Property tax assessments in Ontario shouldn’t be shrouded in mystery

By
Millicent Wong
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0
232
financial contribution

  1. property

Lack of transparency on how houses are valued for tax purposes

Published on July 24, 2023 • Last updated 6 days ago • 4 minutes reading time

A A “For Sale” sign is posted outside a home in the Riverdale neighborhood of Toronto. Photo by Evan Buhler/THE CANADIAN PRESS files

Concerns have recently been raised about inequalities in Toronto property tax assessments, indicating a lack of transparency in home tax assessments.

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Put simply, the concern is that lower-priced homes tend to be valued above their market value, while higher-priced homes tend to be valued below their market value, requiring lower-priced home owners to bear a comparatively higher tax burden than higher-priced home owners .

Olivia Chow, recently elected Mayor of the City of Toronto, has spoken out on the matter and the Municipal Property Assessment Corp. (MPAC) to “update” their data and assessment tools so that “everyone pays their fair share and does it.” a just and fair way.”

The mayor and some city councilors see a lack of transparency, but MPAC said its processes are transparent and fair, and conform to international standards for property valuations. Meanwhile, Toronto taxpayers are confused as to who is responsible for keeping the tax assessment rolls and property tax calculations secret.

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There is ample evidence in the scholarly and professional literature of inequalities in real estate taxation. Statistical methods such as regression analysis and machine learning models are often used to estimate estimates. It is known that these tools often overestimate lower prices and underestimate higher prices. Property tax is considered regressive if the ratio of appraised value to market value decreases as market value increases.

Numerous methods have been proposed over the years, including spline regression, instrumental variable estimators, and geostatistical eigenvector space filters, to improve the accuracy of mass valuation models. How extensively MPAC uses the latest estimation techniques to remove inequalities is unknown.

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Many urban economists specializing in property taxes believe that MPAC could be more transparent, but are satisfied with residential property valuations, pointing out that MPAC is internationally recognized for the quality of the tools it has developed. Property tax experts also believe that annual assessments can help to mitigate inequalities. In Ontario, the assessments were last conducted in 2016.

Jerry Grad, executive director of the International Property Tax Institute, considers MPAC “one of the leaders in mass valuation methodology.” MPAC also supports the Valuation Office of Ireland in their valuations.

The choice of statistical tools for the assessment is not as crucial as other substantive aspects, such as using officials to do the assessment rather than computer algorithms.

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Dogan Tirtiroglu, a professor of real estate finance at Toronto Metropolitan University, warned that “cognitive psychology and behavioral finance research suggest that human decision-making is also prone to biases, called heuristics, and deviates sufficiently from rationality.” He said the reviews of Real estate assets by human appraisers may not be as robust as econometric methods.

Another underlying assumption in valuation mismatch is that selling price is the most appropriate indicator of market value. This leads some to try to bridge the gap between appraised value and sale value, a practice known in the valuation industry as “sales chasing”.

However, a 1990 article in the Journal of Real Estate Finance and Economics by John Clapp, professor emeritus of real estate at the University of Connecticut, argued that if a buyer overpays for a property, as it later did, the selling price will fall during the pandemic many did exceed market value. In such cases, the estimated value is less than the selling price, falsely indicating vertical inequality.

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Conversely, he said, “If the sale price happens to be below market value, the tax officer will appear to overstate the property,” which is the number one concern people have about Toronto.

Chow advocates for more tax transparency, but the city is responsible for setting property tax rates and amounts. Since disparities in tax assessment are well known, the city should develop a tax policy to account for these disparities.

The city should also find ways to better disseminate the data. For example, Winnipeg’s Assessment and Tax Division has made assessment ratings and real estate data available online. If Winnipeg can be transparent about valuations, so should Toronto.

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As for the lack of transparency, the main responsibility lies with the provincial government as they have licensed the assessment data to a private company, Teranet Inc., which also operates Ontario’s electronic land registration system. Teranet falls under the jurisdiction of the Department for Public and Business Service Delivery and Minister Kaleed Rasheed.

Transparency is the cornerstone of good governance. Rasheed has the opportunity to advocate for restoring easy access to assessment data to Ontarians. Algorithms and their results, hidden behind paywalls or administrative facades, will prevent the development of a property tax system that Ontario residents may find fair.

Murtaza Haider is Professor of Real Estate Management and Director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They are available on the Haider-Moranis Bulletin website at www.hmbulletin.com.

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