MPAC 2012, Study 1

If you haven’t already please read the summary posting as an introduction.  This is the second of four postings on the MPAC study and covers MPAC’s Study 1.  My third posting, covering Study 2, is here.  And my fourth posting, covering the Lansink critique, is here.

Part 1 of MPAC’s 2012 study asks if MPAC has as equitably assessed properties close to IWTs as properties further away.  This part, although of only tangential interest to wind opponents like myself, occupies the central part of the entire study.  We think the larger question is: do IWTs reduce property values, not whether MPAC is clever and honest enough to correctly recognize those reductions.

MPAC is in the business of mass assessments, nearly 5 million in Ontario.  Given this volume they have no choice but to use computers and computer-friendly techniques to do their assessments.  That translates to a significant reliance on multiple regression analysis.  They determine what sorts of characteristics influence the selling prices and then use the computers to find out how much influence each characteristic has.  In their experience, 85% of the selling price can be calculated using 5 characteristics, or variables: location, building area, construction quality, lot size and age of the home adjusted for renovations and additions.  Note that distance to a wind turbine is not one of their characteristics and MPAC seems determined to keep it so.  But also note that location could be used in lieu of distance – more on this later.

MPAC uses the ASR, Assessment-to-Sales Ratio, to determine if their assessments are accurate.  It is simply the assessment divided by selling price, with a ratio of 1.0 being a perfect match.  MPAC expects ratios between 0.95 and 1.05, and presents what seems to be an endless series of charts demonstrating this, primarily in the appendices.  While obviously MPAC (actually everyone) has an interest in accuracy their emphasis on it seems misplaced in a study entitled Impact of Industrial Wind Turbines on Residential Property Assessment In Ontario, which to me and most residents is quite a different question.

Just think of the ramifications if MPAC decided to include distance from an IWT in their regressions.  I have little doubt it would make Ontario’s lawyers very happy.  It would also put Ontario’s very-pro-IWT ruling party in a difficult political spot.  And don’t forget that the board of MPAC is appointed by the Minister of Finance, who is a member of the ruling party’s cabinet.

Upstream I mentioned that MPAC could use the location variables that already exist in their regressions to finesse their way out of this problem.  I point to Wolfe Island as an example of how this might work.  The western half of WI is now home to 86 IWTs, a project that had been in development since roughly 2000.  If this half constitutes a “neighborhood” then MPAC could reduce the values in that neighborhood in a uniform manner and never have to recognize the elephant in the room.  As it happens, I posted on MPAC’s actions on Wolfe Island about 18 months ago.  In the 7 years when the wind project went from being developed to operational, the roughly 700 properties on Wolfe received the following number and average reductions:

  • 2005/06: 130, 9.3%
  • 2006/07:  33, 15.2%
  • 2007/08:  12, 28.8%
  • 2008/09:  34, 12.4%
  • 2009/10:  44, 29.0%
  • 2010/11:   22, 30.0%
  • 2011/12:  27, 24.0%

That’s a total of 302 reductions, which seems like a rather large percentage of the properties there.

UPDATE – I revisit the Wolfe Island story here.  My suspicions are confirmed.

A Wolfe Island couple, the Kenneys, asked for a reduction which they say MPAC was willing to grant, although MPAC wouldn’t let IWTs be used as the reason.  It ended up in court, and a local paper had a reasonably good account of it.  Perhaps MPAC’s reluctance to admit the obvious is that once they admit it they must then include distance in their regressions and doing that (and the legal and political repercussions) is just too unpleasant.  So they limp along, using the location instead.

Their favored overall chain of logic seems to be: since the ratios in neighborhoods close to IWTs aren’t much different from those further away, and since those ratios indicate their assessments are accurate, and since MPAC doesn’t include distance to an IWT in their regressions, ergo distance from an IWT isn’t a factor in reducing values.  Part 1 of this study is a necessary part of this chain.   So the real main purpose of this part of the study (and the study as a whole) seems to be to publicize MPAC’s skills at keeping the assessments in line with reality, and at the same time deflect how MPAC is going about doing this. MPAC is, after all, in a tight spot.  The reality is that home prices take a dive when close to IWTs.  MPAC somehow has to lower the assessments around IWTs to keep the ASRs in line while keeping their bosses happy.

Unfortunately, the wind industry will be using this study for quite a different purpose – to bolster their argument that IWTs don’t impact home prices in the first place.

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