Empty Home Taxes Are Becoming More Popular In Canada

Written by Posted On Tuesday, 22 December 2020 00:00

City councils in Toronto and Ottawa, in addition to the federal government, are looking at implementing vacant home taxes, similar to one that has been in place in Vancouver since 2017.

The tax, which is designed to put properties back on the rental or resale market rather than sitting empty as investments, is credited with increasing the rental housing supply in Vancouver, as well as providing a little bit of revenue for the city to put toward its affordable housing initiatives.

The tax is getting wide support. The Toronto Star recently said in an editorial, “By now, the idea is such a no-brainer that it would be astonishing if the city doesn’t go ahead with it, as it should.”

The Globe & Mail added, “Vacancy taxes will not solve big-city housing problems. But in Vancouver, they have made a difference. Toronto, Ottawa and the federal government are all moving in the right direction as they consider similar policies.”

In Vancouver, CMHC reports that 11,118 units were added to the rental supply in 2019, an increase of 18.9 per cent over 2018. The conversion of existing units to rental units accounted for 8,824 units.

In addition, the Empty Homes Tax has contributed $61.3 million to support the city’s affordable housing initiatives since the tax was introduced in 2017. The city says money collected from the tax is first used to cover the annual operating costs of the tax, with the remainder directed to affordable housing.

The Vancouver tax originally was one per cent of the property’s appraised value but was recently raised to three per cent.

In Toronto, a staff report suggests that a one per cent tax could raise $55 to $65 million a year in revenue for the city, but the start-up costs are estimated to be about $11 million during the initial two years of the levy.

“Vacant home taxes are designed primarily as a housing policy tool intended to affect the behaviours of owners of vacant homes to sell or rent out such homes and thereby make available homes for occupation, rather than a revenue generating tool for a municipality,” says the City of Toronto staff report.

Not everyone agrees that implementing the tax in Toronto is a no-brainer.

“There’s currently no hard data indicating that empty residential units are a significant contributor to Toronto’s housing supply crisis,” says Christopher Alexander, regional director and EVP of Re/Max of Ontario-Atlantic Canada. “Condo rental listings and vacancy rates are up year-to-year. Given these trends, I’m not convinced a tax will solve the problem of availability.”

The pandemic has had a big impact on Toronto’s rental market. The average rent in the city is expected to decline to $2,040 per month in December 2020, a drop of 21 per cent from a year ago, says a report by Rentals.ca and Bullpen Research & Consulting. The report says average rent is expected to continue falling in the first quarter of 2021 but will slowly start to recover in the second half of the year, finishing at $2,120 per month in December 2021, a four-per-cent annual increase.

The Toronto Regional Real Estate Board says it’s not opposed to a vacant homes tax and understands the rationale behind it. “However, it is unclear whether it will add rental housing that is affordable or affordable homeownership to the market,” says board president Lisa Patel.

“TRREB believes that all housing policy decisions, including whether or not to impose a tax on vacant homes in Toronto, should be evidence-based,” she says. “As such, it is important to have a clear understanding of the intended purpose and policy objective of a municipal tax on vacant homes. Given the current state of the Toronto rental market, the purpose of such a tax is not immediately clear at this time.”

The board says that “it arguably may make sense to observe how market conditions unfold over the next year before turning to a non-market mechanism like a vacancy tax in an attempt to achieve more supply in the marketplace.”

Alexander says the tax “could deter buyers and further deepen the glut of condos on the market. Furthermore, many of these buyers are hard-working Canadians who purchase a single condo unit as a savings and investment vehicle, to fund things like their children’s education. They could be reluctant to list their rental units due to the pandemic-related decline in rental prices, but they are also feeling the acute impacts of COVID-19. This tax will only further the divide between the haves and the have-nots who are trying to build financial security.”

Alexander says a vacant home tax is a “Band-Aid solution” that is caused by a shortfall in housing development. “The only thing that’s going to solve this problem is a national housing strategy to increase supply at the development level.”

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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