The underlying theme during this past four year term of city council has been taxes – property taxes to be more precise and how to keep them low. Most of this has been driven by Rob Ford and his few remaining and former allies on council. His “respect for taxpayers” and “stopping the gravy train” were two key pillars of his 2010 campaign. During that campaign and throughout the following years, we were led to believe that Toronto was at the edge of the fiscal cliff and that city building would have to take a back seat given that we could no longer afford the “nice to haves” nor even some of the “must haves”. The mayor and most of city council could only see the cost of everything and the value of nothing. This, despite the fact that the city inherited a budget surplus from the previous council.
As it turns out, there is no fiscal cliff. There never was one either as argued by a pair of professors at the University of Toronto’s Institute for Municipal Finance and Governance. Professors Enid Slack and Andre Cote made a very clear and compelling case in August that Toronto does not have a spending problem and that its property taxes are low and have been declining when adjusted for inflation. I find this very reassuring and easy to accept given that when I was doing research for my campaign, I came across several sources indicating that Toronto has the lowest property taxes in the GTA and is amongst the lowest taxed metropolitan cities in the world. Contrary to popular belief, it seems we have a revenue problem more than a spending problem.
I accept that no one wants to pay more of any tax than is necessary and that all levels of government must be fiscally prudent and accountable. However, there are times when higher taxes are required, justifiable, and acceptable. To make my case, I want to present you two different scenarios that no one ever discusses.
I bought my current home in 2003 for $325,000. Imagine if at that time I could have consulted with a “Super Minister of Immigration, Industry, Economic Development, and Municipal Affairs”. The Super Minister might have offered me the two following mutually exclusive options to choose from:
“Ray, as Super Minister I can implement an immigration policy that will attract in excess of 140,000 people annually from other parts of Canada and the world to the Greater Toronto Area. This will result in a strong demand for your house such that your house will double in value over the next 10 years. But on the other hand, such an increase in population will require that the city build additional infrastructure to support this growth such as roads and public transportation, water and sewage treatment plants, parks and recreational facilities, public health services, libraries, increased police, fire and emergency services, public housing and all the other things that are required by a modern commercial city. And to pay for this, your property taxes will double in 10 years.”
“Ray, as Super Minister I can implement a policy that will create a stable state economy whereby the population will not grow nor shrink and all we need to do is maintain what we’ve got. The consequence of this policy will be that there will be enough demand for your house to maintain its value such that you can resell it for $325,000 in 10 years. Also, the city will just have to maintain its existing infrastructure so your property taxes won’t go up in any significant way.”
“Which policy should my super ministry and government pursue Ray?”
I have presented this scenario to many friends, co-workers and neighbours and so far no one has selected Option Two. And why would they? Basic math in Option One results in a net gain of $300,000 even if taxes were to double immediately in the first year whereas Option Two allows me to only to break even.
We never stop to consider the reason why our property values go up. It isn’t just inflation and there is no housing bubble. It’s because Toronto is a very desirable place to live, it occupies a finite geographical space, and the more that people want to live here the higher our property values will go. But to keep that trend going, we need to invest to our infrastructure, public spaces and public services. Under current provincial and federal government intensification and immigration policies, we can’t have our cake and eat it too. We can’t have higher property values driven by a high demand from people wanting to live in Toronto coupled with lower property taxes especially when we are so far behind schedule in building the required supporting infrastructure. There would and should be rioting in the streets if property taxes went up without a corresponding increase in property values. But that is nowhere near the case.
As it turns out, my property taxes in 2004 were $2435. This year’s tax bill is $3750. Houses on my street are selling for over $650,000. I’m not complaining.
Here’s an investment tip: If you own property in Toronto, keep it. If you have the means to buy some for the first time or even buy some more, then do so. The minute you hear that the federal and provincial governments want to reduce the level immigration in the GTA or that immigrants no longer want to move here, sell your property. Until then, no other investment will provide you with the same return even if property taxes were to double, triple, or even quadruple. So the next time you pay your property taxes, do so knowing that you’re not only investing in your community but investing in yourself!