Every year at budget time, municipalities in Ontario face difficult decisions. In Ontario, residential property taxes, alongside user fees such as the water rate, pay for most municipal expenses. Cities are tasked with providing more and more services every year, maintaining aging infrastructure, and responding to crises as they emerge. The result is year-over-year increases in property taxes and rates, as cities are limited in other tools to raise revenue. This has been particularly acute in recent years due to inflation and increasing demand for services. One avenue cities can pursue is encouraging new development and housing supply to not only address housing shortages affordability but also reduce pressure on the residential property tax.

Encourage and incentivize redevelopment

To blunt increases on residential property taxes, municipalities can encourage and incentivize redevelopment to raise the number of taxpayers. By increasing the tax productivity of land, land within a municipality on a per hectare basis generates more revenue, while also being more efficient to provide services to. For example, a parking lot in a downtown area may pay a few tens of thousands in property tax, while a large mixed-use multi-residential project on that same property can generate millions annually. This project would be able to take advantage of existing services present in the area such as parks and schools and have the benefit of addressing the city’s housing supply shortage and affordability crisis. By increasing the number of taxpayers, the municipality can raise additional revenue and limit the impact of increasing service costs on the city-wide rate. The increasingly dense nature of development, even in lowrise forms, is more efficient and requires less services per hectare than the more traditional suburban areas of the past.

Councils are faced with the difficult decision of raising the residential property tax to pay for increasing capital and operating costs and provide services that residents need; to make that difficult decision easier, a top priority for municipal councils should be increasing the tax productivity and efficiency of land. Delays to the approval of redevelopment also defer the time at which the city can begin collecting newly generated tax revenue and assessment growth – and that revenue lost by delay is never recouped by the city. Councils should approach planning and development approvals with this and mind and view new development under the lens of tax productivity.

Rising service needs

The more housing units and new neighbours we add to our cities every year – the more annual revenue our cities generate. This can address our rising service needs and create more dense, walkable, amenity-rich neighbourhoods for all residents, new and old, to enjoy.