Property Assessment and Classification Review -Multi-Residential Class .

MULTI-RESIDENTIAL CLASS

The multi-residential property class, as defined in O. Reg. 282/98, includes:

• property used for residential purposes that has more than six self-contained units; and
• vacant land principally zoned for multi-residential development.

Despite this general definition, there are many properties with more than six self-contained residential units that are not included in the multi-residential class. O. Reg. 282/98 sets out several types of multi-unit properties that are included in the residential class instead of the multi-residential class, such as condominiums, co-operatives, timeshares, group homes, campgrounds, mobile home parks, and life lease buildings.

For education tax purposes, the Province has treated all forms of housing in the same manner by prescribing a uniform province-wide education tax rate for the residential and multi-residential property classes. However, the municipal tax rates on the multi-residential class are generally higher than the municipal rates on the residential class, largely as a result of historic differences in the assessment treatment of apartment buildings versus single family dwellings.

Through the ranges of fairness, the Province has indicated that the long-term goal is to have municipal tax rates for the multi-residential property class that are 1.0 to 1.1 times the residential tax rate.

Future Elimination of the Multi-Residential Class

During the consultations, many taxpayers expressed their frustration with the high tax rate on the multi-residential property class. Rental apartment buildings are one of the most affordable forms of accommodation, yet these buildings are subject to a higher tax rate than condominiums and single-family dwellings.

The differential in effective tax rates between multi-residential and residential properties was not easily discerned prior to reform, but these disparities became transparent with the implementation of CVA.

Governments at the municipal, provincial and federal levels are cognizant of the need to ensure that there is an adequate supply of affordable housing. Various panels and working groups have studied the issue in recent years, and these groups have recognized the detrimental impact that high property taxes can have on the availability of affordable rental housing.

All three levels of government are actively seeking long-term strategies to promote the development and maintenance of an adequate supply of affordable housing. As part of that strategy, it is believed that we should strive to correct the inequitable tax burden that exists between the multi-residential and residential property classes in order to achieve tax fairness for tenants and to encourage the development of more rental housing units.

Recommendation: It is recommended that the multi-residential property class be combined with the residential class and that the municipal tax rate on multi-residential properties be reduced to the residential rate. In making this recommendation, it is noted that property tax savings would have to be passed along to tenants under the provisions of the Tenant Protection Act. It is recommended that municipalities be required to fully implement the elimination of the multi-residential property class as early as January 1, 2006. However, in recognition of the unique circumstances facing the City of Toronto which had an extremely outdated assessment base prior to reform, it is recommended that Toronto be given until at least January 1, 2010 to fully implement the merger of these two classes. It is recommended that consideration be given to the appropriate funding and distribution of the cost of reducing the tax rate on multi-residential properties down to the residential rate. In particular, it is proposed that municipalities be permitted to distribute the cost across all classes rather than shifting the cost entirely onto the residential class. Discussion: This recommendation is rooted in a belief that all forms of residential accommodation should be subject to the same property tax rate within each municipality. This recommendation is also made in recognition of the Province's long-term goal of having multi-residential and residential properties taxed at consistent rates. ~~~~ Note: This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.

Short-Term Recommendations

Recognizing that the merger of the multi-residential class with the residential class would not be accomplished overnight, the following recommendations are being made for immediate consideration.

Rooming Houses:

A building used for residential purposes that has more than six "self-contained units" is included in the multi-residential class. The phrase "self-contained unit" is not defined in the regulation, but it is generally interpreted to mean a unit that has in-suite kitchen and bathroom facilities.

The meaning to be ascribed to the phrase "self-contained unit" has come into question in the context of rooming houses because the units in rooming houses tend to be very small and they often have common kitchen and bath facilities that are shared with other units.

Requests have been made by taxpayers and municipalities for the explicit inclusion of licensed rooming houses in the residential property class.

Recommendation: It is recommended that O. Reg. 282/98 be amended to specify that licensed rooming houses shall be included in the residential property class. ~~~~ Note: This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.

Retirement Homes:

The meaning to be ascribed to the phrase "self-contained units", as described above in the context of rooming houses, also has relevance to retirement homes because the units in retirement complexes tend to be smaller than traditional apartment units and they often have shared dining facilities. It has been questioned whether the lack of in-suite kitchens should lead to the interpretation that these units are not self-contained and therefore do not meet the criteria for inclusion in the multi-residential class.

Stakeholders have requested clarification of the property tax classification of retirement homes.

Recommendation: It is recommended that O. Reg. 282/98 be amended to specify that retirement homes shall be included in the residential property class.

