Alternate Property Tax Model
So after whining about my Property Tax bill, I think I have come up with a simple(r) model for Property Tax valuations which could make lives simpler (simpler for me). Remember that Property Tax is a Wealth Tax, taxing the apparent value of your house.
Simply put, your Property Tax is set when you buy your house. When the price is set, that is what your property taxes will be based on, until the house is sold again. It no longer is a wealth tax or a perceived value tax.
Sounds easy doesn’t it? The municipalities could tweak it so that they could add an inflationary increase each year, so that their incomes could slowly increase. Maybe a check on the valuation at sale (i.e. the City can have an independent body valuate the house at sale time and then base property taxes on that value), in case folks try to sell houses for $1 or the like.
Advantages?
- Property tax increases would be limited year over year to only an inflationary increase. Currently in Ottawa Property Tax has been going up higher than inflation in terms of percentage of perceived value.
- If someone stays in their house for a long period of time, they will not end up having to sell their house because their neighbourhood suddenly went “up scale” and their Property Taxes have sky rocketed (as in Vancouver), good for Fixed Income seniors.
- May cause a boom in contracting work for upgrading houses, since it’s value will not increase unless it is sold (i.e. why move to a bigger house, when it ends up being cheaper to add a room to my current home)
- Less yearly paper work with new valuations and warning home owners of the pending change.
Disadvantages?
- Municipalities incomes may not be as large as they need them to be and it may force them to cut services (to run a balanced budget)
- Tom-foolery and shenanigans are still possible given there can be manipulations of these systems, like we have seen with rent controlled properties and such.
- Might throw cold water on the housing market, with folks maybe staying in an older house, instead of buying a brand spanking new one, because it costs more (and the older house has been inhabited in for a while)
Opinions? Should I write this one up and present it to the Ottawa City Council as a progressive and exciting way to move forward in the 21st century? Maybe if I add a Green element to it, it might be an easier sell (it will help the environment, because it will slow housing developments)?
Rewritten from an article in 2010.
@Patrick – it would. That’s a feature, not a bug. While a floor calculation might be somewhat reasonable (some servicing costs matter only on the land’s footprint, other depend on numbers of residents), I find myself baffled why you would use F-squared in your calculation. F-squared penalises denser living (at an accelerating rate the denser you get), even though denser living is cheaper to service. root-F would more reasonably factor the city’s cost of more residents on a single property.
@Neil: Your system would heavily favour skyscrapers. I’m partial to a tax proportional to LF², for L land area and F floors.
Any tax system has winners and losers. Any changes to the tax system will change the winners and losers, and thus generate tremendous squabbling.
Here’s a scheme: nobody likes to pay taxes, so why not have somebody *else* pay your taxes?
Throw all the assessments into a hat, and assign them randomly every year.
Some years you win, some years you lose.
Hmmm…how about a combination of square footage of land AND house? The size of the house does not vary over time (unless there’s renos, and the City would know that because of permits), and it can be argued that the bigger the house, the more occupants and the higher the usage of city services.
I’d really like to learn your views on the currently popular notion of linking municipal taxes to income. I totally disagree with it, but any time I express that view I am very much in the minority.
In such a scheme, those who bought as much house (or more house) that they could afford are rewarded, whereas folks such as I who bought less house, are penalized. Yet, one could argue that it is the first scenario that places a larger burden on municipal services.
Bloated city governments are desperate for cash. They will never make any change that extracts less money from residents if they can avoid it. Any significant change to the current system would give big breaks to some people and bury others.
The fundamental problem is that cities employ too many people. The vast majority of employees are well-meaning, hard-working people, but too many produce output that serves little purpose. Any time there is a discussion of saving money, the focus is on cutting services rather than efficiency. I once saw an org chart for the city of Ottawa and the proportion of jobs considered part of the “administration” was staggering.
I once saw a call for a city meeting whose subject was “saving money”, but the agenda consisted entirely of adding user fees. The machine of city government won’t focus inward to find savings without tremendous outside pressure.
Interesting idea, especially the Green element. Correct me if I’m wrong, aren’t property taxes calculated as follows – valuation * tax rate? If the valuation stays the same but the municipality needs more money, can’t they just increase the tax rate, and really gouge the more recent buyer? I think we’re over the barrel regardless.
Oh, and re:
“If someone stays in their house for a long period of time, they will not end up having to sell their house because their neighbourhood suddenly went “up scale†and their Property Taxes have sky rocketed (as in Vancouver), good for Fixed Income seniors.”
Property taxes only skyrocket with increasing home values if your home has increased relative to the rest of the city. So while a person may find themselves priced out of their neighbourhood by increasing prices, they would not be priced out of the city. Indeed, they’d be in a position to sell their place and move to a similar house in a neighbourhood that didn’t outstrip the average and pocket the difference.
My system would also avoid increases based on changing values, but regardless…if fixed income seniors are a problem, there are better ways to deal with it. Some cities offer a deferment program to the elderly (usually based on qualifying for OAS), allowing people to defer property taxes interest free until they sell their home.
Interesting, but any taxation system that is based on an Estimated Value of what something might sell for, is flawed at best, if you don’t base this on the actual sale price, then you introduce opinions, which are never a good thing.
Larry: Yes, paying the Educational portion of your Property Tax when your kids go to a Private School is not fun either.
That’s a terrible plan. It shifts the tax burden to younger people and new arrivals in the city, for no reason other than being later into the housing market. This assumes that housing prices are rising. If they’re declining then it unfairly places tax burden on longer-term owners, and creates an incentive for a declining spiral as people sell out to reduce their tax burden.
Under the current system, the city sets the amount of revenue they want to get from property taxes (which always has to go up to at least meet inflation, so you’ll never hear of a property tax decrease), and then that amount of revenue is divided proportionately between residents based on the value of their homes.
The system that I propose is based on footprint. The city would continue to set the desired amount of revenue, but the burden would be divided up by your footprint (of the land, not the house). Square footage of the land that your home is situated on, divided by the number of residences on that land.
Advantages:
– share of property taxes more accurately reflects the home’s burden on city services (it is much more expensive to service a single family home on a large lot than an apartment building with minimal yard. It takes more roads, more pipes, more fire stations, and if public transit is feasible at all, more buses.
– provides incentives towards denser cities, and developers to reduce yard space in favour of public parks. This will again reduce the cost of services (see above), as well as foster more sense of community as more of life is lived in public places.
– the size of your lot never changes, reducing the bureaucracy needed to maintain the tax system.
Disadvantages
– not likely to happen for political reasons.