The 9.5 percent increase in property taxes is a topic that affects us all. In this blog post, we'll explore how this property tax hike will specifically impact business owners, homeowners, real estate investors, and tenants. Let's delve into the details and understand the potential consequences.
Business Owners
Whether you own a small coffee shop or are a franchisee, the proposed property tax increase will directly impact your bottom line. As property taxes rise, operating costs for businesses will also increase. One significant aspect affected by this hike is the TMI (taxes, maintenance, and insurance) portion of commercial rent. With the increase in property taxes, profit margins will be squeezed, leaving business owners with two options: either cut costs by laying off staff or pass the increase onto customers through higher prices of goods and services.
Homeowners
Higher property taxes mean an additional increase in annual housing costs, adding to the already rising cost of living and mortgage rates experienced in recent years. Potential homebuyers will face reduced affordability, as lenders incorporate property taxes into debt service ratio calculations. This property tax hike is expected to have the most significant impact on first-time homebuyers who are already struggling with the lack of affordability in the real estate market.
Real Estate Investors
For real estate investors, a 9.5 percent increase in property taxes is particularly painful. Currently, the allowable rent increase in Ontario is capped at 2.5 percent.
However, since the proposed property tax increase surpasses 50 percent of the allowable increase, landlords can file for an above-guideline rent increase with the landlord and tenant board. It is important to note that the board only approves increases up to 3 percent above the allowable limit. For instance, in 2024, the total approved rent increase would be 5.5 percent, covering only a portion of the 9.5 percent property tax hike. Moreover, due to the overwhelming number of cases flooding the board, it can take months to get a hearing.
Tenants
Tenants in Toronto will experience both direct and indirect effects from the property tax increase. Directly, tenants renting from small landlords might face above-guideline rent increases, allowing landlords to recover some of the additional property tax costs. Indirectly, the higher property taxes will affect tenants through potential layoffs or increased prices of goods and services. Although it may initially seem that tenants are spared from the property tax increase, the reality is that it will be felt by all residents of Toronto.
In 2023, property taxes rose by 7 percent, and this year they have climbed by 9.5 percent. This equates to a compounded increase of 17 percent since 2022. It is essential to consider the increasing financial burden on homeowners, who are already dealing with higher mortgage rates and the rising cost of living. The impact of this property tax increase reaches far and wide, affecting business owners, homeowners, real estate investors, and tenants. Policymakers and local authorities must address these concerns and find sustainable solutions. There is only so much more residents can pay.