Soaring house prices are enough to make you cringe.
That's true if you're trying to buy into a fast-rising market, and if you already own a house in such a city. Property assessment notices are being sent to Ontario residents this month and people in some locations are going see huge increases since the previous tally four years ago.
Rising property assessments don't automatically mean you'll pay more in property taxes. Much depends on whether your home has increased more or less than average in your local area. But some people – you can call them the most fortunate, or the shrewdest buyers – will see their tax bills rise.
Is it fair to tax them more? It's a question that is best answered by looking more broadly at who benefits from soaring house prices, and whether we can more fairly spread these benefits around.
Earlier this week, a lobby group for people in their 20s through 40s called Generation Squeeze issued a report on how to make housing policy more equitable for young people. One suggestion was to use a variation on property taxes that ties your tax burden to the equity you have in your home, not the market value (young people have little equity). "I call it housing-wealth taxation, not property taxation," said Paul Kershaw, the University of British Columbia professor who founded Generation Squeeze.
We have only the faintest idea right now of the potential for financial fallout that rising home prices are creating. How will people buying expensive homes today manage to save enough for retirement? Is an increase in student debt coming because today's young parents won't be able to save for their children's postsecondary education?
Also, is there a generational wealth inequity gap being opened up between long-time home owners who are sitting on huge equity gains and millennials who are being priced out of the market? Higher property taxes do not fix this inequity. But they do add an element of fairness by having the biggest winners in the housing market pay more toward the upkeep and maintenance of their city.
Property values are calculated in Ontario by the Municipal Property Assessment Corp., which says average values have increased a total of 18 per cent between 2012, the year of the previous review, and this year. On a city-by-city basis, the increases ranged from 8 per cent in Ottawa and London, to 30 per cent in Toronto and the mid 40-per-cent range for a couple of suburbs north of the city, Markham and Richmond Hill.
The City of Toronto offers somewhat reassuring guidance on the impact of these increases on property taxes. "It is important to remember that an increase in a property's assessed value does not mean that property taxes will be increased in the same proportion," the city's website says.
Expect no increase in property taxes if your home has increased by the average amount. "Properties that have appreciated at a rate that is higher than the average for the municipality will experience an increase in taxes whereas a property which appreciates at a rate less than the average will experience a decrease in taxes," the website says.
There will be complaints about higher tax bills, and they'll be justified to a point because rising house prices have little to do with the cost of providing services such as sewers, roads and public transit. Still, Generation Squeeze's Mr. Kershaw says tax policy can be used to increase fairness in the housing market by reining in price increases.
One option is a capital-gains tax on people who buy and sell houses in a short period of time for investment purposes. Another is to explore the idea of increasing taxes on people who are house-rich. "By tapping into their [housing] wealth and income, we can better reflect people's ability to pay for important things like health care for an aging population, and also leave some dollars left over to invest in a younger demographic," he said.
Taxing people on their housing wealth is a cringe-worthy thought for some, but let's remember that many people aren't benefiting from soaring house prices and maybe never will.