Vancouver councillors support empty-homes tax despite dubious results

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Vancouver’s precedent-setting empty-homes tax resulted in only 117 homes being converted to rented from vacant in the second year of its operation, according to a staff report.

And the agency that tracks Canada’s housing statistics noted that almost 1,100 homes were removed altogether from the rental market in the first year of the city’s empty-homes tax (EHT).

That means the proportion of Vancouver homes rented out fell to 24.5 per cent in 2018, compared to almost 26 per cent in 2017, said Canada Mortgage and Housing Corp. analyst Eric Bond.

In spite of those dubious results, Vancouver councillors are not only supporting the tax for future years, but have approved tightening up the regulations to prevent some owners from avoiding it through loopholes in the current law.

“We are seeing some effect, it is moving empty units,” Mayor Kennedy Stewart said, unperturbed by the low numbers of new rentals produced in the Vancouver initiative.

As well, councillors narrowly rejected a suggestion this week from NPA Councillor Lisa Dominato that staff look at ways of exempting people whose properties aren’t completely vacant because they are extensively used as second homes during the year.

However, staff and some councillors are wary of the mayor’s suggestion that the tax should be tripled from its current level of 1 per cent of assessed value in order to push even more owners of empty properties into renting or selling.

The city’s director of financial services, Melanie Kerr, noted in her report that raising the tax could result in people trying to avoid it altogether through legal mechanisms.

The current EHT means that owners of vacant properties pay about the same rate of tax as a business.

If the EHT goes higher than that, the city could run the risk that owners will start to convert their properties to business-tax classes in order to avoid the new levy, Ms. Kerr said.

“It is possible that increasing the rate would result in property owners attempt to re-class their property to be scoped out of the EHT entirely,” she wrote.

An expert in international property valuation and taxation said she is not surprised that the results of Vancouver’s EHT seem inconclusive. Joan Youngman said the new taxes that cities around the globe are creating to address housing-affordability issues are still in the experimental stage.

“Everyone is struggling with the issues and we cannot say we’re at a point where an economist could say … there has been ‘this effect,’” said Ms. Youngman, a senior fellow with the Lincoln Institute of Land Policy in Boston, which studies land use.

Besides Vancouver, Washington and Oakland have both placed taxes on vacant property recently.

Toronto is also considering the idea, but the most recent report to city council last April said there would be a number of challenges and recommended studying the idea further.

Architect and developer Michael Geller, who has campaigned publicly against the speculation tax, said Vancouver is not really accomplishing what it wants with the tax.

He said he knows of a number of people who, to avoid the EHT, have sold their condos and instead are now renting. That means that there is no real change in how many units are occupied, he said.

Ms. Kerr’s report recommended the city tighten up some of the current exemptions to the tax.

Among the changes she recommended were those related to owners renting out to family members or to their own companies; to people claiming they need a unit in Vancouver for their work; to estates dealing with properties after an owner dies; and for buyers and sellers claiming an exemption in the year a home is sold.

The report noted that an owner "might attempt to avoid paying the tax on an unoccupied second home by entering into a rental agreement with a corporation [which they might own] or a family member or friend, without the property actually being occupied.”

As well, at least one person tried to get an exemption for a city pied-à-terre by claiming that they had to be in Vancouver sometimes to work on their novel.

That was rejected with no need for a change in the current rules.