Suburbs stuck with higher tax bills as assessment increases phased in
Many Ottawa residents living inside the Greenbelt face a significant hike in property taxes over the next four years as a result of new provincial assessments.
Most suburban Ottawa residents – those living outside the Greenbelt – will see little or no increase in their property taxes due to reassessment.
These are the major findings of a neighbourhood-by-neighbourhood analysis by OBJ of what has happened to housing prices in Ottawa since 2007.
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Citywide, home prices have increased on average by about 25 per cent since then. But in some urban neighbourhoods, the average price has soared by more than 40 per cent.
As a rough guide, if your home has increased in value by about 25 per cent in the past four years, your property taxes will continue to be about what they are now – plus whatever city council adds to its net taxation requirements from new spending. Mayor Jim Watson is aiming for a tax increase of less than 2.4 per cent next year.
If your home has increased in value by less than 25 per cent, your share of the property tax burden will go down and you might actually pay less in property taxes.
If your home has gone up in value by more than 25 per cent, be prepared to fork out more in property taxes, while considering yourself lucky to have made a good investment in your choice of home and neighbourhood.
DEMAND SHIFTS
Some of the biggest percentage increases in prices are in neighbourhoods that, until recently, were not considered trendy. For example, home prices in the Hintonburg and Mechanicsville area, once a depressed neighbourhood just west of downtown, jumped by more than 43 per cent in the four years between 2007 and 2011.
And in the Queensway Terrace North and Whitehaven neighbourhoods of the “old” west end, the average sale price soared by more than 45 per cent, from about $229,000 to $334,000. Real estate agents say one factor pushing up prices there is the proximity to Lincoln Fields Transitway station, with frequent, rapid service to and from downtown.
Average house prices have increased in every part of the city in the past four years except Rockcliffe, the leafy urban village where many of Ottawa’s most expensive mansions are located. But Rockcliffe is a special case, real estate agents say, because so few homes are sold there each year. One blockbuster sale could change the picture significantly, and there were no blockbuster sales last year.
In 2011, there were 25 homes sold in Rockcliffe at an average price of $1,163,940. That was 6.7 per cent lower than the average price in 2007.
This may not be good news for the upper-crust folks who inhabit Rockcliffe. But it will mean they will get a break on their property taxes for the next four years.
Brent McElheran, an Ottawa real estate agent based in west-end Ottawa, inside the Greenbelt, says: “These numbers indicate that the market continues to be strong within the Greenbelt. They also show that Ottawa has been a fairly stable market over a four-year period.
“As far as Rockcliffe is concerned, the only factor I can think of is that the city and the community association make it difficult to demolish existing homes, and that could have aided in lowering the average sale price.”
THE TAX BILL
Property taxes are calculated as a percentage of a home’s value and pay for all city services plus the costs of public schools. Currently, the residential property tax rate is about 1.2 per cent, meaning that a homeowner pays $1,200 annually in property tax for every $100,000 of the assessed value of his or her home.
Are the assessments fair? There is strong evidence that they are. They are done by an independent agency of the Ontario government called the Municipal Property Assessment Corp.
Marcel Clement, MPAC’s municipal relations representative, says the assessments closely reflect what is happening in the marketplace, as measured by sales on the Ottawa Real Estate Board’s Multiple Listing Service.
The average sale price on the local MLS rose by 26 per cent between 2007 and 2011. Mr. Clement told OBJ he expects MPAC’s average assessment increase to be about 25 per cent. The new assessments – reflecting every home’s estimated resale value on Jan. 1, 2012 – will be mailed to the city’s 260,000 homeowners in October.
PLAYING POLITICS
Where there may be unfairness is in the method set by Ontario’s Liberal government to implement the new assessments.
The assessments will be phased in over four years, starting with payment in 2013. Thus, a homeowner will not feel the full impact of an above-average hike in assessment until 2016.
The McGuinty Liberals introduced this system several years ago after howls of protest from voters whose homes had risen in value by more than the average – meaning an increase in their share of property taxes.
From Mr. McGuinty’s political perspective, the system seems to have worked. At least, he’s not getting as much heat from those lucky enough to live in homes that have risen in value faster than average.
But someone has to pay for this tax break. Guess who? The rest of us – that is, everyone whose home value has not increased by more than the average of 25 per cent in the past four years.
Here’s an example of two homeowners, one living in a home assessed at $400,000 and the other at $600,000. In the reassessment, the first home is given a revised value of $500,000, an increase of 25 per cent. The more expensive home is reassessed at $800,000, an increase of slightly more than 33 per cent.
If you do the math, you’ll find this means a shift of several hundred dollars in the property tax bill from one homeowner to the other. But this shift takes place gradually over four years, to the benefit of the owner of the $800,000 home and to the detriment of the owner of the $500,000 home.
Meanwhile, all of us pay a higher property tax rate during the first three years. This is to make up for the revenue lost by the city because some homeowners are not required to pay their full share until the fourth year.
The analysis of what’s happened to Ottawa housing prices in the past four years suggests urban homeowners will benefit from the phase-in. Suburbanites, living outside the Greenbelt, will pick up the tab.
