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

By
Millicent Wong
-
0
252
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.

advertising 2

This ad has not yet loaded, but your article continues below.

THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive items from Kevin Carmichael, Victoria Wells, Jake Edmiston, Gabriel Friedman and more.
  • Daily content from the Financial Times, the world’s leading global business publication.
  • Unlimited online access to read articles from the Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic copy of the paper edition that you can view, share, and comment on on any device.
  • Daily puzzles including the New York Times crossword.

SUBSCRIBE TO UNLOCK MORE ARTICLES

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive items from Kevin Carmichael, Victoria Wells, Jake Edmiston, Gabriel Friedman and more.
  • Daily content from the Financial Times, the world’s leading global business publication.
  • Unlimited online access to read articles from the Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic copy of the paper edition that you can view, share, and comment on on any device.
  • Daily puzzles including the New York Times crossword.

Register to unlock more articles

Create an account or log in to continue your reading experience.

  • Access items from across Canada with one account.
  • Share your thoughts and join the discussion in the comments.
  • Enjoy additional articles per month.
  • Receive email updates from your favorite authors.

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.

By clicking the subscribe button, you consent to receiving the above newsletter from Postmedia Network Inc. You can unsubscribe at any time by clicking the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

advertising 3

This ad has not yet loaded, but your article continues below.

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.

advertising 4

This ad has not yet loaded, but your article continues below.

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.

advertising 5

This ad has not yet loaded, but your article continues below.

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.

advertising 6

This ad has not yet loaded, but your article continues below.

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.

  1. Houses in a residential neighborhood in suburban Montreal.

    The gains in suburban housing construction brought about by the pandemic didn’t just affect house prices

  2. Millions of Canadians live in housing provided and maintained by investors.

    Canada needs real estate investors

  3. Using data from the Organization for Economic Co-operation and Development, a group of 38 economies, the IMF has found that Canada, Australia, Norway and Sweden are most at risk of mortgage defaults.

    Canada’s real estate market may not be as risky as the IMF thinks

advertising 7

This ad has not yet loaded, but your article continues below.

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.

Comments

Postmedia strives to maintain a vibrant but civil discussion forum and encourages all readers to voice their views on our articles. It can take up to an hour for comments to be moderated before they appear on the site. We ask that you keep your comments relevant and respectful. We’ve turned on email notifications – you’ll now receive an email when you get a reply to your comment, there’s an update to a comment thread you follow, or when a user you follow makes a comment. For more information and details on how to customize your email settings, see our Community Guidelines.

Join the conversation