Toronto has found a new way to deal with the lack of affordable housing. As real estate speculators who invest in multiple properties and then leave them unoccupied, residents find it hard to find affordable housing.
On July 15, 2021, Toronto City Council approved the Empty Home Tax w.e.f. January 1, 2022. This proposed tax is similar to the framework of the Empty Homes Tax, already implemented in the City of Vancouver. This new by-law will designate any property left unoccupied for a minimum of six months in a calendar year as vacant property. Such property owners will have to pay a tax of 1% of their overall market value. However, there will be some exceptions to this clause. Like, the owner need not pay the tax if (s)he has died, is a snowbird, is in medical care or if the house is under renovation.
The proposed tax is 1% of the assessed value of the property. So, if the value of the assessed property is $1 million while vacated in 2022, the owner would have to pay an additional $10,000 in annual tax.
2022 will be the first tax reference year, and therefore, the tax will become payable for the first time in early 2023.
Some critics of this new law are not happy with the 1% tax rate. According to them, people with a lot of financial capacity and wealth buy and sit on properties like this by leaving them vacant for their own purposes. They can easily afford a three per cent tax, according to experts. 1% is way too low for the income bracket they have.
Why implement this tax?
The city council hopes that imposing this tax will bring more vacant properties to the resale or rental market. It will help in keeping a check on housing speculation.This new law is a step towards finding a solution to the housing affordability crisis of Toronto. According to the city, the goal of the tax is to encourage more investors and owners to bring their unoccupied properties back to the market to help elevate the housing supply crunch of Toronto.
John Tory, the Mayor of Toronto, said that the City Council would invest the revenue generated by taxation in affordable new home construction and housing programs. He said, “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 are making housing available. For those who want to have properties sit [vacantly], you will pay a tax that helps us build more affordable housing”.
Efficacy of the Empty Home Tax
As the law dictates, property owners will have to declare the status of residential homes every year. It will determine the occupancy status of the residencies and whether they are eligible to pay the tax or not. It is to be done via mail or through online portals. The Mayor remarked that it is the homeowner's responsibility to declare if the property falls in the Empty Home Tax bracket or not.
It is, however, currently unknown exactly how many properties will be affected by this new tax. One can get an approximate figure of this by looking at the Metro Vancouver Region, where a similar tax was implemented in the fall of 2017.
The Toronto city staff estimated that the vacant home tax would generate between $55 million and $66 million per year. The city could use this money to fund affordable housing projects. The pandemic has caused the rental apartment vacancy rates to go up. According to a January survey by CBC News, comparing the vacancy figures with the last fifty years, it is at its peak. Urbanisation reported that 5.7 per cent of rental apartment units were vacant in the fourth quarter of 2020, compared to the 1.1 per cent in the same quarter of 2019.
The executive committee is also considering a luxury home tax, which the City Council put off to the 2022 budget for further consideration. Homeowners with properties worth $2 million or more would be facing an increased municipal land transfer tax up to 3-4% from the current 2.5%. The tax might bring more than 5,000 condos and long-term rentals back to the market. It will ensure a 25% decline in vacant homes, thus bringing in $61.3 million in rent revenue.
The average detached house price in Toronto was $21.5 million in 2020. The tax will target homeowners who are not “uber-rich”, according to Kevin Crigger, the President of the Toronto Regional Real Estate Board.
Empty Home Tax Will Boost Housing Supply
Lack of supply has long plagued the housing market. The strong migration and speculative real estate investment have only added to the issue. According to the Toronto Regional Real Estate Board, the number of new listings that the market brings in each month gets outpaced by sales growth. It creates an ongoing supply-and-demand imbalance.
The real estate activity has been somewhat slow since March of this year. However, the board foresees a steady demand ramping back up once the borders open to international buyers. It, therefore, has updated its annual forecast higher in anticipation of a buying boom anticipated later this year. “I’m happy to see Council approved a vacant home tax today,” Mayor John Tory said in an issue released by the City Council on the new decision regarding the tax.
It is only a matter of time for market watchers to wait and see whether this latest tax development measure will be effective or not in improving supply and pressure on home prices. Though only a small percentage of people will pay Empty Home Tax, its benefits are bound to be felt by many as it will increase the availability and affordability of housing supply in Toronto.
Image Source: The CN Tower can be seen behind condos in Toronto’s Liberty Village community in Toronto on Tuesday, April 25, 2017. THE CANADIAN PRESS/Cole Burston