article, there is plenty of doubt out there that CV is an accurate estimate of a house’s value.

What exactly is CV? According to Quotable Value (QV), CV is based on “the assessment of the probable price that would have been paid for the property if it had sold at the date of the last general revaluation.” CV forms one part of the Council Rating Value (RV) formerly known as Government Valuations (GV), which includes Land Value (LV) and any improvements to the land. So, in short, the media focuses too much on RV, aka GV, which consists of CV plus LV. Ok?

The point is, a house’s Capital Value is worked out by a computer every three years based on what properties of similar size in the area have sold for. It therefore ignores any improvements to the property and is almost always out of date. As anyone involved in real estate can tell you, the Auckland market has shifted big time over the last three years.

Alistair Helm recently shared his views on why CVs should be disregarded – it’s definitely worth a read.

 

Finally, to all those involved in last night’s article, the real estate market is just like any other market; a sale happens when a seller’s asking price matches what a buyer is willing to pay. Of course other factors play a huge part in deciding what that price will be; at the moment it’s a lack of supply that is driving up the price and making it very much a sellers’ market.

If the NZTA had sold the house cheaply they would be doing you, the taxpayer, a grave disservice. Much like the Campbell Live article.

What do you reckon? Let us know below or on Facebook.

4 thoughts on “Dear Campbell Live: market price beats Capital Value every time

  1. More sensationalism from Campbell Live. I guess we should be thankful the artivle was not about the Chch Earthquake for a change. As a taxpayer i want the govt to get maximum dollar. House prices are and should always remain market driven. There are plenty of places in NZ where houses are cheap.

    You are correct CVs and QV for that matter are pointless. The value of a property is whatever someone is prepared to pay and the vendor is prepared to accept.

  2. Pingback: Changes in house insurance – will it change our view of a property’s CV? » Happy Homes NZ

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