Is a Tax Revenue Bonanza Coming to Thunder Bay?

 

Things have been relatively quiet of late at Thunder Bay City Council all things considered.  Indeed, for the most part, this will be a relatively subdued year barring any unfortunate issues rearing their head because we are moving into the final year before an election next fall.  Among the items that have emerged over the past few weeks include a new community well-being plan, piloting work from home projects, recognizing the National Day for Truth and Reconciliation, awareness campaigns for incident reporting in anti-racism matters, and vaccine policies for city workers.  

 

In terms of direct services and expenditures, Thunder Bay is moving forward with the curbside collection for organics by initiating the process for studying the matter – that should take the better part of a year – and is also going to spend an additional $1.5 million for the Boulevard Lake Dam.  And as a bonus, there was the debate over whether residents be allowed to continue using plastic bags for garbage pick-up or garbage bins made mandatory.  None of these have been exceptionally attention getting but then it is summer and Thunder Bay's camp culture means a lot of people have gone to the countryside and are not paying much attention.

 

What issues have been rather quiet?  Well, after a discussion about the multi-use turf facility being back on the agenda in June to solicit private sector proposals little has been said since.  After a vote to move forward with a plebiscite to reduce its size and forwarding the matter to administration for a report, again little more in terms of what has been done since.  There is also the matter of the budget – one expects some type of report soon on the budgetary position and the size of a likely surplus as we approach year end.  And of course, there is the matter of the ongoing leaky pipe scenario which is still seeing homes dig up their front lawns as corroded service pipes are replaced in the wake of the addition of sodium hydroxide – not to mention interior pipes leaking and the resulting damage.  Which brings me to the main event.

 

The damage that is being done in literally thousands of homes across the city by leaky pipes is resulting in repairs and often substantial renovations.  Another unintended fringe benefit to all this – aside from water connection fee revenue to the city and a lot of employment for trades people and landscapers – is the potential of a rising property tax base in the wake of the property renovations.  Even if property tax rate stays the same, the expanding base due to higher valuations on residential properties reflecting enhanced value due to renovations may be a factor in increasing the City of Thunder Bay’s property tax revenues. With increases in the tax rate, revenue increases could be greater.  Far-fetched? Maybe and then maybe not.

 

The Municipal Property Assessment Corporation (MPAC) establishes the value of properties for taxation purposes using a method known as current value assessment.  The most used valuation method for residential properties is what is known as direct comparison which analyzes the recent sales of comparable properties.  However, it is not just the sale price that is used in the multiple regression models assigning a residential property but up to 200 factors using data from land title documents, building permits, on-site inspection and communications with property owners and reviews of sales transactions.  In the structural features segment of the variable sets there is included the renovation and year of renovation.

 

The five major factors as reflected by ultimate weighting of results are the age of the buildings, the square footage of the living area, the location (reflected by recent sales in your area), lot size and construction quality.   However, renovations do enter into the formula, and it remains to be seen if the increase in renovations as reflected by building permits issued to properties to conduct their renovations and repairs and any onsite inspections will ultimately also be a factor in increasing the total value of the assessment in Thunder Bay.

 

Homeowners in Thunder Bay affected by the leaky pipes fiasco have had to contend with disruption and repairs to their property, the inconvenience of having their water supply interrupted for a period, the stress of worrying about future leaky pipes, the cost of repairs if insurance coverage is inadequate, and future increase in home insurance costs as insurance companies re-calibrate their rates to deal with the higher risk of insuring properties in Thunder Bay.  Now to all this is the prospect that if future budgets begin to raise rates at historic levels of 3-4 percent, some of the increase in taxes will inevitably reflect the effect of the leaky pipe repairs on property values. And of course for the average homeowner, it will be difficult to separate any effect of leaky pipe renovations on assessed values from the increase in home prices that has occurred over the last year.

 

True, City Council has directed administration to restrain increases to 2.25 percent for 2022 and that will probably happen given the election coming in Fall 2022.  However, once a four year mandate has been granted after next fall, be prepared for much higher rate increases with the increase in assessments a potential additional factor.

