The Decibel - What’s driving property tax hikes in big cities?

Episode Date: January 25, 2024

Cities in Canada pay for most of the services they provide with property taxes. What homeowners are charged in property taxes – and how much that goes up or down with each budget – has become a political statement, as well as a rallying cry for affordability.Urban affairs reporter Oliver Moore gets at the numbers behind the latest property tax hikes across the country, telling us what they’re paying for, why they are mostly going up – some, like Toronto’s, way up – and what other tools cities have to raise the money they need for services like garbage pickup and park maintenance.Questions? Comments? Ideas? Email us at [e-mail]

In cities across Canada, property taxes are increasing. This happens often, but this year, most major cities in the country have proposed a significant tax hike or have already passed it. These taxes are important. They help municipal governments fund everything from public transit to police services and garbage pickup. But on top of inflation, high interest rates and the cost of living, people are worried about another strain on their finances. Today, The Globe's urban affairs reporter, Oliver Moore, tells us why so many cities are hiking their property taxes and what other options cities could turn to to keep everything running. I'm Maina Karaman-Wilms and this is The Decibel from The Globe and Mail.

Oliver, thanks for being here today. My pleasure. I think we should just start with what is a property tax for and what does the money raised from it actually go to pay for? Well, I think the nuts and bolts of city services, you know, police, transit, fixing potholes on your roads, the really basic functions of a city are traditionally what property taxes are for. And they still cover that. of mission creep over the decades where cities take on other responsibilities, either because they think it's a good thing to do, or because city councillors want to be heroes to some particular cause, or because other levels of government have dropped responsibilities on cities and the city is the last resort and no one else will do it if they don't. So that would mean that the city is paying for more than in certain circumstances over time.

Definitely. And is the rate of the property tax, is that the same if you own a house or a condo or an apartment? How does that work? No, it's incredibly complicated. But generally speaking, for historic reasons, apartments are taxed at a higher rate than single family homes. So why was that? It's a very complicated history. The cynical view is that homeowners vote and apartment dwellers don't. Wow. The slightly less cynical but also probably valid view is that cities wanted to incentivize houses and house ownership

as a policy decision. And people in apartments were kind of given a short shrift. Though that is changing. I mean, Edmonton last year killed a 50-year policy that taxed apartments

higher than houses. And so they've moved away from it. Toronto is converging. Other cities are trying to address this. But it is for a long time been the case that houses are taxed at a different lower rate than apartments. Fascinating. Okay. And businesses also are paying property tax as well, right? Definitely, yeah.

Okay. So it sounds like this is complicated when we get into these numbers, but do we have a sense of the range of rates that we see in cities across Canada? Yeah. And though I think rates are very difficult to talk about because often, of course, they're a very small number. It's 0.6 or 1.1 or something like that. I think it can be easier to talk in terms of what a house of a certain value, owner of a house of a certain value would pay. If you own a $1 million house or home, in Toronto, you'd pay, and I have to preface this to say that there's all these extra charges sometimes. So by property tax and loan, you'd pay about $5,060. Per year?

Per year. Okay. Vancouver, that $1 million property or home, sorry, you'd pay about $2,800. Calgary, $6,500. Winnipeg, $12,000. Huh. Ottawa, $11,000.

And Hamilton, almost $12,000. But as I said, 11,000, and Hamilton, almost 12,000. But as I said, in many cases, I mean, Toronto's is low, but they also add on a garbage charge. They add on a sewer charge. There's the land transfer tax, which some people argue is a form of property tax because as people move, they pay this lump sum. Other cities do similarly. I mean, Calgary has a city tax and a provincial tax. Ottawa, Toronto, and Hamilton all add on a

provincial education tax. The number can grow from there, but even with the bare property tax, there's still a huge range. You get Toronto about $5,000 for a million-dollar home, Winnipeg about $12,000 for a million-dollar home. It's quite a difference. Yeah, that's a big difference. Okay, let's talk about the news of the increase of property tax, because recently a number of cities across the country have proposed a property tax hike. Toronto is one that has, and it's proposed a 10.5% hike to the city's property tax, which is currently 0.6%. So this is not going up to 10.5%. It's just an increase of 10.5% on 0.6%. But it is the first increase in double digits. And a lot of people have said that's a big number, Oliver. So can you just put that into context, though? Compared to other cities

and other hikes, what does this mean? It is a big number, in part because Torontonians have been accustomed to many years to very low property tax increases. I mean, we had two mayors over 12 years who either kept property tax flat, or that was the case of Rob Ford at first, and then John Tory later. His promise for many years was a rise no greater than the increase in inflation. So effectively flat. But still, that said, I mean, quite apart from what it's compared to, 10.5% is a large number. And there's a certain sticker shock, I think, on that number. As you said, there are rises proposed or in place across the country. I mean, you've got Calgary is going up 7.8% this year, Vancouver about the same, Edmonton a little less.

