Dunedin’s motel rates bill is a tourism tax by stealth

Dunedin motel owners are reporting commercial rates rises of 21% to 40% for 2026/27, and the word they keep using is “blindsided”. That is the right word. Nobody running a motel planned for a cost line to jump by a third in a year, and nobody at the council told them it was coming in language that matched the invoice.

This is what infrastructure pressure looks like when it stops being a slide in a council presentation and lands on a small business’s profit and loss statement. Dunedin wants visitor growth. Its moteliers are the ones being asked to pay for it up front.

The headline number was never the real number

Dunedin City Council sold its 2026/27 annual plan on a 10.5% average rates increase. But according to Business South’s submission on the draft plan, commercial ratepayers as a class faced a 13.6% aggregate rise, with commercial rates revenue climbing from $76.1 million to $86.5 million, driven by a 13.4% jump in commercial capital values at revaluation.

The median commercial property, valued at $720,000, goes from $9,337 to $10,287 in a single year. Motels are not median properties. They sit on large lots, and capital-value rating punishes land footprint regardless of how many rooms are actually filled on a wet Tuesday in July. That is how a “moderate” council-wide number turns into a 40% hit for an individual operator.

The bill lands on the wrong person

None of this is a surprise to the sector. Back in 2019, Hospitality NZ’s Otago branch told the Productivity Commission that most motels are leased, so rates increases fall directly on the operator rather than the landowner, and cannot be recovered on bookings already contracted. Then-branch president Mark Scully described targeted rates and bed taxes as “money grabs” that were “neither sustainable, nor equitable or fair”.

Lincoln University’s Dr Anthony Brien made the economic point in the same 2019 inquiry. In a competitive, dynamically priced accommodation market, levies cannot be fully passed on to guests, so operators end up subsidising visitors out of their own margin. A rates rise on a motel is, in practice, a tourism tax that the tourist never sees.

Nelson already ran this experiment

In 2022, Nelson motel owners used the identical word, blindsided, after a revaluation pushed commercial land values up 31%. One operator saw rates rise 52.44%, from $13,500 to more than $20,600; another faced 37.1% against an expected 5.4% average. Room rates had not moved in step, so the difference came straight out of profit. Four years later, Dunedin is repeating the pattern almost exactly, which tells you the problem is the rating model, not one council’s bad luck.

The irony Dunedin’s moteliers can’t miss

Dunedin’s accommodation sector spent years fighting the other side of this argument. In 2018, motel owners pushed for Airbnb hosts to pay commercial-style rates, as short-term letting income in the city more than doubled to almost $4.4 million in a year. By 2020, then-mayor Aaron Hawkins conceded the issue had “proven to be more complicated” than expected. When Bookabach’s then-corporate affairs director Eacham Curry warned higher rates would lift visitor costs and push tourism dollars elsewhere, Hawkins replied: “I don’t think that’s a reason to not tax a business as a business”.

The motels won the fairness argument in principle. They are now discovering what being taxed as a business means when the tax base is land value and the land is yours.

Growth forecasts are not cash flow

The council’s justification leans on tourism. Its 2024 forecasting assumptions projected visitors rising from 1.972 million to 2.458 million by 2034, while admitting international arrivals were still at 80-85% of pre-pandemic levels and domestic visitor spending had fallen 4.1%. In other words, the council is charging accommodation providers today for a recovery its own documents describe as uneven and unfinished.

That is the sharpest critique here. Councils are entitled to fund pipes and roads. But loading the cost onto whichever sector happens to sit on big, freshly revalued land is not a funding strategy. It is an accident of valuation dressed up as policy.

What comes next

The 2026/27 bills are already issued, so relief this year is unlikely. The real test is the next annual plan. Dunedin could review its commercial differential, phase revaluation shocks over several years, or look honestly at user-pays and visitor levies that put the cost on the people actually using the infrastructure. Doing nothing means more operators quietly absorbing losses until some stop absorbing them altogether, and a city that wants more visitors ends up with fewer beds to put them in.

Sources

• Otago Daily Times: Dunedin motel owners ‘blindsided’ by high rate rises (2026-10-30)
• Hospitality NZ Otago Branch: Submission to the Productivity Commission on Local Government Funding and Financing (2019-02-01)
• Dr Anthony Brien: Response to the Productivity Commission Local Government Funding and Financing Draft Report (2019-08-01)
• RNZ: Nelson motel owner ‘devastated’ after 50 percent rate increase (2022-08-10)
• NZ Herald: ‘They contribute nothing to city marketing’: Motel owners take aim at Airbnb (2018-05-16)
• Otago Daily Times: Rates hike for Airbnb operators on cards (2020-02-09)
• Otago Daily Times: Airbnb-type rates boost draws critics (2020-02-10)