Tax on unoccupied homes to cost more
With the July 1 deadline approaching for Vancouver dwellings to be rented out or be hit with the country’s first vacancy tax, it appears the cost of implementing the tax will be $2.7 million more than anticipated.
No one can argue against the stated goals of the new tax — raising money for affordable housing in the country’s most expensive city and boosting rental stock in a city with a vacancy rate below one per cent.
But the effectiveness and fairness of the tax have been questioned by critics, with one city councillor asking this week whether the whole experiment would turn into “a money pit.”
The number of “underoccupied” homes in Vancouver has almost doubled in the past 15 years, from 12,885 to 25,495 dwellings, according to census data.
So although some of those homes will be exempt from the tax, and even if some cheaters skirt the rules, it’s hard to imagine the city not raising enough money to cover the cost of the tax, said Tom Davidoff, a housing economist from UBC’s Sauder School of Business, adding: “I would be very unpleasantly surprised to see the city actually lose money on this deal.”
But there are still many unknowns, as is to be expected when the city tries to do something never done before in Canada. As of this week, with city staff estimating costs of $7.4 million — up from $4.7 million seven months ago — the city does not have an estimate for how much money the tax will bring in.
When Vancouver announced the tax back in September, Mayor Gregor Robertson told The Vancouver Sun’s Matt Robinson that at least $2 million would be raised by the tax annually, enough to cover the costs of administering it.
This week, Davidoff was far more bullish, saying: “I don’t think $100 million (in first-year revenue) is out of the question.”
Toronto, also facing a housing affordability problem, has recently considered at a vacancy tax. This week, The Globe and Mail reported, Toronto Mayor “John Tory says he recognizes that imposing a tax on vacant homes in Toronto — as Vancouver has done — could turn out to be more trouble than it’s worth.”
In November, when Vancouver council approved the tax in an 8-3 vote along party lines, a report to council identified onetime incremental funding of $4.7 million over the next three years, including setup costs for the new administration, hiring an audit and collection team, and technology to automate the process. Now, seven months later, the revised estimate represents a 54 per cent increase, according to a staff report.
The tax, set at one per cent of the assessed property value for the year on any home deemed to be unoccupied, is still expected to raise enough revenue to cover the costs of administering it.
City of Vancouver spokesman Jag Sandhu said this week in an email: “The one-time project costs and annual operating costs will be funded by the future revenues collected from the program; for example, collection of the one per cent tax from 740 properties each with an assessed value of $1 million would provide the $7.4 million required to implement the tax.”
The report says additional costs were “incurred in communications and system upgrades to ensure the city is well-prepared should there be a large number of inquiries and questions regarding the implementation.”
“While it is impossible to accurately predict the service requirements, given this is the first year of the implementation, communications, staffing and technology plans are being enhanced to prepare as best as possible for potentially high levels of inquiry by property owners.”
“One of the reasons I voted against (the tax) was I was afraid we were building a whole new bureaucratic structure at city hall, and it would be a money pit,” NPA Coun. George Affleck said Friday. “And this is already proving to be the case.”
The report expects most costs to be incurred this year, with operating costs expected to fall to $1.9 million in 2018.
But even as cost estimates rise, one of the only ways the city could actually lose money, Davidoff noted, would be if a huge number of people decided to rent out their empty homes to avoid the tax.
And if that did happen — in a city where the rental market has become painfully tight — it might be money well spent.