Halifax, the city staff proposed 9.7% and council basically said, absolutely not. But now council has to figure out what to do. Because I mean, city staff said, this is the number we think we need to fund the city. And to be clear, that's what's happened in Toronto. That's the city staff proposed budget. That's not Mayor Olivia Chow's budget. That's not council staff proposed budget. That's not Mayor Olivia Chow's budget.

That's not the councillor's budget. Mayor Chow next week will propose her budget, which may be a similar number, maybe a little less. I mean, I think politically it would probably be smart to find that way to get that number under into single digits, but we'll see what she comes up with. Okay. So this is city staff saying, we need this increase because we need money to pay for things basically.

Yeah. And there's always what they call the gap or the pressure at the start of the budget process. And this year, the gap was $1.8 billion, which is approximately 10% of the annual operating budget. And you have to find that money because cities in Canada cannot by law run a deficit. It is an incredibly difficult process most years to find ways to fill that gap. But in this year, there's some funding from other levels of government. There's some efficiencies and various complicated accounting things. And then there's this 10.5% property tax increase.

But even that leaves a $250 million gap that the city has said, well, we need this money from the feds to pay for refugee supports, essentially shelters for refugees who have ended up in Toronto. It's been a big issue in Toronto. It's been a huge issue in Toronto.

And the city has more or less, and they would not appreciate me saying it this way, they've more or less put a gun to the head of Ottawa and said, if you don't give this $250 million and they need a commitment by Friday, the 26th of January, the city would be forced to add another six percentage points. Instead of a 10.5% raise in the property tax, it'd be 16.5%. And so the cynical view, or perhaps the pragmatic view, is they believe that deal is coming. That the feds will come up with that money.

They'll come through. So instead of what's now in people's minds as a possible 16.5% hike, six of those points will disappear. And then they'll find a way to whittle it down a little bit. And so instead of 16.5, it'll be nine, which is still very high compared to one or two, but it's a lot less than 16. So what you're kind of saying here, there's some political optics that are happening here. It's entirely possible that the 16.5% number is not even real. I mean, it's real, but not real, if you know what I mean. Very interesting. Okay. So this is Toronto's

situation, but as we said, cities across the country, there's been this proposed or real property tax hike across the country. Do we have any sense of how many homeowners, Oliver, would not being unable to afford their homes if they have to refinance a mortgage in a time of higher interest rates. And these people do exist. I don't know how many of them or how real that concern is. And I say real, not in a sense of that they're making it up, but people will go to enormous lengths to keep their homes. So will they be able to afford it in a capital A quote unquote sense? Perhaps not. Will they find the money and do it? More likely so, would be my sense. And it's also important to mention because there's always this person brought up in property tax debates. And the person is the widower, widower on a fixed income pension who'd been living in the house for 30, 40 years. The house

is now worth $2 million. So on paper, they're very wealthy, but they don't actually have very much cash flow. And so the concern is, would that person get pushed out? And Toronto, and I think some other cities that I haven't looked into more closely, has programs to avoid that exact thing, where basically people in that scenario can defer the tax. So there are and could be people who cannot afford this, but that particular scenario has been planned for long before this particular increase. And there's programs in place to kind of help prevent that issue.

Okay. Of course, there are a lot of talk though, there's people are paying a lot for mortgages, especially if you're renewing with higher interest rates. So this could though put a real strain on people who own property. It definitely could. I mean, it's, you know, effectively, it's the one big check you write each year to the city government, and it's looking like a big number. What about renters, Oliver? We've talked about owners here, but do we have a sense of how these big property tax hikes actually affect renters? I don't know to the extent that that can be passed on directly to renters, because obviously

it's the landlord or the owner of the building who pays for it. One thing that came up recently, and I think it's an interesting point to note, is that under law, landlords in Ontario can raise 2.5% annually. If you look at the average rent in Toronto, a 2.5% increase in the average rent in Toronto is actually more than the 10.5% increase in the average home in Toronto on a property tax point of view. My point being that there's an enormous amount of attention on the property tax increase, and rightfully so. There's often a lot less attention on renters' increases, which just happen like clockwork, quietly away from media attention, and that's my fault. But that's a really interesting point though. So it's like, yes, property owners are affected by this, but we should really look at how

affected renters are by these hikes that happen every year. I mean, almost half of Toronto households are renter. I think it's about 48%, 49% now. We're close to majority renter. Economically, it's very important for them as well what's going on here. We'll be back after this message. Okay, let's talk a little bit, Oliver, about how this property tax rate is actually calculated. And I get the sense this can be very complicated. So let's kind of wade into this slowly. It sounds like it is based on assessed value of a property. So that is not the same as what you bought it for, right?

