26/10/2011 - 10:08

Underground power raises equity issue

26/10/2011 - 10:08

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Underground power raises equity issue

IS it fair for people who own more desirable real estate to pay extra for underground power because they benefit more appreciably from the resulting increase in value?

The Economic Regulation Authority certainly thinks so, recommending the state government reassess the way it funds the retrospective installation of power lines below the verges of existing suburbs.

Previously, the state government and its electricity network Western Power funded about half the cost of removing above-ground electrical cables from sight and putting them underground, with the local council and homeowners paying the difference.

The ERA report has suggested this 15-year-old program, which had cost $312 million in net present value terms, should change because those in more affluent suburbs have benefitted most from it in terms of additional value to their homes.

The authority’s view is based on analysis showing that, while the average cost of putting underground power per lot was $9,685 and the average benefit in terms of property price increase was $9,962, the variation per suburb was marked. In some cases the average value increase was little more than the contribution from owners and ratepayers – typically around one-third to half the actual cost. In affluent suburbs the case was markedly different with, for instance, houses worth $700,000 or more receiving a value boost of almost $30,000.

The ERA’s proposed response to this is that: Western Power funds between 15-35 per cent of the costs, dependent on the actual cost of the work in the area; and the state funds up to 40 per cent in areas of low income with below average median house prices, and as little as 5 per cent in affluent areas.

Ratepayers – being home owners and councils – should pay as little as 25 per cent in less-affluent suburbs on a sliding scale of up to 80 per cent where properties are worth more than $250,000 above the median house price.

“… there is no justification (on efficiency or equity grounds) for the government to continue to provide a 25 per cent contribution for high-value suburbs that benefit most through improved amenity values, as measured by increased house prices,” the report stated.

However some have questioned the ERA’s proposal for the state to weight subsidies towards lower socio-economic areas based on the value of housing.

Institute of Public Affairs director deregulation Alan Moran said that, while it was not unreasonable for the affluent to pay more, there were other benefits to the state, such as the increased value of rates and stamp duties levied from properties that had increased in value.

Mr Moran said it was possible to argue that the state benefited more from the total rise of this improved asset base.

“If you want to raise the value to the state you should do it in places where there is most value,” he said.

The WA Local Government Association also questioned the report’s recommendations in its response to the ERA’s draft report on the subject.

“WALGA submitted that, given that the program to date has provided a public subsidy to property owners in areas with relatively high property values, it is counterintuitive that as the program is potentially extended to areas with lower property values and lower private benefits that the public contribution should decrease,” WALGA stated.

The City of Belmont also raised concerns about the ERA conclusions.

“The question of whether underground power adds to property values is highly subjective and is particular to property purchasers as to what value they place on underground power and visual amenity on the verge,” the city argued.

“It could also be considered moot given that as more and more properties are connected to underground power, the less likely it will become a sale factor for the property.”

 

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