 

 

Pandemic's Economic Impact: Building Permits

Statistics Canada released the May building permit numbers today and they document the impact of COVID-19 on residential, business, industrial and institutional capital investment quite nicely.   The good news is that the total value of building permits issued by Canadian municipalities in May grew  20.2% to $7.4 billion.  This was a nice rebound following declines of 13.4% in March and 15.4% in April. Indeed, on a monthly basis, this was the largest percentage increase since March 2009, and according to the report it coincided with the relaxing of COVID-19 construction restrictions in Ontario, Quebec and Prince Edward Island. However, the May level is still 20.4% below the last peak observed in January 2020 and when the year-over-year statistics are looked at, we are down 10 percent.





The year-over-year percentage changes are important to look at in that they provide a better long-term comparison and they reveal that some Canadian CMAs are actually rebounding nicely.  Brantford and Barrie on a year-over-year basis saw increases of over 200 percent.  Peterborough and Thunder Bay were next with annualized increases of 51 and 44 percent respectively.  Indeed, 13 of Canada's 34 CMAs saw increases year-over-year including even Toronto at 11 percent and Windsor at 10 percent.  Both cities were exceptionally hard hit by COVid-19.  The worst hit cities in terms of annualized declines in building permit values were Kingston, Moncton, Gatineau (Part of Ottawa-Gatineau)  and Saskatoon.

For some of the smaller cities, the rebound is a bit of a small number's game. Thunder Bay, for example reported 9.5 million dollars in permits in May of 2019 and 13.7 million in May 2020.  I did notice a new mini-mall having land cleared in the River Terrace area so if that was issued in May, it would have helped the numbers.  A new mini-mall would obviously not have the same impact on numbers in the GTA. As for Peterborough, over the same period, the numbers go from 12.2 million dollars to 18.5 million.  Winnipeg, on the other hand went from 254 million dollars to 151.7 - in terms of scale, a much more impactful drop. As for Toronto, it goes from 1.6 to 1.8 billion dollars and Hamilton from 187 billion  to 255 billion dollars.

Interesting stuff.

Building Permits Decline

Statistics Canada's most recent report on building permits shows that in June 2018, Canadian municipalities issued $8.1 billion worth of building permits, down 2.3% from the previous month.
The decline was the result of lower construction intentions for residential buildings, following a strong May. Multi-family dwellings accounted for the majority of the decline while the non-residential sector did see increases.  The value of industrial permits rose 5.3% to $603 million, a third consecutive monthly increase. The industrial permit gain in June was largely the result of a few high-value permits issued for agricultural and manufacturing buildings in Ontario.

When the results are examined on an annualized basis - that is June 2017 to June 2018, the total value of permits in Canada was down 5.6 percent with residential permits down 1.5 percent and non-residential down 12.4 percent.  The biggest drop on the non-residential side was for institutional permits which fell 31.1 percent.  When Canada's CMAs are ranked for the June 2017 to June 2018 period (see Figure below), the range is from a high of 202 percent for Moncton to a low of -72 percent for Regina.


With respect to northern Ontario, Thunder Bay saw a decline of 13.9 percent and Greater Sudbury a drop of 43,6 percent in the total value of permits.  Even the GTA and central Ontario area saw a decline with Toronto down 16.5 percent and Kitchener-Cambridge-Waterloo down 46 percent.

Interestingly, despite the weakening in intentions for new construction, the unemployment rate continues to fare well.  Statistics Canada also reported this week that the July unemployment rate in Canada was down to 5.8 percent with annualized employment growth.  With respect to northern Ontario, Sudbury's unemployment rate (3-month seasonally adjusted moving average) fell from 6.8 percent in June to 6.6 percent in July even though its total employment fell from 80,500 to 80,400 jobs.  Meanwhile Thunder Bay's unemployment rate fell from 5.1 percent in June to 5 percent in July while its employment level rose from 64,900 to 65,000.

Thunder Bay Building Permits: A Reality Check

A recent TBnewswatch story reported  the estimated value of building permits in Thunder Bay in 2017 was up substantially from the year before  at 146 million dollars.  Based on the numbers presented in the story, the increase in 2017 can be calculated at approximately 55 percent.  This is of course an upbeat year end story. Given the coming year will see both a provincial and municipal election, one can expect these types of numbers to be presented by local politicians as evidence that Thunder Bay's economy is doing well. However, it is important to adjust these kinds of number for inflation - that is present them in real dollars - as well as look at more than two years of data.

