“Vacancy Tax” On Empty Houses: Yay Or Nay?

We all knew this was coming.   The conversation, at least.  The tax itself, well, that’s another story.

The government seems to move like molasses for the most part, at all three levels.  But when they’re under the gun, or risk being blamed, they often spring into action quickly.

The B.C. government is going to allow Vancouver to introduce a “vacancy tax” on empty houses and condos.  But is this a well-thought-out decision?  Or a gut-reaction to a much larger problem?

NoVacancy

Some of my readers like blogs about up-and-coming neighbourhoods, or areas they haven’t heard about.

Some of my readers like blogs about house and condos up for sale.

Some of my readers like stories about what’s going on in the market, today, last night, and the night before – the real “in the trenches” sort of stuff.

And some of my readers just like looking at funny photos, and ridiculous MLS captions.

Well, it would seem that with the summer slow-down, we’re focused more on the inner workings of the real estate industry, government regulation of the real estate and mortgage industries, and politics.

Yes, politics.

What can I say?  I go where the stories go.  I try my best to spread the topics out, but right now, it would seem, the whole “foreign buyer syndrome” is making all the headlines, and the reactionary policies are starting to take shape.

B.C. Premier Christy Clark vowed to end “double-ending” in her Province, a topic for another day, but a move that simply seeks to blame real estate agents for the high-price-epidemic.

We discussed this a bit on Monday as I wanted to chat more about the idea of setting higher down payments for uninsured mortgages, but the readers took the conversation back to the problem of supply and demand, rising prices, and the “problem” with high prices in Toronto and Vancouver, for which nobody out there is trying to find the source of.

The “problem” is that prices are rising, and no level of government intervention can seem to stop Vancouver and Toronto.

But the true “problem” in my opinion, is, and always has been, simply that demand is massively outpacing supply.

We can talk about putting an end to “shadow flipping” in Vancouver, even if it was really just 30-40 agents in two brokerages, in a very underground, culture club.

We can talk about putting an end to “double-ending” in real estate, and pretend that greedy real estate agents representing both buyer and seller are driving up the prices of every house and condo in Canada.

And we can talk about increasing down payments for both CMHC-insured mortgages and uninsured mortgages, or increasing insurance premiums, or reducing amortization periods, or anything else that will cause more would-be buyers to remain on the sidelines.

But it’s supply and demand that’s always going to be the real issue.

Toronto is forecasted to have a net migration of 51,000 people in 2016.  But condo completions are a little more than half that, and true “housing” completions are nominal, since there’s no room to build new houses anyway.

If we see this massive gap in the number of people moving to Toronto, and the number of homes being completed, is it any wonder why prices are going to continue increasing?

So political rhetoric and reactionary-policies aside, we all know that if the government really wants to “cure” this problem of skyrocketing prices, they need to do something to increase supply, or decrease demand.

And everybody with a Canadian passport is looking at foreign demand.

Anonymous Internet commenters will complain all night and day about the nameless, faceless droves of Hong Kongians who are buying up all the “family homes” in Vancouver neighbourhoods and rendering the streets virtual ghost lands.

But when somebody has to put their name on something – via the Internet, or a member of public office, the temperature cools ever so slightly.

I remain convinced that the government really, truly has no idea how to monitor and subsequently tax international “investors.”

And the urban legends about the one person who lives in Vancouver who has bought thirty houses for friends and family overseas, aren’t just stories.

If the government did start to tax “foreign buyers,” then those savvy, successful foreign buyers would just put more houses in the names of family with Canadian passports.

So while you won’t hear me congratulate our government very often, I will say that the idea of a “vacancy tax” does make some sense.

It doesn’t matter if the house is owned by somebody living here, representing somebody overseas.

It just matters that the house is vacant.

From Tuesday’s Globe & Mail:

“B.C. To Allow Vancouver To Introduce Vacancy Tax On Empty Homes.”

Vancouver will be the first major city in Canada to do so.

According to the article, “the provincial legislature will convene an emergency summer session in two weeks.”

Well, the skyrocketing prices have officially become an emergency, have they?

The idea is pretty simple – tax houses that are not being lived in.

And while the idea of what’s being “lived in” might become a bit of a grey area, the logic behind the tax is interesting.

Says Vancouver Mayor, Gregor Robertson:

“It’s not a residence, so it shouldn’t be taxed as a residence.  It’s a business holding, and should have a higher tax rate.”

Damn.

