It's hoped that the tax will encourage those who own vacant properties to rent and thereby increase affordable housing stock in the city
Toronto’s chief financial officer is recommending the city move forward with a tax on vacant properties. It’s hoped that the tax will encourage those who own vacant properties to rent and thereby increase affordable housing stock in the city.
In a report scheduled to go to the city’s executive committee on December 10, Heather Taylor recommends that the city establish a project team to come back with a framework by the second quarter of 2021 to be implemented by 2022. The recommendation, which estimates it will cost $10 to $13 million to put IT systems in place, is being backed by the executive director of the city’s housing secretariat, Abigail Bond.
“The intent of this tax program is to influence any vacant homeowner to occupy or rent out their dwelling for at least six months per calendar year, or else pay this tax,” Taylor’s report states.
It’s unknown how many vacant properties there are in Toronto. That will be clearer, the report says, after full implementation of the proposed tax sometime in 2023.
But using metrics from the city of Vancouver, which established an Empty House Tax in 2016 to discourage real estate speculation, the city estimates that the revenue raised could be anywhere between $55 to $66 million annually.
The report says that what constitutes a vacant home for the purposes of proposed tax will also have to be determined, as will possible exemptions.
It says that “the prevalence and reasons for homes being left vacant in Toronto may have been affected by the COVID-19 pandemic.”
A review conducted for the city by consultants KPMG notes that the economic and social fallout from the pandemic will cost the city some $1.9 billion by the end of 2020 – the city is expecting a budget shortfall of $1.3 billion – and some $1.5 billion in 2021.
The pandemic’s impact on the real estate market has been just as pronounced.
The report says home sales in Toronto dipped about 16 per cent in March. That was followed by declines of 67 and 53 per cent, respectively, in April and May, denying the city millions in revenue from land transfer tax on the sale of homes.
Housing affordability continues to be an issue, despite the drop in home sales. The average price of homes, the report notes, rose from 10 per cent for condos and townhouses to up to 25 per cent for single-detached dwellings.
The rental housing market, meanwhile, has seen a rise in vacancies with a 30 per cent to 113 per cent increase in condo listings over the spring and summer, marking the first time in more than a decade that the vacancy rate has surpassed 2 per cent in Toronto.
Demand for housing, however, is expected to increase despite the disruption caused by the pandemic.
The KPMG report notes that “Canada has committed to increasing immigration targets between 2021 and 2023, partially to account for the reduced levels of immigration seen during the pandemic,” which will increase the demand for housing in the Toronto market.
At the same time, the report cautions that the “downward pressure on the housing market” could continue for several years. But that a tax on vacant properties “has been demonstrated in other jurisdictions as a public policy tool that can increase the supply of housing and help to address housing affordability.”
The report adds that “the City will need to consider if a time of economic uncertainty is the optimal time to implement a new tax.”