What You Need to Know About Canada’s Vacant Home Tax

Housing affordability has become a top priority for all three levels of government, with public policymakers exploring a broad array of measures to ensure more Canadians have the opportunity to purchase a single-family home, townhouse, or condominium.

Since the start of the pandemic-era housing boom, which experienced a modest correction after the Bank of Canada (BoC) started raising interest rates in early 2022, one strategy that governments imposed was installing a vacant home tax.

But what is a vacant home tax anyway?

Vacant Home Tax: A Primer

This is a tax slapped on residential properties that are considered empty for a certain period of time. The idea is to push property owners to list their underutilized or unused home for sale or put it up for rent. As a result, proponents of this financial penalty say it will increase the overall housing supply. In addition, advocates present the case that it will discourage speculation and encourage homeowners to alleviate the financial pressures on renters and prospective homebuyers.

According to supporters of this public policy pursuit, any tax revenue emanating from a vacant home tax can also be allocated to housing affordability initiatives.

On the other hand, critics purport that the levy punishes property owners who might possess legitimate reasons for leaving their homes vacant, like renovations or extended travel. Plus, without adequate enforcement and administration, facilitating compliance and stopping tax evasion would be challenging.

At the federal level, Ottawa instituted an annual one percent Underused Housing Tax on owners of vacant or underused housing on January 1, 2022. But other jurisdictions announced similar taxes.

In 2017, Vancouver introduced a vacant home tax, and officials recently debated raising the levy from three percent to five percent, but the city council shut it down. It is estimated that the city has raised approximately $115 million since the tax was first introduced.

The city of Toronto implemented a one percent vacant home tax on the Current Value Assessment (CVA) on residential units that the municipal government declares, deems, or finds vacant for more than six months.

Has Toronto’s Tax Been Successful?

Toronto continues to be one of the most expensive cities to live in. City Hall thought it could mitigate sky-high prices by introducing a vacant home tax and have it go into effect in February 2023. But the results have not been what officials expected.

In April 2023, it was reported that 96 percent of Toronto residential property owners, or approximately 775,000, submitted declarations to confirm if their property is occupied. The findings? Only 2,100 properties were declared empty.

Experts note that the tax, which had “good intentions,” revealed that “the actual number of vacant homes is much smaller” than many housing advocates and politicians initially believed.

“But in the first go, such as small number is indicative of the fact that people would not leave their homes vacant; there’s no such supply of abundant vacant homes that’s causing prices to increase or rents to go high,” Murtaza Haider, a professor at the Ted Rogers School of Management, told The Toronto Star.

Cherise Burda, executive director of City Building at Toronto Metropolitan University, was not surprised, telling the newspaper, “I don’t think we’re the type of city, like Vancouver or other places, that are really these ghost cities.”

“We are a city that attracts people that want to live and work here,” she added.

If a vacant home tax is producing mixed results, what would be necessary to accomplish housing affordability objectives?

Other Measures Needed: Experts

The Canadian housing market is facing a supply shortage. It is estimated that housing starts will be more than 200,000 units in 2023 and 2024, meaning that the nation will be behind by hundreds of thousands of homes in the first three years of the national ten-year target. While a vacant home tax might appear reasonable for some, housing experts say it is only a tiny piece of the larger puzzle.

For the last couple of years, Canadian real estate market experts have repeated the same thing: The country needs to build more supply to bring down prices, especially as housing demand will likely heat up in the coming years. This could be achieved through reform, be it changing zoning laws at the municipal level to incentivizing multi-purpose housing at the provincial level.

Whatever the case may be, the status quo might not be enough for the future of Canada’s real estate market. Is a vacant home tax a drop in the bucket? Perhaps more data will be needed to reach a thoughtful conclusion. Still, the industry leaders present the case that building housing stocks will be the ultimate solution to scarcity and the broader housing affordability issue.

Sources

The Star: https://www.thestar.com/news/gta/2023/04/30/just-2100-properties-reported-empty-through-torontos-new-vacant-homes-tax.html

CBC: https://www.cbc.ca/news/canada/british-columbia/vancouver-empty-home-tax-increases-1.6839316