This is done in Figure 1.  Using annual total value of building permit numbers from Statistics Canada for 1998 to 2016 and adding the 2017 estimate from the City of Thunder Bay's Chief Building Official and then deflating using the CPI, the real value (in 2016 dollars) of total building permits is presented.  The good news is that 2017 is indeed up from 2016 but there has been an overall downward trend from peaks in real value reached in 2012 and 2013. Over a longer term view, a fitted linear trend suggests that there has been a slight increase in the real value of permits since the late 1990s but the 2017 performance is really not much higher than a decade ago or even two decades ago.


One can view the above chart as good news in the sense that construction activity over time in Thunder Bay over the long haul has been reasonably stable and perhaps even characterized by some very modest growth.  It should be noted that this activity is composed mainly of residential followed by institutional and government construction projects.  Indeed, the peaks in Figure 1 are much less impressive once you remove the government and institutional permit values. 

The composition of these permits is provided in Figures 2 and 3.  Figure 2 presents an area graph based on annual numbers while Figure 3 simply aggregates all the permits since 1998.  Nearly thirty percent  building permits since 1998 are of institutional and public sector origin.  Industrial permits are below 10 percent.  Commercial permits have been surprisingly large as a proportion of the total which is actually a cause for some optimism given that they reflect private sector perceptions of economic opportunities in Thunder Bay.

Thunder Bay Construction Intentions Drop, Sudbury Up

Statistics Canada's latest building permit numbers show an increase nationally in September with a monthly increase of 3.8 percent.  Yearly (September 2016 to September 2017), the total value of permits in Canada was up 12.43 percent.  As noted by Statistics Canada: "Canadian municipalities issued $7.9 billion worth of building permits in September, up 3.8% from the previous month. A 1.7% decrease in the residential sector was more than offset by a 13.9% increase in the non-residential sector. A high-value institutional building permit issued in Alberta was behind much of the increase."  Ontario posted a decrease mainly due to lower construction intentions for apartments which probably does not bode well for the future of renters in the province.

With respect to the specifics across cities, the accompanying figure presents the percent change from September 2016 to September 2017 ranked from highest to lowest for Canadian CMAs.   For all CMAs, the increase was 14.5 percent.  At the top we have Halifax, St. John's and Brantford at 196.9, 154.5 and 145.2 percent growth respectively.  At the bottom - well, Thunder Bay is last at -62.9 percent, just behind Hamilton at -43.7 percent and Kingston at -40 percent.  Sudbury actually manages to shine at an increase of 123.3 percent - just behind Brantford putting it in fourth place.  Of the 14 CMAs showing a decrease, seven were in Ontario - including Toronto which saw a year over year decrease of 13 percent.

North's CMAs Sluggish When it Comes to Building Permits

The June 2017 building permit numbers from Statistics Canada are out today and they show that the total value of building permits rose in six provinces in June, led by Quebec and Manitoba. Meanwhile, permits were up in 14 of 36 census metropolitan areas (CMAs), led by Toronto, Montréal and Winnipeg with Hamilton reporting the largest decline in June (-60.0%).

The year to year results (June 2016 to June 2017) are shown in the accompanying figure for Canada's CMAs.  All CMAs grew 24.3 percent. They range from a high of 172 percent for Halifax to a low of -81 percent for Moncton.  As for Thunder Bay and Sudbury, they both show a negative performance with -2.7 percent for Thunder Bay and -4 percent for Greater Sudbury.




This building permit report comes in the wake of Conference Board Reports showing that these two cities have sluggish economies. However, with respect to building permits in Ontario they are not doing as badly as Hamilton, Windsor, Peterborough or St. Catharines.  Another intriguing result is the Ottawa area where Ottawa/Gatineau shows annual growth of 13.7 percent but the Gatineau part is at -12.7 percent and the Ottawa part grew at 18.9 percent.

Evaluating Northern Ontario's Growth Plan-Part III: Investment Spending

This is the third in a series of posts in which I am presenting evidence evaluating the Growth Plan for Northern Ontario, which was released on March 4, 2011.  The 25-year plan was to guide provincial decision-making and investment in northern Ontario with the aim of strengthening the regional economy. The goal was strengthening the economy of the North by:

• Diversifying the region's traditional resource-based industries
• Stimulating new investment and entrepreneurship
• Nurturing new and emerging sectors with high growth potential.

