If you’re a real estate investor or owner with a property sitting empty in the City of Toronto, you could be paying a pretty penny as early as next year.
Toronto City Council has approved a plan to implement an Empty Homes Tax as of January 1, 2022. The new bylaw will require that any property sitting vacant for a minimum of six months out of the calendar year will be deemed vacant and subject to a tax of 1% of its overall value. However, there will be some exemptions such as if the owner has died, is a snowbird, is in medical care, or if the home is under renovations.
The goal of the tax, according to the city, is to encourage more investors and owners of empty homes to bring their properties back onto the resale or rental market to help alleviate Toronto’s housing supply crunch, by “creating a disincentive for homeowners to keep their properties vacant.”
As 2022 will be the first tax reference year, it will become payable in early 2023. The onus will be on property owners to declare their home’s status at tax season – for those who fail to do so, it will be assumed their home is vacant, and they will be subject to the tax.
Toronto Mayor John Tory indicated that any revenue generated by the tax will be put towards affordable new home construction and programs.
“I’m happy to see Council approved a vacant home tax today,” he stated on July 15. “While a majority of Toronto property owners will not pay this tax, the benefits will be felt across the city by increasing the availability and affordability of housing supply. By opening up vacant homes to the housing market, either by renting or selling, we are signalling that if you work in Toronto and want to live in Toronto, we’re making housing available. For those who want to have properties sit vacant, you will pay a tax that helps us build more affordable housing.”
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How Effective Will the Empty Homes Tax Be?
While it is currently unknown how many homes could be considered vacant in Toronto, we can look to the Metro Vancouver Region, where a similar tax was implemented in the fall of 2017, for an idea of how impactful it may be. Assuming that 1% of all housing stock in Toronto is vacant, the tax could generate between $55 million – $65 million in revenue.
Like Toronto, the Vancouver housing market is challenged by a lack of supply, both at the ownership and rental level. At the time the tax was introduced there, the city was experiencing a historically low vacancy rate of 0.7%, and it was expected to impact between 20,000 to 25,000 homes. The tax has since been credited with bringing more than 5,000 condos and long-term rentals back to the marketplace, a 25% decline in vacant homes, and bringing in $61.3 million in net revenue that has been put towards affordable housing initiatives.
In fact, the Vancouver empty homes tax has been so effective that the tax rate was tripled to 3% in 2020 to help weed out the remaining 2,000 vacant homes lingering on the market. It remains to be seen whether there will be a similar future tax hike in Toronto.
Empty Homes Tax To Boost Toronto Housing Supply
This tax is one of the recent methods undertaken by the City of Toronto to improve housing affordability in the city, as home prices have steadily increased over the past decade; the average home price in the city hit $1,079,749 in June, marking a 126% jump from the same month in 2011. This price growth was also amplified over the course of the pandemic, rising 28% from $839,363 in January 2020.
Lack of supply has long been pointed to as a key issue facing the housing market, coupled with strong migration to the city, and speculative real estate investment. According to the Toronto Regional Real Estate Board, the number of new listings brought to market each month is regularly outpaced by sales growth, creating an ongoing supply-and-demand imbalance.
While real estate activity has started to slow somewhat from this year’s March peak, the board foresees demand to ramp back up once the borders reopen to international buyers, and has updated its annual forecast higher in anticipation of a buying boom later this year.
“We have seen market activity transition from a record pace to a robust pace over the last three months,” states TRREB in their June report. “While this could provide some relief for home buyers in the near term, a resumption of population growth based on immigration is only months away. While the primary focus of policymakers has been artificially curbing demand, the only long-term solution to affordability is increasing supply to accommodate perpetual housing needs in a growth region.”
Market watchers will be taking a wait-and-see approach on whether this latest tax measure will be effective in improving supply and pressure on home prices.