Toronto shouldn’t sleep on taxing vacant homes
Big number: 24 per cent, the decline in the number of vacant homes from 2017 through 2019, following Vancouver’s introduction of a tax on vacant units. Mayor John Tory’s executive committee will consider a similar tax for Toronto this week.
Most debates at Toronto city hall involve a whole bunch of annoying nuance. There are arguments and counter-arguments, with decent points on all sides. For those of us who write newspaper columns, it makes the job challenging.
Sometimes, though, we get a lucky break. Occasionally an issue comes along that really is super simple and one-sided.
Such is the case with the topic of a tax on vacant homes. Mayor John Tory’s executive committee will consider a report on implementing such a tax this Thursday.
The correct move is obvious: tax vacant homes. Tax them hard.
I wrote about the merits of the tax almost a year ago. Now, after months of study, city hall staff are recommending Tory and council vote to move forward with a process that will see a tax program developed and put in place for 2022.
The program would be modeled after Vancouver’s empty homes tax which has been a resounding success since it was implemented in 2017. It works by requiring all property owners in the city to declare whether their property is occupied or vacant — with vacancy defined as homes that are unused for more than six months a year. (There are some exemptions, like for properties undergoing renovations, in the process of being sold or where the owner is in hospital.) If the property is vacant, the owner pays a tax.
The program has worked well. It raised $27.9 million in 2019 in tax revenues and penalties, which is a nice chunk of change the city of Vancouver can use to build affordable housing, but the real benefit is how it has changed the housing market — the number of vacant properties decreased from 7,921 to 6,025 over the first three years of the tax, a decline of about 24 per cent.
But along the way, Vancouver learned a lesson that Toronto should take seriously: If you’re going to tax vacant homes, don’t be timid about it. Go big. Our West Coast pals started at a tax rate of one per cent of the assessed value of the vacant home, but quickly realized bigger was better. The tax went to 1.25 per cent last year. And has jumped again to three per cent for 2021.
While the report going to Tory’s executive committee doesn’t settle on a firm tax rate, it spends a lot of time talking about the impacts of a one per cent vacancy tax. That rate should be tossed aside as laughably low.
Toronto’s real estate market has been appreciating way faster than one per cent per year. Even amidst the pandemic, the Toronto Regional Real Estate Board is reporting a six per cent year-over-year increase in its benchmark measuring home price change this year. It’s averaged a nearly 10 per cent annual increase over the last five years. With values going up so fast, some investors will almost certainly be content to absorb a one per cent tax.
Even three per cent might be too low for Toronto, depending on how the housing market performs after the pandemic. A novel solution might be to develop a changing tax rate that’s set each year based on how much the market increased.
While a vacant home tax can only ever be a small part of a larger affordable housing program, with an aggressive rate there’s a lot of revenue to be gained that can be used to bolster that program. No one is sure yet how many properties in Toronto are vacant — estimates based on homes with very low water usage put the number at somewhere between 9,000 and 27,000 — but a KPMG analysis of the tax estimates revenue at about $55 million for every one per cent of tax.
If people still insist on keeping units empty, tax revenue could add up quickly. But if the tax causes property owners to no longer see Toronto’s housing market as a place to park their money, that’s fine, too. We call these people “investors” or “speculators,” but that’s really too charitable a term. They’re parasites, extracting wealth from the city while giving almost nothing back. A tax can make them pay, or it can make them leave — and either way, Toronto will be better off.