Don’t expect much from tax

Here’s a scoop: Sometimes politicians do things just so they can say they did something. Whether what they do has much effect in the real world is an entirely secondary matter.

If Toronto does go ahead with a tax on vacant homes in an effort to slow the vertiginous rise in property prices, it will be an example of this unfortunate habit. It will allow the city and province to claim they are doing something, while almost certainly having next to no effect on the housing market.

Mayor John Tory set off speculation by saying he is “open to exploring” whether a tax on vacant homes would be right for Toronto. He wants to discuss whether the city should follow the example of Vancouver, which is also grappling with sky-high property prices and has just imposed what it calls an “empty homes tax.”

At first glance, the idea has a lot of appeal. The idea that thousands of speculators are hoarding empty houses and condos while both property prices and rents shoot up is galling. If those empty dwellings became available, surely there would be more affordable places to live?

The trouble is that the closer you look at the idea, the less persuasive is the argument. There are a lot fewer truly “vacant” homes than it appears, and it’s likely even fewer would end up being captured by any realistic tax.

Vancouver estimated last year that 10,800 units there were vacant. Its tax will come into effect next year and will be set at 1 per cent of value — so the owner of a million-dollar vacant home would have to pay $10,000.

Among the thorny issues: what exactly is an “empty” home? Vancouver’s law, for example, excludes a person’s principal residence, so anyone who wants to leave her house vacant while wintering in Arizona wouldn’t be affected. There are other big exemptions, such as one for those awaiting permits to renovate their homes. Taking them out of the equation quickly cuts the number of empty homes liable for tax.

Others who more closely fit the stereotype of the absentee owner will quickly find ways to skirt the law. Family members might spend a few weeks occupying a house, just enough time to meet the legal requirement that a unit not be left empty for more than six months.

In Toronto, Tory cited a census figure suggesting that as many as 65,000 houses and condos are empty. Once all the exemptions that can be expected in any law are applied, it’s likely that number would be far lower.

The good news is that while an empty homes tax almost certainly wouldn’t have much effect on slowing house prices, it probably wouldn’t do much harm either. Some true speculators would probably see it as just another cost of doing business, which would bring additional tax revenue to the city.

Vancouver plans to channel any new tax money into affordable housing, but its expectations aren’t high. It forecasts revenues of $2 million a year from its empty homes tax, while it will cost $4.7 million to set up the collection system and $1.5 million a year to operate it. The net gains will be small, indeed.

There’s no doubt Toronto faces a housing crisis. Royal Bank of Canada reported late last week that affordability hasn’t been so low since 1990. Politicians are just waking up to the issue and are considering a range of measures, from a tax on foreign buyers to revisiting policies on sprawl and density.

But if they decide to enact a levy on empty homes, it will be more for show than for true effect. Such a tax might be popular, but it would be one of the least effective steps they could take.

If politicians decide to enact a levy on empty homes, it will be more for show than for true effect