Randall Denley: A costly property tax reckoning is due for Ontario homeowners

Property taxes are a matter of great political sensitivity in this month’s Ontario municipal elections. Top candidates in major cities say they will minimize increases. It’s a popular promise, but there’s a property tax reckoning due that ratepayers can’t keep avoiding.

In Toronto, Mayor Olivia Chow is seeking re-election with a promise to keep tax increases near the rate of inflation. Her opponent, Brad Bradford, offers a one-year tax freeze. Ottawa Mayor Mark Sutcliffe has promised two years of increases limited to 2.5 per cent if re-elected. Even Hamilton Mayor Andrea Horwath, a former Ontario NDP leader, vows to keep tax increases below the rate of inflation if she gets back in office.

Unfortunately, there’s a major issue lurking just below the surface, one that will upend the stability Ontarians are being promised. Property taxes in the future will go up substantially for some, down for others. It’s only a question of when.

The property value assessments that municipal taxes are based on are wildly outdated and Premier Doug Ford has failed to come to grips with the problem. In fact, he started it.

Ontario properties had typically been reassessed every four years, with the results phased in over the following four years. As a result, people whose property values went up more than average paid higher taxes and those below average got a tax reduction.

There should have been an updated assessment in 2020, but Ford put it off, citing the pandemic. That was reasonable, but he kept delaying the timing of the next assessment. There still isn’t a date set, even though the average home price in Ontario has gone up by 91 per cent since the last assessment in 2016.

Due to Ford’s inaction, Ontarians pay property taxes not on the value of their house or condo today, but on what it was worth back in 2016. It’s as if time stopped a decade ago. Even more bizarre is that Ontario’s property assessment corporation has to determine the value of new homes by trying to figure out what they might have been worth in 2016.

The Municipal Property Assessment Corporation (MPAC) runs this time-travel exercise. The non-profit entity gets almost all its $262.5-million budget from municipalities — in other words, from Ontarians’ property taxes. Toronto alone pays over $51 million and Ottawa $15.2 million.

Ford has left himself with no easy choices. If he goes back to the old system now, a decade of price inflation will leave some awfully big tax increases for those who have done well in real estate. That’s a problem for the premier, who likes to boast that he has never raised taxes. Even if he isn’t raising them directly, he’s likely to get the blame.

Ford could continue to ignore the problem, but that would mean people with inflated home values would keep paying less than they should while those whose home price increase is below average would pay more than their share.

What if there were another way to fix this, one that would make Ontario property taxes simple, equitable and predictable?

Let’s start with simplicity. Ontario’s property assessment regime couldn’t be much more complex. It uses 200 criteria to determine a property’s value. The main ones are location, lot size, square footage, age and quality of construction. Also in the mix are whether homes have pools, fireplaces, garages, and whether the lot is considered premium. With about 5.6-million residential properties to assess, it’s a mountain of costly busy work.

The theory is that people with more expensive houses should pay higher taxes, but why should people pay for fire service, roads, transit and police based on perceived wealth?

The trouble is that house value is a poor proxy for wealth. What about the person who bought a modest family home 50 years ago and has seen the value shoot up because they live close to downtown? The house might be worth a lot, but that doesn’t help pay the taxes, especially if the owner lives on government pensions.

The connection between house value and the consumption of municipal services is even weaker. Do people who live in expensive homes have more house fires, make more police calls or use transit more frequently? Certainly not the latter.

Everyone has equal access to municipal services. It follows that every residential property should pay equal taxes, too.

Dividing the municipal residential property tax requirement by the number of housing units would mean adjusting taxes up for some and down for others. The assessment system has the same effect, but the difference is in the end point.

If Ontario phased in equal property taxes over several years the province would reach a point where assessment-driven tax fluctuations and most of the assessment bureaucracy would be eliminated. Taxes would only rise by the percentage approved by municipal councils. That stability and predictability can never be delivered in an assessment-driven system.

National Post

randalldenley1@gmail.com