While the provincial government did commit itself to the development of performance measures for ministry specific initiatives that supported the implementation of the plan, I will be using a broader set of indicators of overall economic performance that are supported by the availability of readily accessible public data.  My first post was an overview of the series while my second post looked at employment. In this third post, I will be looking at new investment spending as measured by building permits.

Investment Activity and Trends in Northern Ontario: Part Three – Thunder Bay and Sudbury

In this third installment on investment activity in Northern Ontario as illustrated by building permit data, I am going to focus on the roles of Thunder Bay and Sudbury.  These are the two largest urban centres in Northern Ontario with CMA populations of 122,000 and 158,000 respectively accounting for about 38 percent of Northern Ontario’s population of 745,000.  As the largest urban nodes, one would expect them to be major drivers of economic activity and new investment and the data suggests that they are indeed major economic contributors but are not exactly punching much above their population weight.

Figure 1 shows the total nominal value of building permits (and the linear trends) issued in Thunder Bay and Greater Sudbury over a 20-year period and reveal that Thunder Bay has stayed relatively flat over this period whereas Sudbury enjoyed a pronounced boom from 2003 to 2009 but has since cooled off somewhat.  More interesting is Figure 2, which plots Sudbury’s share of Northeastern Ontario’s permits, Thunder Bay’s share of the Northwest’s permits and then their combined share of all of Northern Ontario.  On average, over the period 1989-2011, Greater Sudbury has accounted for about 34 percent of all building permit values in the Northeast and Thunder Bay for about 60 percent of the values in the Northwest.  Both of these are in line with their respective population shares with Thunder Bay somewhat more dominant in its region and together they account for an average of about 41 percent of Northern Ontario’s building permit activity.  This share has been trending down slightly over the period 1989-2011 generally as a result of weaker performance by Thunder Bay given that the trend for Sudbury has been pretty constant.

While Thunder Bay and Sudbury are important economic drivers for the region, these results suggest that they are not overly dominant and that new investment activity is dispersed throughout Northern Ontario.  The other towns and cities of the North – particularly Sault Ste. Marie, Timmins and North Bay – are also important drivers.  Thunder Bay and Sudbury’s share of new investment activity in Northern Ontario is approximately the same as their combined population share of the region.

Investment Activity and Trends in Northern Ontario: Part Two

In the first installment of this series on investment activity in Northern Ontario as measured by building permit data, we saw that building permit values in the north have ebbed and flowed with an overall flat performance over a 35-year period.  In this installment, I want to compare Northeastern and Northwestern Ontario in two ways: first, comparing their long-term trends in the real value of permits and second, comparing the composition of building permits across the categories on residential, industrial, commercial and institutional/governmental.

Figure 1 plots the real total value of building permits and while the ebb and flow of activity is there, the long term trends as depicted by the linear trend are markedly different across the two regions.  The Northeast exhibits a rising trend which albeit weak is infinitely preferable to the long term decline exhibited by the Northwest trend line.  Figures 2 and 3 plot the composition of the permits in 1976 and in 2011.  In 1976, the Northwest has a larger share of industrial permit activity compared to the Northeast while both had comparable shares of residential activity.  Compared to 1976, 2011 shows a decline in the residential shares of permit activity in both regions as well as an increase in the share of institutional and governmental permits.  In 1976, the public sector accounted for 8 and 5 percent of investment activity respectively in Northeastern and Northwestern Ontario.  By 2011, those shares had risen to 21 and 12 percent respectively.  It would appear the Northeast has been able to secure more public sector investment than the Northwest.

The industrial share has declined in both regions but it is surprisingly still quite high in the Northwest - perhaps an indicator of the recent surge of activity in the Ring of Fire.  The residential share has declined in both and indeed a big driver of the flat performance overall in new investment over 35 years has been the weak residential sector.  Both regions show an overall downward trend in the real value of their residential permits over the 1976-2011 period though the northeast has shown some recovery since 2000.

Figure 1

Figure 2

Figure 3