Owners of Ottawa homes that increased in value by more than 3.6 per cent over the past four years should brace for an increase in property taxes next year
New assessments on all homes in Ontario take effect in January and will be valid for four years. The assessments are set by the Municipal Property Assessment Corporation, an agency created by the Ontario government.
Perhaps to the surprise of many, MPAC has decided that the average residential property in Ottawa increased in value by a mere 3.6 per cent between 2011 and 2015.
If your home is deemed to have risen in value by 3.6 per cent or less over the past four years, you face no increase in property taxes for the next four years due to the new assessments. However, there will probably be inflationary increases for all homeowners levied by Mayor Jim Watson and city council.
MPACâ€™s estimate of an average increase of 3.6 per cent in Ottawa home values over the past four years is a surprise because it is well below the increase in resale prices as measured by the Ottawa Real Estate Board. The boardâ€™s figures show the average price of resale homes rose from $343,000 in 2011 to $368,000 last year â€“ a jump of about seven per cent.
Ottawa lags way behind most of Ontario in the rate of increase in housing prices. According to MPAC, housing prices throughout the province rose by an average of 18 per cent over the past four years.
The new assessments will be phased in over four years, meaning the average assessment in Ottawa will rise by 0.9 per cent each year from 2017 to 2020.
A recent column in the Ottawa Citizen suggested that property taxes on expensive homes are already "sky high" due to rising assessments. It said this presents a challenge for older people on fixed incomes.
These people may have lived in the home for years, the columnist wrote, adding: "A market-value-based system has driven each fresh assessment â€“ and the subsequent taxes â€“ sky high."
I beg to differ. Property taxes for many homeowners are rising â€“ but only in line with inflation.
The system of basing property taxes on a homeâ€™s value is revenue-neutral. Thus, homeowners are only hit with an above-average increase in their property tax if the homeâ€™s value rises by more than the city average.
According to the Citizen, there are now more than 2,700 homes in Ottawa each valued at $1 million or more.
At the cityâ€™s current level of taxation, the owners of homes estimated to be worth $1 million now pay about $10,000 a year in property tax. Thatâ€™s about one per cent of the homeâ€™s value. And this percentage is declining as property values rise across the city.
Itâ€™s often said that seniors are hard hit by the high level of property taxes. Itâ€™s sneaky to argue the case for seniors if you are not a senior. Iâ€™m a senior, and Iâ€™m strongly in favour of property taxes.
Hereâ€™s a thought: the property tax is the fairest of all taxes. People â€“ especially rich people â€“ often find ways to lower their income taxes. Anyone who travels outside the country avoids Canadaâ€™s high sales taxes while they are away. But no homeowner can escape property tax.
Surely people living in $1-million homes â€“ seniors or not â€“ should be able to pay $10,000 a year in property tax. If theyâ€™re seniors, they probably paid off the mortgage years ago. If they are short of cash, why not borrow a little of the equity in their home? Their children probably wonâ€™t like it, but too bad if they eventually inherit somewhat less than a million dollars.
I daresay that people living in the average-priced home â€“ with a mortgage to pay and kids to feed â€“ have just as much difficulty finding the money to pay their property taxes as those seniors and others living in their million-dollar homes.
The biggest whiners about property taxes seem to be those living in trendy neighbourhoods (which shall remain nameless here) where house values are rising much faster than average. These people love living in a hot neighbourhood. Presumably they are delighted that their homeâ€™s value is rising faster than the city average. Yet some seem to begrudge any increase in their property tax that is due to the above-average increase in the homeâ€™s value.
For three of the past four years, these people have had their property taxes subsidized by those whose homes showed a smaller increase in value or actually declined in value. Thatâ€™s because of an inherent unfairness in the property-tax system.
Current assessments represent each homeâ€™s value in 2012. But any increase in assessments was phased in over the last four years. It is only this year, 2016, that the homeowner paid taxes on the full assessed value. My guess is that the Ontario government defers full implementation of the property tax increase to get the whiners off its back.
So, if you think your home has increased in value by more than 3.6 per cent in the past four years, get ready to whine about a real increase â€“ not just an inflationary increase â€“ in your property taxes over the next four years.
Michael Prentice is OBJâ€™s columnist on retail and consumer issues. He can be contacted at firstname.lastname@example.org.