Vancouver Announces Empty-Home Tax to Take Pressure Off Rental Market
New tax takes effect on Jan. 1; highest penalties could reach C$10,000 a day
Vancouver is implementing a new tax policy to rein in an overheated real estate market by forcing absentee landlords to make their vacant homes available for lease.
Starting Jan. 1, the Empty Home Tax will be slapped onto certain homeowners, and it will cost them up to 1% of the property’s assessed value, Vancouver Mayor Gregor Robertson announced last week. For a million-dollar home, that will mean an extra C$10,000 (about US$7,380) in taxes.
“Vancouver is in a rental-housing crisis. The city won’t sit on the sidelines while over 20,000 empty and under-occupied properties hold back homes from renters,” Mayor Robertson told reporters at City Hall on Nov. 9 in providing details of the proposed administrative policy.
Vancouver residents, including those who spend their winters at nearby ski resorts, will be exempt from the empty-home tax. Principal homes, as well as properties that are rented for at least six months of the year on 30-day minimum leases, won’t be taxed either, according to the mayor’s office. The proposed tax allows for owners/tenants to be away from home for extended periods so long as the home is their principal residence for the amount of time that City Council specifies.
The new tax rule has yet to be finalized, but the City Council has endorsed the new tax in principle.
There are more than 10,800 homes in the city that are empty and 10,000 more aren’t fully occupied, according to the city’s official estimates. In addition, Vancouver has one of the lowest rental vacancy rates in Canada, averaging 0.6% in 2015 and 0.5% in 2014 respectively. A rental vacancy rate between 3% and 5% is considered to be a “healthy” balance between supply and demand, according to the administration.
Foreign buyers who own empty homes as investment properties may have no financial need to rent out the home but they can still make thousands — even millions — of dollars within a year, thanks to price hikes in the city’s residential market.
Looking to avoid a ‘bubble’
Home prices in Vancouver have increased by more than 25% since the end of 2014, according to a report released in September by UBS AG, which also ranked Vancouver as one of the global financial centers facing the highest risk of a housing bubble.
The rental price is also increasing due to a near-zero supply. In October, rental prices for two-bedroom units in Vancouver have grown by 4.5% to $2,800 compared with the previous month, while rents for one-bedroom homes jumped 2.9% to $1,800, according to a report by PadMapper, a web site focusing on Canada’s rental market.
The provincial government of British Columbia and the federal government have introduced measures to cool the real estate markets before. Starting in August, foreign investors in the Greater Vancouver area had begun being subject to a 15% purchase tax.
How it’ll work
Homeowners will self-declare whether their property is a primary residence. While those who don’t declare will automatically be taxed, making false declarations could lead to a maximum fine of C$10,000 a day. Owners will face an additional 5% penalty for late payment.
How the new tax will impact foreign buyers and the residential market will become clear over time.
“Initially, any new taxation will make buyers want to wait-and-see, but I believe Vancouver, as a whole, will continue to drive the world market in the years to come, due to its beautiful geographic location and quality lifestyle that draw broad interests domestically and from overseas,” said Jason Soprovich, a Vancouver-based agent with the country’s leading brokerage Royal LePage.
“It will be a difficult task for the government to investigate and police the empty homes,” he added.