So what is assessed value and why is it based on that? You're right. It is complicated. A lobby group the other day has been putting out press releases about this proposed tax increase in Toronto and saying, you'll pay this this much more and they're using the real estate value, the average real estate value of homes. That's not what it's based on. I think you could see why it wouldn't be based on that because it'd be very hard to do. If person X bought a home in Toronto and that value they paid for it was the basis of their property taxes, then would that just stay the same over decades if they

stayed in the home? Right. And so if you do it based on real estate value, it's very hard to bring it up to date. And so in the end, it's a subjective thing based on an assessment of what a home like this in an area like this is worth or should be worth. Okay. And earlier we talked about how property taxes are generated to keep a city running, right? To pay for things that a city needs to pay for.

Why do cities rely on property taxes for this? Well, constitutionally, they don't have a lot of other choices. I mean, cities are often called wards of the province or creatures of the province. Cities have very little actual power to do anything. In most cases, the city wants to do something. They go to the province and say, can we do this? That's why there are not tolls on the Gardiner and the DBP, the highways that come into Toronto and across the city of Toronto now, because previous mayor John Tory wanted to

do that. And previous premier Kathleen Wynne said, absolutely not. So why would the premier say no? Because she was concerned about those people who don't live in Toronto who drive in, 905 voters in the suburban belt above Toronto, she was concerned politically about the backlash from them on her government. Now it's a bit of a moot point because the provincial government has agreed to upload those highways and take them over. But generally speaking, the cities have very little power. Toronto has more than most under what's called the City of Toronto Act. But even within that act, many of the things that Toronto would like to do to raise revenue, they'd have to go to the province to get approval for. And many of those

things are politically unpalatable if you're in Barrie or if you're a voter outside Toronto. Because there's already the sense that Toronto gets a free ride off the rest of the province, which is economically and factually untrue, but politically that is a thing that exists. Has this always been the case, Oliver, that property taxes make up the bulk of money that a city has to keep itself running? It really is. It's not that it's sort of gone back to a property tax issue. It's that it's been sort of stuck at a property tax as the only form, even though the role of cities and the role of city governments have changed over the years. There are some small things like hotel tax that

do exist in Canada. But yeah, for decades, it's been just the property tax and what the demands and the property tax have become larger and larger and larger. So I guess, why is that? Why don't we try to look for other ways of generating money for the city? Sometimes that's politically unpalatable for the province who has to approve it. Sometimes it's politically unpalatable within the city itself. Sometimes there are, you know, one of the options that's on the table periodically is a commercial parking levy, you know, a daily charge in every commercial parking space. This is quite unpopular with mall owners, for example. It's hard to make up the money in some

way that doesn't make someone angry. And Oliver, you mentioned a bit earlier that sometimes services get downloaded to the city and then they're responsible for them. Can you give me an example of that? Absolutely. I mean, Vancouver recently went through an exercise where the mayor struck a budget task force to look at ways to save money. And they went out for about eight months and they were looking around. And one of the things that came up in the report was trying to set guard rails or a mandate on what cities do. But the complicated thing, and the example I'm going to get to, the complicated thing is that once the city is doing something, it's very hard for the city to say, yeah, well, we're not going to do that anymore. Because one's one thing to say, we used to pick up garbage every week, and now we're

going to pick up garbage every other week, or whatever. But in the case of Vancouver, the chair of this task force pointed at the downtown east side and said, there's a whole lot of health care costs associated with the downtown east side that have fallen to the city of Vancouver, which realistically are not the city of Vancouver's responsibility. Health care is a provincial responsibility. But someone has to do it. And so unless you're going to get into this kind of brinksmanship of, we're not going to pay for this unless you pay for this. And then there's some poor guy in the

middle, in the downtown east side saying, someone's got to pay for this. It's very hard to pull back from those things and say, you know, it's not our fault. It's not our responsibility. We can't do it. Even if constitutionally, you've got a very good argument to say it's not your responsibility. Yeah. So what else can cities do to raise money besides a property tax hike, Oliver? Like, can we go through a few options? What is possible? I mean, a number of US cities have a municipal sales tax.

And the easiest way to do that in Canada would be just either take a slice of the GST or to add one point onto the GST or to add one point onto the GST or something like that, basically to collect it through the mechanism of the already existing tax. And it would raise quite a bit of money. So that's like anything sold within the bounds of Toronto would do that. And this works in some cities then? Absolutely.