Co-Operative and Co-Ownership Housing:

O. Reg. 282/98 identifies three types of co-operative and co-ownership buildings that shall be included in the residential property class:

• buildings that are owned or leased by a co-operative as defined in the Co-operative Corporations Act;
• buildings that are owned by a corporation wherein each shareholder or member of the corporation has a right to occupy a unit; and
• buildings that are owned by individuals, each of whom has an undivided percentage interest in the building and a contract conveying a right to occupy a particular unit.

For the latter category of buildings (often referred to as "co-ownerships"), but for none of the other categories of multi-unit dwellings, O. Reg. 282/98 requires that at least 50% of the units be owner-occupied in order for the building to be eligible for inclusion in the residential class, otherwise the building will fall into the multi-residential class. During the consultations, owners of these types of buildings expressed concern about the uncertainty of not knowing how their properties will be taxed from one year to the next.

As well, for the two latter categories of buildings, O. Reg. 282/98 limits eligibility for the residential class to buildings that were in the residential class in 1998. Therefore, any new buildings that are created under the same ownership structure after 1998 would be placed in the multi-residential class.

Recommendation: It is recommended that O. Reg. 282/98 be amended to specify that co-operative and co-ownership buildings shall remain in the residential class and shall not be placed in the multi-residential class in the event that less than 50% of the units are owner-occupied. It is further recommended that O. Reg. 282/98 be amended to remove the provisions which prevent co-operative and co-ownership buildings from being included in the residential class if they are created after 1998. Buildings with the same ownership structure that are developed after 1998 should be included in the residential class. Discussion: It is important to offer a variety of housing options and to recognize that affordable housing comes in many forms. Choice and diversity should be encouraged. Maintaining a low property tax rate is one way to encourage the preservation of these housing choices. ~~~~ Note: This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.

Vacant Multi-Residential Land:

Under O. Reg. 282/98, vacant lands that are "principally zoned for multi-residential development" are included in the multi-residential property class.

The phrase "multi-residential" is not a typical zoning concept. The typical zoning category for multi-unit housing is "high-density" which would ordinarily apply to condominiums and rental apartments. Once built, condominiums would be included in the residential class whereas rental apartments would be included in either the multi-residential or the new multi-residential property class.

During the consultations, questions were raised about the appropriateness of charging the multi-residential tax rate on vacant lands that are zoned for high-density residential development when these lands may be slated for development as condominiums which would attract the residential rate or as rental apartments which may attract the 'new multi-residential' rate.

Recommendation: It is recommended that O. Reg. 282/98 be amended to specify that vacant lands which are zoned for any form of residential development should be included in the residential class, regardless of whether the zoning specifies single family or high-density development. ~~~~ Note: This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.

Land Lease Communities:

A land lease community is a parcel of land that is owned by one person or entity whereby portions of the parcel are leased to private individuals who build their own homes on their lots. These properties look similar to mobile home parks because the lessees often put mobile homes or park models on their lots.

To be consistent with the treatment of mobile home parks, MPAC has classified these properties as residential. However, based on the literal wording of O. Reg. 282/98, a concern has been expressed that these properties might have to be included in the multi-residential class because they are used for residential purposes and they have more than six self-contained units.

Recommendation: It is recommended that O. Reg. 282/98 be amended to clarify that land lease properties should be included in the residential class to be consistent with the treatment of mobile home parks and other similar properties.

Thresholds:

As previously noted, property is eligible for inclusion in the multi-residential class if it has more than six self-contained residential units.

Many people have questioned the rationale for the six-unit threshold. It is felt that small buildings with two or three storeys should not be taxed at the same rate as large high-rise buildings.

A proposal was made by the municipal sector during the consultations to increase the threshold for the multi-residential property class from six to twenty units. A further suggestion was made for buildings with more than twenty units to have the first twenty units taxed at the residential rate with the balance of the units being taxed at the multi-residential rate.

Recommendation: It is recommended that upper-tier and single-tier municipalities be given the option of increasing the number of units (above seven) that will trigger eligibility for inclusion in the multi-residential property class within their boundaries. To operationalize this recommendation, it would be necessary for municipalities to notify MPAC of their decision to increase the threshold number of units prior to the preparation of the annual assessment roll. It is recommended that the issue of appropriate notification timelines be addressed at the Ministry of Finance / MPAC Joint Committee. Discussion: Increasing the unit threshold number would result in the movement of a controlled number of properties from the multi-residential class to the residential class, and this would represent a means by which municipalities could facilitate a gradual transition towards the ultimate elimination of the multi-residential class. It is proposed that this option be given to municipalities, rather than having the Province prescribe a standardized number, because municipalities are in the best position to know what level of attrition from the multi-residential class is manageable and appropriate for their local circumstances.