January 18, 2017
Why Are Property Taxes Higher in the Suburbs?
Ever-increasing home prices in booming cities like Toronto and Vancouver have led to an influx of new and prospective homeowners flocking to the suburbs. Larger lot sizes and affordability are appealing, but there’s one caveat: property taxes. They’re a topic of heated discussion and grievances are often aired about them, but how much do we really know about how they’re determined and what causes them to fluctuate? We’re here to give you the lowdown on property taxes and help you determine whether a move to the suburbs is the right choice for you.
Related Read: Why You Should Consider a Townhouse in the Suburbs
How Are Property Taxes Calculated?
If you’ve ever wondered why a Durham resident pays more in property taxes than a Toronto resident for a home of lesser value, there’s a very good reason. In Ontario, property taxes are calculated by taking the assessed value of a home – determined by the Municipal Property Assessment Corporation (MPAC) – and multiplying it by the property tax rate for your municipality. For instance, if you own a $500,000 home in Toronto your property taxes will be approximately $3,500 while a home of the same value in Durham would have property taxes of $6,500.
What Impacts Property Taxes?
At this point you’re probably wondering why there’s such a large variance in taxes across different cities. Property taxes cover a number of city services including police, parks and recreation and transit to name a few. Each city works with an annual budget and determines a property tax rate needed to cover revenue requirements.
All else being equal, an increase in property values (think Toronto and Vancouver real estate boom) would actually work to drive down property tax rates – because a smaller portion is now needed to cover the same budgetary requirement. By the same logic, an increase in housing developments would also bring in more revenue thereby decreasing tax rates.
Why Do the Suburbs Cost More?
There are a few reasons it tends to cost more to live in the ‘burbs, and they all go back to the basic equation of assessed value * property tax rate = municipal revenue.
- Lower home values – Homes in the suburbs in general cost less than homes in urban centres. As such, a higher property tax is required to bring in the revenue needed for city upkeep.
- Lower density – Unlike their sprawling urban counterparts, suburbs are less dense in terms of real estate, so more taxes per household are required to meet budgetary requirements.
- Fewer commercial properties – A large portion of property tax revenue is made up of commercial properties, which pay a higher rate. Areas like Durham region must cover the shortfall of fewer commercial properties by collecting more from residential taxpayers.
- Infrastructure development – Growing cities require taxes to fund infrastructure, often resulting in higher taxes for households.
City versus Suburbs
Now that you know what property taxes are and what causes them to change, is a move to the suburbs really the right financial move for you? Regions like Durham and Mississauga real estate have gotten flack for having significantly higher property taxes than Toronto, and it’s important to take those discrepancies into account when considering housing affordability. For instance, that same $500,000 house might have been affordable to you in Toronto, but the additional $250 per month of taxes you’ll have to fork out in Durham might be significant if you’re already stretching yourself. In fact, it might be prudent to lower your home price budget when looking for homes outside the city in areas with higher tax rates.
An affordable home in the suburbs may be the obvious choice at first glance, but take a look at it from a property tax lens and you may see a different picture. That being said, there are benefits to both urban and suburban living. Review your priorities and budget to find a home that best suits your needs and lifestyle.