Property Value

Two things came up in Northumberland in the past week about property value. One was a training session our council had about the Municipal Property Assessment Corporation (MPAC) and how they determine assessment for our tax rolls; the other was concerns about property value suffering from stigma associated with the increase of visible homelessness and programs such as sleeping cabins. A longer post than usual, so feel free to skip down to the lower headings if you’re more interested in sleeping cabins than in property taxes.

Property Value Assessment

One of the first posts on this blog was about the tax base, including how assessment works, so I’ll keep the recap short: MPAC exists to keep tabs on every property in the province, updating the market value on a four-year schedule. The idea is that market values are changing all the time, but it’s helpful to have property taxes be fairly stable. So let’s say that in 2012 your home was worth $100,000, and in 2016 it was found to be worth $140,000; over the next four years, your “assessed value” will increase a bit each year, phasing in that value increase so that you don’t have a sudden tax increase. So your 2016 taxes will be based on a property valued at $110k, then $120k in 2017, and so on.

The trouble is, the provincial government has decided to stop updating the assessment data. MPAC knows at any given time what any given property is worth, but their knowledge is only implemented in an assessment update when the province says so, and the province has continued to defer a new assessment update. We’re still operating on 2016 assessments. They don’t often talk about why they’re holding back, but when they do it tends to show a lack of understanding of how assessments actually work, and MPAC and municipalities are flummoxed and frustrated. The short of it, I think, is that the province doesn’t want to be blamed for property tax increases in a real estate market that has risen dramatically since 2016.

If the assessment is not updated, it doesn’t actually mean that property taxes won’t increase. Property taxes increase based on the needs of the community as expressed in the municipal budget; the assessed value of a given home just determines what share of the total taxes any given property owner must pay. So the freezing of assessment values just means that property taxes are not being applied fairly.

Let’s go back to that example. Let’s say that your property which was worth $140k in 2016 doubled in value, along with everyone else’s. So long as everyone’s property value rose proportionately, their proportion of the total tax bill will stay the same — so rising market values across the board don’t actually change how much you’d pay in taxes. BUT, in 2020 you renovated to add a home office and a new garage; so now your property is worth more relative to your neighbours who didn’t renovate. But your assessment hasn’t changed, so your taxes haven’t changed. For the past several years, then, you’ve been getting a deal on your property taxes. And not only that, but because you pay based on your proportion of the total tax base, it’s not just that you’re paying less than you should, but others are paying more than they should. All because the province is preventing a property tax update.

Meanwhile, new builds and major changes are harder to assess than ever. When a new home is built, or there’s a major renovation, MPAC calculates the market value of that unit, as always; but now they need to estimate what it would have been worth in 2016. The further we get from that date, the more general those estimates become. The basis for our property tax system is an accurate roll, and the roll gets less accurate over time without an assessment update. So if you’re concerned about your property taxes being accurate, please talk to your MPP about updating the assessment.

Property Values and Poverty

Municipal planning decisions are often blamed for property values decreasing (homeowners never seem to complain about them increasing due to good planning, but that’s a post for another day). In Brighton, this has happened in relatively wealthy neighbourhoods which are next to new neighbourhoods where homes are built for a less wealthy demographic. Residents express concern that relatively low-cost housing will attract new residents who are more prone to crime, drug use, and increased traffic, all of which will presumably decrease property values. This is currently coming to a head in Port Hope, in a neighbourhood close to a proposed Sleeping Cabin project that would house four senior citizens who are currently sleeping in their cars.

There is a lot of irony in most conversations about property values these days. We are all accustomed, at this point, to the idea that real estate is over-valued and too expensive for virtually everyone. At the same time, the high cost of real estate is reflected in high property values for existing homes. Everyone who already owns a home has prospered, or at least has access to more debt, because of the high cost of housing. And we seem to have become accustomed to complaining about high housing costs and calling for solutions to the crisis, on one hand, and at the same time expressing deep concerns about things that would lower the value of our homes, on the other. Holding these two ideas at the same time is called “cognitive dissonance”, the discomfort of having two opposing values in tension with one another. We want cheaper housing for all, but we don’t want our property values to go down even a little bit.

So let’s contextualize the question of property values: when it comes to how much your home is worth, the overall market has much more of an effect than most other factors. Blaming your property value decrease on lower-cost housing or sleeping cabins nearby is like blaming the carbon tax for inflation: sure, there’s something to it, but it’s one of the smallest of a great many factors. Even so, it’s not nothing, so let’s take a closer look at how low-cost housing or shelters affect property value.

First of all, it’s important to distinguish between the actual and the hypothetical. When a proposed project comes before council it’s entirely in the real of the hypothetical, because it doesn’t exist yet. Opposition to a project is based on potential impacts of potential actions by potential residents. In Brighton, people were concerned that low-cost housing would be bought up by landlords who would rent to low-income residents who would be more prone to crime. At the time, that was (sadly) likely: much of the increase in housing costs was spurred by investor landlords who increased the cost of housing by adding their own profit margin into the total cost of rent. But it turns out that by the time the homes were being built (just now, four years after the proposed development received all of this opposition) the homes are far from affordable for most people, and the market has changed significantly for investors. That feared outcome is highly unlikely at this point.

