Sunday, December 23, 2007

Toronto's expansion of property taxes: no panacea for urban financing?

Toronto's assumption of a land transfer tax places the city's financing doubly dependent on the peaks and valleys of the property market. The take looks attractive given the strength of a booming market in the City at present. It looked attractive in Cape Coral, Florida too:
(The Mayor) was keen to build a new high school. He hoped to widen roads and extend the reach of the sewage system, limiting pollution from leaky septic tanks. He wanted to add parks.

But then the US property crash happened, and property revenues crashed with it. What's it like in Cape Coral now?
Last month, the city eliminated 18 building inspector jobs and 20 other positions within its Department of Community Development. They were no longer needed because construction has all but ceased. The city recently hired a landscaping company to cut overgrown lawns surrounding hundreds of abandoned homes.

“People are underwater on their houses, and they have just left,” Mr. Feichthaler says. “That road widening may have to wait. It will be difficult to construct the high school. We know there are needs, but we are going to have to wait a little bit.”

Waiting, scrimping, taking stock: This is the vernacular of the moment for a nation reckoning with the leftovers of a real estate boom gone sour.

"Waiting, scrimping, taking stock" - the definition of Toronto in the last decade. Are we in for more of the same if people realise in 2008 that the 75 year old house they are looking at really isn't worth $500,000, as they thought in 2007?

Toronto needs access to a tax not tied directly to the property market and which rewards additional industrial and commercial activity which currently is almost entirely remitted to the federal and provincial governments. To my mind that tax should be a share of PST, and the sooner the better.
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