Vacant home taxes levy taxes on landlords for their unoccupied homes and are becoming more frequently used in the Canadian real estate marketplace.
A policy raising revenue for the government and increasing the housing supply for the general public while obtaining the necessary funding from a third party. While this sounds like a relatively appealing concept, what would you call such a policy? This policy is called a vacant home tax and levies taxes on landlords for their unoccupied homes. Nowadays vacant home taxes are becoming more frequently used in the Canadian real estate marketplace.
In particular, Toronto City Council approved a plan to introduce a one percent vacant home tax starting in 2022. The goal of the policy is to help solve the issue of the housing shortage by encouraging homeowners to sell or rent their property, resulting in a higher occupancy rate. The vacant home tax should increase the supply of dwellings, while tax revenue could be allocated to things such as affordable housing. City councillor Ana Bailao emphasizes that the purpose of the tax is not to raise revenue, but to increase availability for potential tenants. Empty homes are a global epidemic and many cities choose to fight it with a tax. Toronto, for example, models its proposition based on Vancouver’s vacancy tax, which, from 2017 to 2019, has reported a 25% drop in vacant properties.
However, some people argue that this proposal will not have the desired effect on the affordability and availability of housing. Royal LePage CEO Phil Soper believes that residential properties that usually sit empty are luxury condos and houses that will not increase the amount of affordable housing if they enter the market. One could also argue that the city chose a suboptimal time to implement the new tax. COVID-19 has had a severe impact on the Toronto housing market. Many landlords are already struggling to rent their properties and there is no guarantee that the situation will improve by 2022. Consequently, the tax may only create unnecessary challenges for the landlords.
Regardless of where the vacant home tax is implemented, it makes the prospect of investing in real estate for the purpose of rentals less lucrative, while, in most cases, raising the standard of living of the general public looking to rent a property. Governments then have two important questions to contemplate when implementing this type of policy, does the tax cost landlords more than it helps tenants? If so, at what point do the damages outweigh the benefits?
Punwasia, S. (2017, March 02). Vacant Homes Are A Global Epidemic, And Paris Is Fighting It With A 60% Tax. Retrieved January 20, 2021, from https://betterdwelling.com/vacant-homes-global-epidemic-paris-fighting-60-tax/
Rider, D. (2020, December 3). Toronto eyes vacant home tax, though some say it will do little to boost affordable housing. Retrieved January 20, 2021, from https://www.thestar.com/news/city_hall/2020/12/03/vacant-home-tax-should-be-implemented-in-toronto-mayor-john-tory-says.html
Davis, E. (2020, December 17). Toronto Has Voted to Implement a Vacant Home Tax, But is Now the Right Time? Retrieved January 21, 2021, from https://torontostoreys.com/toronto-vacant-home-tax-passed/
Passifiume, B. (2020, December 17). Toronto council passes vacant home tax. Retrieved January 21, 2021, from https://torontosun.com/news/local-news/toronto-council-passes-vacant-home-tax