Adding new taxpayers limits municipal tax increases

Ontario municipalities today face numerous interrelated financial challenges. This results in pressures on the municipal tax levy (or tax rate) for residents in a high-inflation environment. No one likes paying higher taxes, especially when household budgets are already under so much strain.

An effective way to tackle the pressure to increase the municipal tax rates is actually to add more taxpayers through building more housing. Building more housing supply has many positive benefits beyond the need for more housing. Not only does it enable more choice and affordability for residents, but it also eases pressure on the residential tax levy that is used to fund various public services and infrastructure projects.

Incentivizing housing density and redevelopment

City and town councils across Ontario come up against the difficult decision of raising their residential property taxes to cover the increasing capital and operating costs of municipal services. In the face of these significant tax increases, cities are actively looking at new development to offset tax hikes by increasing the city’s annual tax assessment growth rate. By adding more taxpayers, the city can raise additional revenue and limit the impact of increasing service costs on existing taxpayers.

New construction and the subsequent increased tax productivity of land generates new municipal revenue for the lifespan of the new building. Many municipalities are now realizing that by incentivizing housing density and redevelopment, they decrease the impact of the residential property tax hike. Think about an empty parking lot downtown and how much tax revenue that generates versus a large condo tower, and how much revenue that would generate on the same piece of land. This raises the number of taxpayers while providing the added benefit of addressing the current housing supply shortage and affordability crisis.

Forward thinking

The interconnected nature of the housing continuum dictates that new supply in the market at all price points relieves pressure across all levels of the housing continuum. Through what is known as filtering, new market housing allows residents to move out of a more modest, affordable unit as their income increases. These units become then available to aspiring homeowners, in need of a home. It is not simply affordable or supportive housing supply that is needed; market supply, broadly, at all levels is necessary for improving affordability and quality of life for all.

Forward thinking municipalities have realized: Now is the time to continue reducing barriers to new housing supply.