Friday 9 December 2016

Property assessments are a taxation 'red herring' in a hot real estate market

Whenever I see media stories about the hot real estate market in Hamilton, there will also be the inevitable comments about property taxes going up because house values are going up. 

So, with [CBC reporting that Hamilton home prices have risen 25% in the last year], I was not surprised to read the following comment:

"Can't wait for the Provincial Assessments for property taxes . Should be interesting"

This comment seems to allude to the provincially-mandated MPAC that does property assessments for property tax purposes, largely based on market value data from real estate sales.  But how much do we have to worry about property values affecting our property taxes?  

The short answer is: a bit, but not necessarily as much as you might think.  

As I explained in [a previous blog post], property value increases don't necessarily equate to property tax increases. You can read the more complete explanation there, but in a nutshell, this is because property taxes are set only partly on property values and are also affected by the actual financial need of the city as set out in the budget at city hall. 

Even if property values across the city didn't change at all, your taxes will still go up if the city budget increases.  Or if property values went up evenly across the city and the budget stayed the same, you'd essentially have no tax increase because the city budget gets spread proportionally across properties according to weighted property value.

The hot real estate market does indeed present certain challenges to home ownership, but it doesn't necessarily mean your taxes will go up.  The issue is complicated because your specific neighbourhood might see less of a value increase than another part of the city.  This might result in a minimal increase for you compared to properties in that higher-appreciation area.  The real question is how is your house value doing in comparison to the city average?

To further complicate matters, commercial and industrial properties also get taxed at a higher rate. As such, seeing an increase in commercial and industrial values and new development is likely significantly more important to reducing the residential property tax burden as having a slower residential real estate market would be.

And of course the other place where taxes can be controlled is in the city's planning and budgeting since any money they spend on anything at all has to come from somewhere.  Some of that comes from user fees for services, but the lion's share comes from property tax revenue.

Unfortunately, we all know the saying about death and taxes, so it's a pretty safe bet that taxes will go up.  But it's not as simple as blaming the 'hot hot hot' real estate market.


  1. Amazing! Where I see real estate, there will also be the inevitable comments about property taxes. But you can get help from Because we buy houses in Los Angeles. You will be definately come after amazing deals.