“renter rip-off”

In City, Criticism, Financial, Fresh, Personal on October 25, 2010 at 9:16 AM

The price of rents is a hot issue in Toronto as there are very few vacancies these days. For those of us that live in big rental complexes, you know, those old tall buildings with an always absent superintendent and strangers loitering in the front lobby, there is a coalition of concerned citizens that has formed a simple and pointed campaign at reducing rents: Fair Tax Fair Rent

I believe that this proposal would work, and generally speaking I get excited when “concerned citizens” want to take control of such an important thing such as the price of rents, but there is a huge flaw in the proposal.

Here’s an excerpt from the website:

If Ontario politicians taxed rental buildings fairly – at the same rate as homeowners – then the price of an $950 rental unit could drop by over $79 per month, because the law says all savings must be passed on to tenants through their rent.

The idea is that these large rental complexes are taxed at a higher rate than small scale rental units (condos, basements, individual homes, etc).  The landlord for my building has 300 separate rent cheques coming to him each month which adds up to roughly $5 million dollars per year in gross rental income. These properties are taxed at a higher rate; naturally, the landlord passes that tax down to the renters. However, the landlord can only do this to a certain extent because there is a limit on how much rents can increase from year to year. The maximum increase is close to 2%.

These concerned citizens make the claim that if property taxes are reduced for large rental complexes, that by law, “all” taxes saved must be passed down to tenants through reduced rents.

The problem is that while everyone in buildings such as mine are concerned about their personal rents being reduced, we’re overlooking the biggest reason why these landlords pay much higher taxes than other property owners – you have to be filthy rich to own one of these buildings. You need tens of millions of dollars just for a down payment on one of these complexes.

I personally have no problem with wealthy companies or people getting taxed at a ridiculous property tax rate for owning a rental property so large that they have to hire a team of people just to count all the postdated cheques. The fact that the taxes can be passed down to tenants is unstoppable – for the most part we have to allow the demand for rents to determine rents. If there wasn’t a lot of demand, these landlords wouldn’t be able to pass down the taxes as they can now, but they would still have to pay them.

For the truly concerned citizens, I don’t disagree with the general sentiment. Experiencing inflation in rents can be severe on our wallets. But by no means should we make all taxes “fair” by charging commercial buildings property taxes at the same rate as other, smaller scale landlords. Without doing any number crunching, I doubt the city could sustain the loss of revenues since these properties are worth hundreds of millions.

The primary way to protect tenants in Toronto is rent controls. If renters are concerned about escalating prices, we should collectively lobby for a freeze on rents for a year or two, which would effectively squeeze the taxes out of the landlords. Asking the municipality to reduce large landlord property taxes as a way to reduce our own rents is a very roundabout way to achieve the goal. In fact, it makes me wonder if these “concerned citizens” even pay rent.

  1. Good catch, Umar. The idea of protecting (generally lower income) renters by cutting taxes to the rich is pretty stupid. The tinfoil-hatter in me suspects these sorts of “concerned citizens” movements are likely set into motion by bottom-line oriented concerned land owners.

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