But even if the neighbourhood featured a large number of low-income folks, does that mean there would be more crime? Statistically, that’s likely; we know that poverty is at the root of most crime. But projecting statistical data onto individuals, especially in ways that disadvantage them, is itself against the law: it’s called discrimination, and it’s behind a lot of the poverty that folks seem to fear. There is a long history of discrimination in real estate, and it’s one of the largest factors in economic inequality in our society today. Rich people keeping poor people out of their neighbourhood a hundred years ago created generational economic inequality, as poor neighbourhoods stayed poor and run down (even ghettos) while rich neighbourhoods appreciated enormously in value. There were open policies of discrimination in the real estate and municipal planning fields, called Red Lining, in which predominantly Black neighbourhoods were systematically devalued and deprived of services. There are many laws today which prohibit and prevent discrimination in real estate, but it’s still a massive issue that shows up primarily in NIMBYism at the development stage and in opposition to zoning changes that would allow for more mixed-income neighbourhoods (single family zoning is sometimes called Exclusionary Zoning, because it prevents poorer people from moving in when the cost of single-family detached homes is so high).

Stigma and Property Values

So if exclusionary zoning and rental discrimination create the poverty and associated outcomes that people who practice that discrimination are trying to avoid, it’s a bit of a self-fulfilling prophecy, especially when it’s based on hypotheticals. Let’s call it by its proper name: stigma.

Stigma in real estate could be caused by virtually anything. It is the fear of something unpleasant that could impact your enjoyment of your property. REALTORs® are required to disclose significant matters of stigma, but actually doing so is tricky, because what’s stigma for one person might not be for another. The typical example is a murder or suicide in a home; some folks could never feel comfortable in a place where that’s happened, and failing to disclose it is begging for a lawsuit.

But other examples of stigma are much less clear-cut. On my own street recently, two homes next to each other went up for sale at the same time, which caused potential buyers to wonder why. I know that the sellers were both unhappy with the size of the home that was built next door to them; its rear balcony could see into their backyards, and they felt a lack of privacy. But anyone who didn’t know the reason could let their imagination run wild with reasons: was there a problem with these houses? An environmental issue? Maybe they’re flood-prone. Maybe there was an incident. Maybe there’s crime in the neighbourhood. In reality it was none of those; it was the creation of a large new home, not an old drug den, that caused the two neighbours to list their homes at the same time. Both took a little longer to sell than the average at the time, likely because of that undefined negative impression. It’s impossible to know how much it might have impacted their sale prices, but if it did, that could also negatively impact the sale prices of any other homes nearby in the short term. If more people had listed at that time, or shortly afterward, it surely would have.

So if there’s a spectrum between the stigmas of grisly murder at one end, and overly large new houses going against personal taste at the other, poverty and its associated impacts is somewhere in the middle. Consistent crime in a neighbourhood can absolutely harm property values. There’s no way of knowing if your poor neighbour is going to fit the statistics and be more likely to commit a crime or violate the property standards bylaw. The awful thing about stigma is that it assumes that they will, preemptively causing that damage to property value on the sheer assumption.

The residents in Port Hope who oppose the pilot project for four sleeping cabins at a decommissioned school have been quite vocal with concerns about the safety of children and the decrease of property values. That’s because they openly associate housing the homeless with crime and drug use. The four individuals in this case have been selected for the pilot project because they are stable senior citizens with no mental health or drug issues and relatively low needs; they just happen to be homeless, and housing them in sleeping cabins can prevent them from experiencing the traumas of homelessness that might lead to higher needs for them in the future. If those same four people had the means to be moving into homes in the neighbourhood, it would mean four new grandmotherly neighbours; because they’re experiencing poverty, it is interpreted as a threat.

This project is still entirely hypothetical. If the Northumberland Sleeping Cabin Collective is correct, and these folks are low-acuity and pose little or no threat of crime or disruption to the neighbourhood; AND if the neighbourhood treats them as neighbours, not as a threat; then there will be no negative impact on property values. If the neighbours are correct, and these senior citizens are a “Trojan Horse” (yes, someone literally called this pilot project a “bait and switch” to try to get drug users to move into their neighbourhood), and there’s an increase of crime in the area, then it might affect property values, depending on the response to it. But either way, if several people decide to sell their houses at the same time to avoid these potential new neighbours, the stigma they create will hurt property values more than even actual crime would. To be absolutely clear, the stigma is not created by the existence of the sleeping cabins; it is created by the perceptions of the people who want to avoid them, and the way they express their perceptions, whether that’s publicly stigmatizing poor people or through listing their homes in reaction to the presence of poor people.