Assessment Procedure for the Development of Homogeneous Neighbourhoods

Goal

To provide information on how the Municipal Property Assessment Corporation (MPAC) develops Homogeneous Neighbourhoods as part of its process of valuing properties.

Background

Section 19.2(1) of the Assessment Act requires that MPAC produces estimates of value as of a legislated date.

MPAC uses the sales comparison approach to value as its primary method when valuing residential properties. It is based on the theory that the current value of a property is directly related to the sale price of similar properties located within its vicinity. 

In addition to sales information, MPAC looks at the key features of every property. Although many factors are considered when assessing the value of a residential property, there are five major factors that account for 85% of the value:

  • location
  • lot dimensions
  • living area
  • age of the property, adjusted for any major renovations or additions
  • quality of construction

One of the most important factors in this list is a property’s location. As part of its valuation process, MPAC determines how a property’s location impacts its value through neighbourhood analysis and the development of Homogeneous Neighbourhoods. 

The Process

For valuation purposes, each residential property in Ontario is assigned a:

  • Market Area
  • Locational Neighbourhood
  • Sub-Neighbourhood which is also known as a Homogeneous Neighbourhood

Market Area

 Each residential property in the province is assigned to a market area. A market area is a geographic area subjected to the same economic influences. Properties in a market area tend to move up or down in value together. They are generally geographically contiguous, although this is not a requirement. An urban market area will typically have several thousand residential parcels with several hundred sales for analysis. All sales from the market area validated for analysis are used to develop all value adjustments applied to value property in that market area, with the exception of location.

Market Areas may be described as:

  • urban - representing a portion of a metropolitan area, a moderately-sized city or a cluster of towns
  • recreational waterfront - representing seasonal properties on water
  • rural - representing small towns and villages and rural residential properties with acreage
  • condominiums
  • commercial/industrial
  • farm

Locational Neighbourhood

Neighbourhoods are used to capture the locational desirability within each market area. Properties are combined into the same neighbourhood whenever similar lots and site amenities would command similar value. Urban neighbourhoods typically consist of several hundred homes. Only sales from a given neighbourhood are used to develop an adjustment for a location for that neighbourhood. In situations where there are very few or no sales within a neighbourhood, an adjustment for location is assigned from a similar neighbourhood.  Locational Neighbourhoods are normally made up of clusters of Homogeneous Neighbourhoods.

Homogeneous Neighbourhood

Homogeneous Neighbourhoods are defined as geographic areas located within a Locational Neighbourhood. They may be defined by natural, man-made or political boundaries and are established based on a commonality of land uses and the types and ages of buildings.

In developing Homogeneous Neighbourhoods, MPAC staff review municipal servicing maps and zoning maps. These maps ideally include the location of residential subdivisions, parks, schools, shopping malls, major industrial properties, and core business areas.

MPAC divides a municipality into Locational Neighbourhoods using these maps and their knowledge of the area and local real estate market.

The next step involves defining Homogeneous Neighbourhoods located within the Locational Neighbourhoods. During this process, MPAC gives consideration to:

  • natural boundaries (e.g., ravines, topography, major streets)
  • political boundaries (e.g., wards, polls, constituencies)
  • similarity of housing stock (e.g., quality, size, age, type of housing)
  • similarity of municipal servicing (e.g., sewer, water, power)
  • similarity of physical environment (e.g., access to public transit, proximity to schools, libraries, parks, shopping centres)
  • historic significance (e.g., designated heritage neighbourhood)
  • desirability
  • similar stages of stability, growth or decline
  • similar marketability
  • similar zoning

The Homogeneous Neighbourhoods are then applied to MPAC’s database. Every residential property in MPAC’s database is identified with a code (e.g. A16) which corresponds to its Homogeneous Neighbourhood. This ensures MPAC is able to capture this important property characteristic during its valuation of the property. It also allows MPAC the opportunity to study the real estate market’s perception of the desirability of different neighbourhoods by analyzing the sales which have occurred both within and outside the defined boundaries. Through this analysis, MPAC is able to distinguish how desirable one neighbourhood is when compared to another located within the municipality.

Since neighbourhoods are dynamic and each has its own life cycle (e.g., period of growth, stability, decline and revitalization), staff continuously review and update the Homogeneous Neighbourhood information contained in MPAC’s database to reflect changes which impact the neighbourhood, such as municipal zoning changes or the emergence of incompatible uses or development.

Related Information

Assessment Act

Note: This procedure has been developed to provide the public with a general understanding of the development of Homogeneous Neighbourhoods.  The applicable law prevails to the extent there is any conflict between the procedure and the relevant law.

Note: The applicable law prevails to the extent there is any conflict between this information and the current law. This information is not intended to provide legal advice and should not be relied upon as such.