Why your council rates keep rising — and what's actually driving it

Rates went up again. They went up last year too. And the year before. The cumulative increase across all New Zealand councils over the three years to 2025/26 averaged 35%. In 2024/25 alone, rates inflation hit 12% — more than double the consumer price index (CPI).

The obvious response is frustration. The honest response is more complicated. Councils aren't raising rates because they've suddenly become reckless. They're raising them because problems that were quietly deferred for two or three decades have run out of road.

Decades of deferred maintenance, arriving at once

New Zealand councils weren't legally required to fund depreciation — to set aside money to replace ageing assets — until 1996. Before that, the cost of replacing a pipe or a road simply didn't appear on council books as an obligation. Assets wore out quietly, and rates stayed low.

From the late 1980s through the 1990s, there was significant underinvestment. Infrastructure built in the 1950s, 60s, and 70s — water mains, wastewater systems, roads, stormwater drains — aged without a funded replacement plan. The communities that built those assets got decades of service without paying to replace them. Today's ratepayers are picking up that bill.

The Auditor-General's office has been flagging this for years. In its review of the 2024-34 long-term plans, it found councils are still only planning to fund renewals at around 85% of depreciation — meaning they're still falling slightly behind, even while spending at record levels. The gap is smaller than it was. The backlog isn't gone.

Construction costs and interest — a double squeeze

Even setting aside the infrastructure backlog, the cost of doing the work has surged — and not at the rate most people assume. When you see a double-digit increase on a card and mentally benchmark it against a CPI sitting at 2–3%, the council's number can look indefensible. But councils don't buy groceries. They buy bitumen, concrete pipes, structural steel, and heavy machinery, and the cost of that civil-construction work is tracked by its own measure — a local government cost index (LGCI), the sector's equivalent of the CPI. Because in the absence of an official index Infometrics built its own, and found councils' capital costs rose by more than headline household inflation over the three years to 2024. That is exactly why a roading or pipe-renewal card can spike far beyond what the household CPI would lead you to expect — you're looking at construction-cost inflation, not supermarket inflation.

Layered on top: interest. Councils have borrowed heavily to fund infrastructure pipelines. In the 2024-34 long-term plans, forecast interest expenses are 108% higher than in the 2021-31 plans. Not 8% — 108%. For every dollar councils once budgeted for debt servicing, they're now spending two.

When a council builds a $100 million pipe network, it doesn't try to collect $100 million from this year's rates — it borrows the money. The build itself is capital expenditure (capex), and it sits on the books as debt rather than landing on your bill all at once. But the interest on that debt, and the annual depreciation of the new asset, are operating expenditure (opex) — and operating costs have to be funded out of rates straight away. So when interest rates climb, the council's “mortgage” payment climbs with them, pushing up the baseline rates demand before a single new project even breaks ground.

That doesn't show up as a single line item on your rates bill. It shows up as an increase across everything, because a larger share of rates revenue is now going directly to service debt rather than fund services.

Three Waters: two governments, one unresolved problem

Water infrastructure — drinking water, wastewater, and stormwater — is New Zealand's single largest local government cost. Councils spend around 36% of their capital expenditure on water. And much of it is old, under-maintained, and approaching end of life.

The previous government's answer was Three Waters: consolidate all water services into four large national entities, taking the liability off council books. Councils fought it. Communities opposed it. The incoming government repealed it before it could be implemented.

The replacement — Local Water Done Well — takes a lighter touch. Councils can transfer water services to separate council-controlled organisations, or keep them in-house with ringfenced financing. Of the 68 councils responsible for water services, 38 have opted to transfer to new entities. The rest are retaining ownership.

Either way, the infrastructure problem itself didn't change. Pipes that needed replacing under Three Waters still need replacing under Local Water Done Well. The question was always who would pay — and the answer, whichever government is in office, is ratepayers.

The reform also left behind more than old pipes. Under Local Water Done Well, councils must meet strict drinking-water and environmental standards enforced by Taumata Arowai, the water services regulator established in 2021. Meeting them isn't a one-off capital project — it's a standing operating cost: mandatory water testing, catchment and network monitoring, and treatment upgrades to hit compliance thresholds. That regulatory overhead lands directly on the water line of your rates bill, every year, no matter how the service is structured. “Three Waters fallout” isn't just past political friction; it's an active, ongoing compliance cost.

The water reform debate was about governance structure. The underlying infrastructure deficit was never in dispute. Repeal doesn't make old pipes young.

Insurance costs and climate exposure

Council assets — water treatment plants, community facilities, coastal infrastructure — are increasingly exposed to climate-related events: flooding, storms, rising seas. Insurers have repriced that risk sharply. For councils in earthquake-prone regions, seismic insurance premiums have also risen steeply.

These costs are operational, not capital. They show up in the annual budget and flow straight through to rates. There's no infrastructure project to point to, no ribbon to cut — just a higher premium that councils have no real option to avoid.

The funding gap New Zealand councils face on their own

New Zealand councils are unusually exposed compared with their international peers. In Australia, federal and state governments subsidise a much higher proportion of council infrastructure costs — averaging 64% to 79% of capex in Victoria and New South Wales respectively. In New Zealand, central government subsidies cover around 42% of council capital expenditure.

The gap is filled by rates. Every dollar that isn't covered by government subsidy or user charges becomes a rates dollar. New Zealand's model puts a larger share of infrastructure cost directly on local property owners than most comparable systems.

Rate caps and the risk of repeating history

The government's response to rising rates is a cap: general property rates increases will be limited to 2–4% per year. The enabling regulations become law in January 2027, with the caps commencing from the 2029 financial year. The intention is to relieve pressure on households.

The risk is it creates the same problem all over again. S&P Global Ratings, which rates 24 New Zealand councils, noted that 18 of those councils were projecting rate increases above 4% in every year from 2025 to 2029. None of the 78 councils delivered a sub-4% increase in 2024/25.

If councils can't raise rates and can't cut services, the arithmetic points to more borrowing and more deferred maintenance — the same path that created the current backlog.

The problem with deferred infrastructure isn't that it disappears. It compounds. A pipe that costs $1 to fix today costs $4 to fix once it fails.

The rule that turns costs into rate rises

Underneath all of this sits a legal backstop that explains why rising costs can't simply be absorbed. Section 100 of the Local Government Act 2002 — the balanced budget requirement — obliges every council to set each year's projected operating revenue at a level sufficient to meet its projected operating expenses. Unlike central government, a council generally cannot run an ongoing operating deficit or borrow to cover its day-to-day running costs.

So when interest bills, insurance premiums, and water-compliance costs rise — all of them operating costs — the council is left with only two lawful levers: cut services, or raise rates. Seen through that lens, a rates increase often isn't a discretionary policy choice councils reach for. For the operating budget, it's frequently the only legal option left.

The honest answer to the frustration

Rates are rising because councils are trying, belatedly, to address a structural deficit that built up when rates were kept artificially low for too long. They're rising because construction costs, interest rates, and insurance premiums have all moved against councils simultaneously. And they're rising because New Zealand's funding model places an unusually high share of infrastructure cost on local ratepayers.

None of that makes an 12% rates increase easy to absorb. It does mean the cause isn't council waste. And it means the solution — if there is one — requires more than a cap.