Why high property taxes reduce property values

Blog, Frontier Centre, Manitoba, Taxation, Uncategorized, Winnipeg (historic)

Compare a house in Calgary which pays $2,500 in property tax a year with an equivalent house in Winnipeg that pays $6,000 annually. The level of investment required to generate the $3,500 difference will vary with interest rates. At a rate of 10%, the difference is worth $35,000 to the Calgary homeowner. This is the amount of capital at that interest rate required to generate the difference (i.e. $35,000 X 10% = $3,500). The capital required to generate the difference increases dramatically as interest rates fall. At a rate of 4%, the difference is worth $87,500 (i.e. $87,500 X 4% = $3,500). Thus, (other factors excluded) the same house in Calgary is worth nearly $90,000 more due to the property tax differential. Or, more simply, the house in Winnipeg would be worth nearly $90,000 more if property taxes were more in line with other jurisdictions.