Does the Greater Toronto Area really need vacant home tax

Does the Greater Toronto Area really need vacant home tax?

September 28, 2017

Earlier this year, the vacant home tax was rolled out in Vancouver. This special tax is imposed on all homes in the region that have not been occupied for at least six months in a year. Under the new rules, such property owners will be subject to a tax of 1% of the assessed value of the property.

While this new tax law has been implemented in Vancouver, the Greater Toronto Area has also been exploring this law. Many advocates of affordable housing in the GTA have circulated petitions to support the vacant home tax. However, Mayor John Tory has stated concerns over implementing the vacant home tax in the Greater Toronto Area. Even the TREB (Toronto Real Estate Board) has expressed caution over the possible implementation of vacant home tax in the GTA.

The concerns over vacant home tax are somewhat justified. In principle, this new tax law will force property owners to rent out their properties, resulting in more affordable housing. However, simply enforcing the new tax law can have many unintended consequences for property owners and the housing market. And, there is simply not enough empirical data to suggest that enforcing the vacant home tax will result in affordable housing. The TREB feels that imposing such a tax can be counter-productive to increasing the supply of rentals in the GTA.

Already, the vacant home tax has caused severe confusion for property owners in Vancouver. While many owners have scrambled to rent out their properties at lower prices, others have opted to sell their properties. A large number of property owners have also been consulting real estate experts to determine the best course of action. If anything, the vacant home tax has certainly made property owners in Vancouver unhappy.

Moreover, Vancouver also faced immense administrative challenges in implementing this new tax law. Vancouver’s costs for starting up this tax law totalled about $5 million. However, it is estimated that the vacant home tax will yield only $700,000 in net revenues – which is a huge difference.

TREB has asked for more evidence to support the vacant home tax. Without conclusive evidence, the board feels that there are better ways to address the affordable housing problem in the GTA. The board has stated that the most effective way to do so will be by reducing tax burdens on property owners rather than adding a new tax penalty. According to them, reduced tax burdens will allow owners to rent out their properties at marginally lower prices.

Toronto’s Mayor has asked bureaucrats to study the idea of the vacant home tax in further detail before deciding on implementing anything. And, even if bureaucrats decide on going ahead with this new tax law, it will still need to be approved by the city council and go through another round of voting before implementation. For now, property owners in the Greater Toronto Area can heave a sigh of relief. But, it must be remembered that the idea is still moving ahead.

So, should the vacant home tax model be implemented in the Greater Toronto Area? The TREB and Toronto’s mayor are sceptical about it for sure. But it must be remembered that this new tax law is in a very nascent stage and the arguments made by the TREB are somewhat vague. In fact, apart from initial losses, it is difficult to see how this tax law can impact the real estate market negatively. And, the $5 million expense that Vancouver experienced was only the cost of starting up and not running costs. Over time, the revenue generated by the vacant tax law should compensate for these losses.

Affordable housing is certainly an issue in Greater Toronto Area and everyone recognizes this fact. Whether the vacant home tax will help address this issue is another question altogether. The lack of empirical data and the confusion experienced by Vancouver has made real estate experts wary of this new tax law. However, our city does have some very creative and smart stakeholders who are already racking their brains. Apart from the TREB, many other organizations have also conducted research to support or to oppose the vacant home tax. Only time will tell whether implementing this tax law in Toronto is justified or not.