The Problem

How do you derive an assessment if you live in a market where assessments have been on a multi-year hiatus, and sales prices have dramatically changed during the ensuing period? Well, a recent article in Canada’s Financial Post entitled “Property tax assessments in Ontario shrouded in mystery, but shouldn’t be,” describes a classic property tax situation that has been simmering for a few years which now appears ready to come to a head.

Toronto’s Unique Property Tax Conundrum

This is exactly the predicament the City of Toronto finds itself in, and with a new mayor committed to the idea of everyone “paying their fair share” – coded language for dramatically increasing assessments on those at higher ends of the market, a fight seems imminent.

Toronto provides an example of a North American city where sales have dramatically increased and has become the primary destination for many new immigrants that will call the city home. Given the basic laws of supply and demand, without new inventory, a fixed supply pushes sales prices up, and the basic concern felt by some is that lower-priced homes may be assessed higher than market values, while higher-priced homes are more likely to be assessed lower.

Kicking the Assessment Can Down the Road

The fact that the last time assessments were conducted in Ontario was in 2016 only exacerbates the problem and widens the gap between stakeholders trying to strike a balance. Though MPAC, the entity charged with conducting assessments uses advanced methodology including regression analysis and sophisticated algorithms in determining rates, some are crying foul, suggesting more accuracy may be found using human intervention.  

Are Sales Prices and Market Value One in the Same?

One of the main questions underlying the disagreement is whether sales prices represent market value? Though the market can be subjected to short-term, panic-driven spikes, the computer models suggest there is in fact, a difference between the two.

Computer Models vs. Human Decision Making

The MPAC methodology, though it conforms to international standards, is coming under increased scrutiny by those suggesting computer models be replaced with human decision-making, which has its own psychologically-based biases embedded.  

Regardless of the outcome, politicians and government officials alike have been kicking the can down the street now for several years, and at a certain point, some type of resolution will be required.