vacant dwelling tax

Vacant dwelling tax deemed costly to collect

Wednesday, April 11, 2018

A tax on vacant residential units would be costly to collect and do little to increase Toronto’s supply of affordable housing, a new report to city council’s executive committee concludes. Provincial legislation enacted last year gives Toronto the flexibility to impose a special levy on houses and condominium units that owners have purposely left unoccupied, but financial policy staff advise that won’t be a straightforward task. They recommend more study, including monitoring the results of similar taxes now being rolled out in Vancouver and Melbourne, Australia, before council makes a decision.

“There is no reliable estimate for the number of residential units that may be vacant in Toronto, but could otherwise be rentable,” the report states. “If homes that are rentable, but are intentionally being left vacant could be readily identified, then a vacant home tax would be simpler to implement and would be a sensible tool to apply to achieve the policy objectives of increasing housing supply or providing a source of funds for housing initiatives, or both.”

In contrast, the report outlines the many complications that could push administrative costs above expected revenue. Much of the data that might indicate if a unit is vacant comes from fragmented sources, is not currently collected or inaccessible due to privacy issues, and is frequently inconclusive.

For example, recent Toronto hydro and water data reveals 15,000 to 28,000 residential units with low consumption levels, but that could be attributable to various reasons. Owners could be travelling, convalescing in a healthcare facility or simply frugal. The city also issues thousands of residential building permits every year, which often means units are vacant because they under renovation.

Vancouver’s methodology — requiring all householders to annually declare whether a property is their principle residence or be subject to an automatic surcharge on their tax bills — would be much more unwieldy across Toronto’s approximately 752,000 residential tax accounts. “It is difficult to anticipate the significant administrative challenges associated with adoption of such an approach for Toronto,” the report observes.

Drawing on more than 8,000 survey responses from the public consultation conducted last year, about three quarters of respondents favour the general concept of a vacant dwelling tax. However, only 39 per cent would support the tax if it generated less revenue than the cost to administer it.

Beyond the challenge of identifying who should be taxed, the report questions how vacant residential units relate to the dearth of affordable supply and if a tax would motivate owners to release vacant housing to the market. It hypothesizes that owners who have already chosen to forego approximately $32,000 in annual rental income that a two-bedroom condo unit could typically command in the Toronto market may not be swayed by an additional $4,000 to $5,000 in tax. Owners of vacant units who responded to the city’s consultation also confirmed they would be unlikely to offer them for affordable rents.

“The hallmarks of a good tax tool is that it is shared in a fair an objective manner having regard for capacity to pay, that it can be provided at a low administrative cost with an objective assessment mechanism, that tax avoidance will be negligible and that the tax will be accepted by the public,” the report states. “Based on this evaluation, a vacant home tax does not meet many of the principles of a good tax.”

Local governments in New York and London appear to have drawn the same conclusion, as they considered then rejected the imposition of a vacant unit tax. Toronto policy advisors will be observing and assessing outcomes in Vancouver and Melbourne, where 2018 will be the first year a vacant dwelling tax will be collected. Already, the costs to implement Vancouver’s program have increased from the 2016 estimate of $4.7 million to $7.4 million across a base of approximately 225,000 residential taxpayers.

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