Perverse Property Taxation

Frank de Jong

[Reprinted from GroundSwell, May-June 2007]

We received our household's final property tax bill for 2007 in the mail yesterday. Along with the bill there are always inserts explaining all the numbers. For land use activists they make interesting reading.

Like most cities and towns, Toronto City Council arbitrarily sets the tax rate differently for the various types of buildings and zonings. Most shocking is that houses are taxed at 0.5% of their property value while apartments pay a whopping 2.0%. It is grossly unfair that apartment properties must pay at 4 times the rate as house dwellers.

It gets worse. Let's take two identical sized lots, side by side. On one lot is a house worth $500,000 and on the other is a 10-unit building worth $5 million. Since the apartment building is worth 10 times more then the house and since the city taxes multi-unit buildings at 4 times the rate as houses, the city generates 40 times the revenue from this apartment building as from the house next door on the same sized lot.

No wonder rents are so high and condos so expensive. And no wonder cities and towns are surrounded by horrendous sprawl instead of being designed as walkable communities linked by transit. Developers can't afford to build multi-unit buildings unless they charge extremely high rent.

Ontario should switch to Land Value Taxation (also called Location Value Taxation) which would require municipalities to shift property taxes off buildings and onto the land below the buildings. Only the land would be assessed and one tax rate would be applied to land values within each zoning.

This system is used in 700 jurisdictions around the world where it encourages optimal density without sprawl. If the land under multi-unit buildings were taxed equally to the land under houses, rents would plummet and condo prices would drop, providing affordable housing without government subsidies. If cities right-valued land through LVT, walkable communities would be built rather then car-dependent, energy-wasting, socially-isolating, culturally-barren, suburban sprawl.