New York has one. Chicago has one. It raises quite a bit of money. I mean, some of the people who are the experts on this subject will say you should make it regional to try and avoid kind of cross-border issues, but it's managed. One of the values of that is it's a revenue tool that is associated with growth. Often it's said, Toronto's been booming for the last 20 years, why is it so broke? But so much of the boom did not actually generate any money for the city of Toronto.

An example, the budget chief in Toronto is a council named Shelley Carroll. And she often uses this example that this fall, Taylor Swift's going to come to Toronto. She's going to play six concerts. People are going to come from across North America. The hotels will be full. The restaurants will be full. Toronto's probably going to lose money on this because there will be a hotel tax. But beyond that, none of the spending will flow into city coffers because there's not a mechanism for it. The provincial sales tax will catch some of it, for example, but if you had some sort of a municipal sales tax to take a little bit of it, you could, but in the absence of

that, the city will lose money because they'll have to put on extra transit, they'll have to put on extra police, they'll probably have extra cleanup of the street, whatever it is. There will be city costs, and I guess it's, you know, global spotlight, whatever. But city costs, but not any city financial value to something like that. That's a really interesting example that really kind of drives this point home because restaurants will make money, as you said, hotels will make money, but the city itself is probably going to lose money when Taylor Swift comes to town. It's a strange turn of events, isn't it?

It's a strange system. Huh. Okay. So municipal sales tax seems to be an option. And before you mentioned kind of, you know, road tolls or user fees, these are also things that cities are considering, I guess? They absolutely could. One of the people I've talked to, it's a municipal finance expert at the University of Toronto,

and she says that you should have a combination of tools, things where a specific person can be identified, garbage pickup, have a user fee, things where there's a municipal social value, but not a specific person can be identified, say like parks, fund that off the property tax. Regional things like roads, fund off tolls, income taxes. There's a combination of things, but there's different types of what they call revenue tools could go to fund different types of services. There's not a one size fits all. Okay. Just lastly here, Oliver, it sounds like cities do need a lot of money to keep things running. And especially after the pandemic, it's been really difficult for a lot of cities, right? Transit was down, downtown businesses were hurting,

and a lot of places are also dealing with opioid crisis, affordability crisis, right? So I guess with the property tax rate hike on the levels that are proposed in cities across the country, would that actually make a difference to these places? That's a difficult question. If people think I'm going to pay 10% more and, boy, the transit's going to run way better and the city's going to be super clean, that's not the case. In the case of Toronto, the city has been gradually running down for years, and that's not a controversial thing to say. The roads are worse.

Parks are shabbier. That's what they call the state of good repair backlog. State of good repair meaning kind of keeping things up, keeping things in good shape, replacing buses when they wear out, that sort of thing. The state of good repair backlog is enormous, billions and billions of dollars, and is getting bigger and is projected to continue to get bigger even with this tax increase. But the way the city staff sell it is they say, but we will target the money differently. So you will see improvements even if the overall picture doesn't change.

What would it take to actually fix those things then? Like how much if this kind of property tax hike is not going to make a huge difference, what would it take? Do we have a sense? It would take more than anything the property tax could fix. It would take serious funding from federal and provincial government, I think. I mean, the $1.8 billion gap I mentioned earlier in Toronto, if you think of every one point in the property tax raises $40 million, that's a 45% increase in the property tax just to close this year's gap.

And a lot of the spending in the city does, every city does, is sort of untouchable, either politically untouchable or it's a matter of collective agreements untouchable. I mean, you know, I mentioned earlier the Vancouver Budget Task Force. Well, three areas I didn't even look at were police, library, and parks because of governance issues. So those are governed in a different way separate from city council. But it's also true that police is a huge budget item. It's the biggest budget item in Toronto. In Vancouver, the property tax is going up 7.5% this year, and approximately half of that is going to policing, a little bit less than half of that. Transit costs hundreds of millions of dollars now. If you want to get it twice as good,

well, do the math on how much that would cost. Even libraries, in Toronto, it's a $236 million budget. So if you want to improve libraries Toronto, it's a $236 million budget. So if you want to improve libraries dramatically, it's going to cost an awful lot of money. I don't know what the number is, but I will say this. If you talk to people in Connecticut, you know, hedge fund types who live in Connecticut, property taxes are incredibly high there.

Like $30,000 in some cases. But people will pay that because the services they get are so good in return that effectively you can avoid having to put your kid in private school because the public school is so good. So the question of how much do we need to spend to have really good services? Maybe turn that around and say,

how much would people be willing to pay if services were really good? Oliver, this was really interesting. Thank you so much for being here today. My pleasure. Thanks for having me. That's it for today. I'm Mainika Raman-Wilms. Kasia Mihailović produced this episode. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrian Chung is our senior producer,

and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.