By: Nancy Savio
Last month, I discussed rent control and its place in the Ontario Fair Housing Plan. This month, I wanted to take a look at another point in the plan, which is to introduce an Empty Homes Tax in the City of Toronto. This plan has already been unrolled in Vancouver, but does it have a place in the GTA?
A little background information
Earlier this year, Vancouver implemented an Empty Homes Tax to help the city’s acute rental property shortage. The way the tax works is that homeowners who leave their home vacant for 6 months of the year (in periods of 30 or more consecutive days), must pay a tax on the property. An exception is those who leave their principal residence for six months or more to travel or live elsewhere, those seeking medical treatment out of the home, and those with homes under renovation. A full list of rules and regulations surrounding the tax in Vancouver can be read here.
Any homeowners who have failed to fill out the form would be mandated to pay the 1% tax on the assessed value of their homes, and those who have made fraudulent claims would face a charge of $10,000 per day, as per the City of Vancouver. With the average cost of a house in Vancouver’s West end being around $3.6 million, that would mean taxes owing would be $36,000 per year by the homeowners who leave their home vacant. The hope in charging the tax is that it would entice homeowners to rent their homes out instead of paying the tax, which would create around 25,000 units in the rental market.
Now that we have a little background information on what the Empty Homes Tax intends to do for the rental property world, do the pros outweigh the cons in Toronto? Many people have voiced their concerns with introducing this tax in Toronto, including the city’s mayor, John Tory. He has ruled out copying Vancouver’s approach to the tax, as he believes it is presumptuous and unfair. Data collected by city officials estimated that there may be 15,000-28,000 vacant units in the city, based on water and hydro consumption within the year. However, this has been recognized as being an inaccurate way to determine if a home is vacant or not. There must also be exceptions to the tax, such as homes under renovations or those on vacation, such as it is in Vancouver.
One of the most obvious pros to introducing this tax in Toronto is that it would hopefully increase the amount of rental properties available in the city. And in reality, it’s hard to see how it wouldn’t. Homeowners can rent their property out while they are not there and make money that will help them pay their bills, rather than paying their bills with no assistance (that a rental income would provide), and on top of that, paying the 1% tax of their homes assessed value.
Another pro is that this would act as a deterrent for prospective home buyers looking to buy a second property. As stated above, if it is not a principal residence, the homeowner will be subject to pay the tax if their home is unoccupied for six months or more during the year. With that in mind, buyers may not want to purchase a second property if they know they won’t be living there fulltime and will be subject to the tax. The same can be said for foreign buyers, as they will then be subject to paying both the empty homes tax and the foreign buyer’s tax if they purchase a second property in Toronto. This will leave more houses available for first-time buyers, and the increase in supply could lead to a cool down in the market.
A third pro is that the revenue generated by this tax could possibly go towards the development of new units, which would create more rental opportunities and help cool down the market as well.
There are some cons to introducing an Empty Homes Tax in Toronto, such as the costs it will take to run the operation. When looking at Vancouver, it cost $7.5 million to implement the tax, and operating costs are $2.5 million per year thereafter. Luckily, Vancouver estimates a total revenue of $30 million per year, but if that is not the case for Toronto, it could have a damaging effect. If the tax costs more to run than it generates in revenue, it will not benefit the economy and may be scrapped down the line.
Another con is that the information collected to determine a home’s occupancy (based on hydro and water data) cannot be determined a reliable estimate because of privacy legislation. This means it could be hard to label individual properties as vacant and enforce any future tax.
So, should Toronto introduce the tax?
After looking at both sides and seeing how well the tax is taking off in Vancouver, I would say it is more of a pro than a con to try to introduce the same tax in Toronto. With the shortage of rental units that the city is currently facing, and no other options being suggested, this could be really helpful to take some pressure off the market and introduce opportunities for renters.
About Nancy Savio – 4Rent.ca
Nancy Savio is a Contributing Editor for Media Classified, the parent company of 4Rent.ca. 4Rent has been successfully connecting apartment hunters and property managers since 2009. Prospective tenants can explore a variety of rental listings across Canada, including condo-like apartments, single home-dwellings, student housing and more.