Toronto eyes vacant home tax, though some say it will do little to boost affordable housing

Toronto is proposing a tax on vacant homes in a move that Mayor John Tory says would boost the city’s housing supply and raise as much as $66 million in revenue.

But critics say it’s a move that would do little to ease the shortage of affordable homes.

The city isn’t sure how many homes are sitting empty, but based on utility consumption, it estimates there could be between 9,000 and 27,000, says a report to Toronto’s executive committee released Thursday.

The proposed tax is modeled on Vancouver’s vacant homes tax, which requires property owners to declare their home’s occupancy.

At a rate of one per cent, the proposed tax would raise between $55 and $66 million a year, according to the mayor.

The province confirmed that Toronto has the authority to approve the tax, which would take effect in 2022, if passed by city council.

The city staff report recommends spending $11 million in the next two years on planning and implementation.

“It will encourage people not to leave homes vacant. That is the real purpose — not to leave homes vacant when we have a shortage of housing in the city,” said Tory, who stressed that most Torontonians won’t pay the tax.

“If you want to live in your house or condo, you will not pay this tax. If you own another house or condo and you lease it out to somebody or there’s a tenant in it, you will not pay this tax. If you’re sick and have to go in the hospital or into long-term care you will not pay this tax,” he said.

“Even if you go to Florida for half the year or have to have your house renovated for a period of time and it’s vacant during the renovations, you will not pay this tax.”

Tory said he would be happy if the tax didn’t raise any money “because it meant there were no homes sitting vacant.”

He downplayed the impact of the tax on Toronto’s real estate market.

“The housing market is proving itself to be remarkably healthy,” said Tory. “I think we’re going to return after the pandemic to an environment of more immigration coming to Toronto, more investment coming to Toronto and restore our place as one of the fastest-growing cities in the world.”

During the pandemic, the Toronto real estate market has soared, with the exception of downtown condos. Slowed immigration, the lack of students and restrictions on short-term rentals have suppressed rents in the core and left landlords competing for tenants.

The Toronto Regional Real Estate Board said that casts doubt on the need for a vacancy tax.

“Given the current state of the Toronto rental market, the purpose of such a tax is not immediately clear,” said a statement from John DiMichele, the real estate board’s CEO.

A KPMG report reviewing the issues around the vacant homes tax, including the impacts of COVID-19, notes that Toronto’s rental vacancy rate rose three times higher year over year in the third quarter to 2.4 per cent and was higher still in the mid-town and downtown areas.

Although the city is likely to continue its growth, making housing affordability a long-term issue, KPMG said it can’t be known if and when vacancy rates will return to pre-pandemic levels. It warns that implementing such a tax during the pandemic could impose hardship on landlords struggling to rent their properties in the current recession.

Toronto has been studying the possibility of a vacant homes tax since 2017 when the province gave municipalities the power to implement such a measure.

Earlier this year Coun. Ana Bailao, the city’s housing advocate, tried to get it approved as part of the city’s 2020 budget.

Coun. Joe Cressy said he has long favoured a vacant homes tax.

“Any revenue from this tool can be dedicated to expanding affordable housing supports, like housing allowances, to help even more people find housing and stay in their homes,” he said in a statement.

Vancouver’s empty home tax, first implemented in 2017 at one per cent, requires property owners to declare the occupancy status of their home by the second business day of February or it is deemed vacant and made subject to the tax and a $250 fine.

“The city conducts both targeted and random risk-based audits to help validate property status declarations, and to encourage the highest possible level of compliance,” said a city spokesperson.

The public can also report any residential properties they believe to be vacant and the city will investigate, she said.

Vancouver claims a 25 per cent drop in vacant properties since the tax was introduced in 2017. The revenue it raised dropped from $38 million to $36 million between 2017 and 2019, as the vacancies dropped.

The tax rate was bumped to 1.25 per cent in 2019 and, Vancouver council recently decided to boost it to three per cent, starting in 2021.

“We’re sending an even stronger message that homes are for people, not speculation,” Vancouver Mayor Kennedy Stewart said in a news release last week.

Royal LePage CEO Phil Soper said he is sceptical that Vancouver’s tax has made a material difference in the availability of affordable rentals, and Toronto’s vacant home problem isn’t on the same scale as the west coast city’s, he said.

The kind of homes that would sit vacant in an expensive city like Toronto are a long way up the property ladder from desperately needed affordable housing, said Soper.

“Rich people don’t buy 500-square-foot condos in a building aimed at renters and first-time home buyers,” he said. “In the world’s great cities — New York, Mumbai, Singapore — wealthy people collect homes and they don’t mind the carrying costs because if they pick their properties right, appreciation will cover much of the carrying costs. If they happen to be in town they’ll use it.”

Soper said he doesn’t oppose a vacant homes tax but, “it’s not a substitute for building more homes when you have a shortage, which is what we have in Canada.”

The tax won’t hurt anyone and it could raise municipal revenue. But the city risks discouraging investment if the tax is too high, he said.

According to Vancouver’s website the fine for failing to declare the home’s occupancy is $250. The penalty for a false declaration is $10,000.