In my last post I explored the idea that “apartments are just as lucrative in the US as Canada, but the US did not experience the same kind of suburban apartment boom.” In trying to understand why, I pointed to planning culture and the nature of each countries development industry. One area I didn’t explore was the difference that the municipal tax structures might have played in encouraging Canadian suburbs to go denser.
Canadian municipalities are far more reliant on property taxes. That means that one of the few ways they can collect more revenue is to grow the property tax base. Looking at the chart from Cote Saint-Luc I used in my last post, apartments made good sense as a revenue generating tool.
American municipalities do not have the same dependency on property taxes. Sales taxes are an important revenue tool for many American cities. This means that the incentives in Canadian and American cities are different. In a study on the effect of the sales tax on development, the Public Policy Institute of California writes:
The survey results provide strong evidence that city governments do favor retail development over other land uses when developing vacant land or pursuing redevelopment.
Essentially, the sales tax made really good sense because you collected the new property tax revenue and more sales tax. The outcome is that American municipalities encouraged and approved the development of a lot more retail instead of apartments than Canadian cities. So perhaps our municipal tax structures can help explain why generally Canadian cities were more favourable to suburban apartments, and the American cities to more retail.