The truth about property taxes, density, and the cost of city building

Alternate Title: Here’s why I would never really be mayor

The issue is Sprawl. And how do we tackle it? Or, do we tackle it?

The argument goes something like this: Sprawl not only creates boring neighborhoods, but is an inherently unsustainable city building model as cities ultimately cannot afford to maintain the infrastructure to sustain low density suburban housing.  It’s a noble theory, but ultimately, it’s only true if you let it be true. You see, buried in the subtext of the thesis is an underlying assumption that Property Taxes cannot be raised to sufficient levels to cover the costs of maintaining the infrastructure. And, as I said, that assumption is only true if you let it be true.

Now, I’ll give you this: Not one of my “Big C Conservative” friends agree with me on this. Not a single one of them.  Then again, Conservatives tend to be “No Taxation without…  well, no taxation!” so it’s no surprise they won’t be convinced that a tax increase is in order.  Who wants to pay for things? Free is the best price of all.  Frankly, they think I’m downright #Wacko for thinking that people will willingly allow city government to raise property taxes. And to a certain extent, they are correct. If you tell people you plan to raise property taxes, they will certain rise up and smite you! The more conservative they are, the more creative will be the smiting.

But here is where it gets interesting. You see, if you bury the cost, hide the tax, then somehow, magically, people in fact rush to pay the higher costs! Don’t believe me? Would it scare to you hear that I can prove it?

Open up a new tab on your browser.  Go to Realtor.ca. In the field “Where are you looking?” enter any city you like. Immediately under that field, use the drop down menu to select “Condo/Strata” and then click on Go. This will bring up a list of Condos for sale in the city of your choosing.  Now let’s go through some concrete examples:

  • MLS® Number:#W3731973 (It may not be on the market long these days, so forgive me if you can’t find it by the time you read this). It is priced at $355,000. The condo fees for that unit? $709 a month.
  • MLS® Number: W3743593? Listed at $319,900 a month. Condo fees? $736.88 a month.
  • MLS® Number: W3743289?  Listed at $289,900. Condo fees? $438.32  a month.
  • MLS® Number: W3742227? Listed at $359,000. Condo fees? $388.50 a month.
  • Browse the Condo listings in BRampton and Mississauga, you’ll see: each condo costs money that you have to pay, and there is a monthly condo fee that you also have to pay, in addition to your Property Taxes!

And People Voluntarily Buy These Units!

The fact is, people can and will pay more.

They can afford it, clearly, as you can’t swing a cat in the GTA without hitting a new Condo development (no cats were harmed in the writing of this post).  The evidence is: people are willing to pay more each month for the care, maintenance and fiscal management of their living spaces. Now, don’t let me lose use you on this point: the difference between a Condo and a City is pretty self explanatory. I’m not trying to create a false equivalence in this analysis.  But the underlying truth is, when people can see, touch and easily comprehend the value of the money they are paying on a monthly basis, they don’t actually have a problem paying it.

And this leads me to the truth about Property Taxes.

Specifically, that density (in the form of condo projects everywhere that put more people into less space) doesn’t actually reduce property taxes; all it does is shift the tax from the City to the Condo Boards. And the people living in “density” oriented neighbourhoods pay more direct costs as a result. Here’s how that works:

As you’ll notice if you tour most new Condo developments, the buildings aren’t built on municipal roads. The buildings are actually located on very much private driveways, which start at the road and service the front door, parking areas, etc. You may not think much about this, but in a house, the street leads more or less to your front door, give or take a driveway. But in a condo, it may be 100’s of feet from the door, or the parking is underground, or a surface lot, all of which is paved, maintained, plowed, salted, sanded, painted, cleaned and insured by the Condo Board, and not the municipality.  Its sneaky, but its true: those costs have just been passed from the City to the Condo Board. Its the same costs, mind you. But now they are born more directly by the Property Owner. In other words, it’s all the same tax, its just paid to the Condo Board, which is a little closer to home.

Mind you, while on paper I do call that sneaky, and I do call it a secret, it’s really neither of those things.  Condo Fees are right there in the MLS listing, they show up in the Status Certificate, and everybody knows they have to pay them before they buy the Condo. So it is neither a secret nor is it a surprise. What it is, is the voluntary payment of higher “taxes” in order to increase the standard of property maintenance, elevators, pools, gym equipment, etc.

And we can’t stop selling these Condos. People sign up to pay these higher “taxes” by the thousands everyday in the GTA.

So why can’t we increase Property Taxes? Why can’t we charge more for the services the City provides to home owners? The City plows, maintains and salts more roads than any Condo.  It provides parks and recreation services than any Condo. It builds and maintains more elevators, more pools, more libraries, more gym equipment, more daycare spaces, more affordable housing, in every respect and in every way, it does more than any Condo Board, and per capita it charges less significantly less money, than any condo located in the City of Brampton.

Sprawl is not inherently unsustainable. Quite the opposite. If single family residential homes paid a property tax in line and in any way proportionate to what Condo owners paid in Condo Fees (which again, they do willingly and voluntary), cities in Ontario would have more money than they knew what to do with. There would be no shortage of funds for parks, transit, rec centers, community centers, affordable housing, seniors programs, area improvements, steetscaping, active lifestyle infrastructure, policing, security, health and wellness, events, continuing adult education, libraries …. the list of things a city could do with a healthy property tax is endless.

So what’s the “Truth About Property Taxes”? It’s what Condo owners understand, but what taxpayers seemingly won’t admit: You get what you pay for, if you want something better, you pay more for it, and people are willing to pay more if you deliver a value proposition in line with what they are paying.

The basic problem is that we ask voters what they want to pay in Property Taxes.  Does BMW ask you what you want to pay for one of their cars?  Of course not.  BMW doesn’t charge money for their cars, they command a price based on the value of their cars.  The same principle holds true for Property Taxes. If you asked a voter what they wanted to pay for Property Taxes, they will generally tell you $0.00.  But if you look at the actual evidence of consumer behaviour, at the choices home buyers are making everyday in the marketplace, it is abundantly clear that “Sprawl” isn’t a four letter word, but it comes with certain costs that need to be paid. Just a Condo with a Pool will have higher Condo Fees, so too will a city with certain amenities come with higher Property Taxes.  It’s time we recognize that we can only ever get what we are willing to pay for.

 

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