In Edmonton, a 2020 consultant’s report found that the municipality’s long-term development strategy for more density would save money by keeping growth within the current urban boundaries.Amber Bracken/for The Globe and Mail
Edmonton is considering a shakeup of how its property tax regime is structured that would levy more from owners of single-family homes in a bid to encourage density.
This would likely be a first in Canada, and could be a tough sell in a city where two-thirds of residents live in low-density areas. But it would co-ordinate tax policy with the city’s development goals. And it would address the long-time inequity of tenants in multi-unit buildings paying more than their fair share into municipal coffers.
That inequity is not unique to the Alberta capital. In many Canadian cities, multi-unit buildings are charged at a higher property tax rate, which is often passed on to tenants through their rent, than single-family homes. And because it often costs less to provide city services to higher-density buildings, their residents are effectively subsidizing urban sprawl.
“The way we tax should be at least somewhat in relation to the cost that those properties” represent to the city, said Anne Stevenson, the Edmonton councillor championing the tax shift.
The city’s executive committee, a subgroup of council, recently backed Ms. Stevenson’s motion directing staff to look at adjusting the tax categories. Their report is due later this year, and any recommendations would need to be approved by council.
The city staff’s first task is to look at the possibility of lowering taxes on multi-unit buildings and raising them on single-family homes, with the goal of harmonizing the rates without a hit to the city budget. And, more radically, they are looking at whether to flip on its head the current situation and tax low-density properties at a higher rate than multi-unit buildings in a bid to incent the sort of development the city wants.
According to city assessor Cate Watt – the branch manager of assessment and taxation – density-based residential taxation would be a first in the country. She warned that such a shift may not be enough to change developer or home-buyer behaviour, since property taxes are small relative to the price of real estate. And she said its effect may be impossible to identify within broader market factors. So she remains skeptical, but she is also intrigued.
“I’m going to talk about this as a person, as opposed to wearing my public servant hat,” she said in an interview considering the nuanced implications of such a policy change.
“Sometimes, signalling is worth it just in and of itself. Whether or not we change one person’s mind about whether to build more densely or to move into a more dense abode, the fact that we are aligning what the city wants to do in terms of its goals around density with how we tax is perhaps a good reason to do it.”
The city currently lists most multi-unit buildings in its “other residential” property tax subclass, charging such buildings a 15 per cent premium – explained as a way to address the fact that these properties operate as commercial businesses. The rule applies when four or more units are on a single deed, meaning condo and co-op owners are exempt.
Ms. Stevenson said property tax levels based on density are only one idea. Other possibilities she thinks could be useful include lower taxes for buildings near public transit, structures built to higher environmental standards or other criteria.
“What makes it expensive to run a city is when we’re continuing to build new infrastructure to service low-density areas,” she said.
This is not a novel realization, but one that has been slow to take hold at city halls across the country. A number of municipalities have started to acknowledge, though, that tax revenues raised in higher-density areas are being used to subsidize residents farther out, where homes are often more expensive.
A consultant’s report produced for the city of Ottawa revealed that it costs the municipality $465 annually per person to service low-density homes on the periphery. But for homes in infill areas, the city takes in $606 more each year per person than it costs to service them.
In Edmonton, a 2020 consultant’s report found that the municipality’s long-term development strategy for more density would save money by keeping growth within the current urban boundaries. This would reduce the need for new roads, fire stations and civic amenities, though some of the savings would be eaten up by additional transit costs.
Defenders of sprawl note that cities often levy charges to build new infrastructure and that developers must fund some public assets within their projects. But critics counter that the new homeowners still aren’t paying the true cost.
“Here’s the rub: All that stuff that the developers build within the subdivisions on their own dime, as soon as it’s built, the municipality becomes responsible for [maintaining] it,” said Ray Tomalty, the founder and principal of consultancy Smart Cities Research Services.
“Growth really isn’t paying for growth. That’s a nice phrase, but that’s not actually how it works. There’s a big subsidy for growth.”
However, addressing that is a political hot potato in Canada. In Edmonton, most residents live in single-family homes, so a tax shift would squeeze many while saving money for a relative few.
But Ms. Stevenson argues that, by encouraging higher-density development, such a policy change would ultimately lead to a more fiscally efficient city.
“There’s maybe this perception of a proportional shift, in terms of who’s paying what proportion of the tax bill,” she acknowledged. “But the idea is that the overall tax bill itself is going down over time or you know is slowing down [its] growth, because we will be building in smarter ways that don’t create a huge maintenance cost for us as a city in the long term.”
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