I can’t argue with that!

It is a business holding!

It’s a gigantic safety deposit box for people with too much money in other countries with unstable political climates, and different banking regulations!

If I sell a condo in Liberty Village to a person who wants to rent it out, that person will declare their rental income (minus expenses) as income on their tax return, and when they sell the condo, they will declare a capital gain on their profits.

They are taxed, because the venture is business, not personal.

Owning a vacant home or condo in Vancouver is business.

But if the owner isn’t renting it out, then they could actually claim a net loss.  And if they never sell the property, then they won’t declare a capital gain.

So is the vacancy tax fair?

Or is “fair” so incredibly naive when we’re talking politics and taxes that we need not even explore it?

We don’t know, of course, where these “vacancy taxes” are going.

In theory, all this money collected would just go into government coffers and could be used to build affordable housing, repair roads, or build parks.  Or, it could just go to creating more redundant positions in government, and buying better coffee makers for the office…

So is a vacancy tax really going to solve the problem of lack of supply, and high demand?

Indirectly, maybe.

The tax itself isn’t going to fund housing.

But if more people with vacant properties put them up for lease or sale, then that will increase supply.

And if more would-be buyers are turned off by the notion of a vacancy tax, and decide to purchase investment properties elsewhere, then that would decrease demand.

An increase in supply and a decrease in demand will undoubtedly have a negative effect on price.

I don’t like government regulation in free markets, for the most part.

And I’m weary of every and any gut-reaction policy change.

But every Canadian, owning property or not, would rather see foreign real estate owners affected, than themselves.

And a vacancy tax in Vancouver seems like it might fit the bill…

15 Comments

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  1. Stephen says:

    The city of Toronto needs to clean up their own stock of houses before taxing the rest of us.

    In the paper today there is another 200 units this year and 400 units next year that are in such disrepair that they are going to close them.

    These are units that would be considered affordable and should be fixed immediately because Toronto in contributing to the problem that they want us to fix.

    If they are going to tax vacant houses they should be the less expensive units considered affordable.

  2. Louise P says:

    YES!! A tax must be imposed on the “out of control” vacant houses in GTA. Frankly, this is a very selfish attitude.

  3. Raheem hamid says:

    Yes, there should be a tax on vacant houses in gta

  4. Shafqat ali says:

    Yes, there should be tax on vacant homr

  5. Tara mondal says:

    Must be taxs on empty houses in gta

  6. Navjot Singh says:

    Must be taxed so that Canadian citizens can afford houses.

  7. Ranbir Minhas says:

    These high prices are just escalating prices of homes so they should be taxed

    1. Ranbir Minhas says:

      Must be tax on empty houses so Canadian can afford rent and houses

  8. Stephen says:

    Somebody should be asking the city how many vacant units that they have.

    Let he who has not sinned cast the first stone.

    They should either fix them or sell them. Start running the city with a bit of business sense.

    Isn’t that why John Tory was elected?

  9. Jason Murphy says:

    I wont talk about it much. But i guess, its a Nayyy!!!

  10. Libertarian says:

    What about the provincial B.C. government taking over the responsibility of regulating the real estate industry? That’s as bad an indictment of the industry in B.C. as anything else.

    1. jeff316 says:

      Yeah I was wondering how it differs from Ontario. I think in Ontario the government regulates real estate, and the industry enforces the regulations?

      1. Libertarian says:

        I’m not an expert on this, but I’m pretty sure every province enacts legislation about the business of real estate and then cedes oversight of that legislation to an industry organization [what’s known as a Self-Regulatory Organization (SRO)]. There are numerous industries in Canada that are governed by SROs. In Ontario, the SRO for real estate is Real Estate Commission of Ontario (RECO). People who want to complain about their real estate agent go to RECO, who would review the situation to determine whether the agent violated any rules.

        BC had its own version of RECO, but as per my earlier comment, the BC gov’t is taking back that role. I didn’t read any of the media articles about it, so I don’t know how exactly BC will do that. I just found it funny that the gov’t decided that the SRO wasn’t doing its job.

        1. jeff316 says:

          Oh ok, I misunderstood your comment to mean that the industry made its own regulations. If it enforces the government’s regulations, then yeah that’s pretty similar to Ontario.

  11. jeff316 says:

    Vacancy tax aside (which I think is neither a magic bullet nor a particularly significant burden), if that net in-migration number proves true, well, 200 000 people moving in over four years, geez that’s more than I would have thought.

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