Taxing Vacant Rental Homes

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The St Catharines Standard, my local newspaper, recently published an article (on August 16) reporting on a recent city council debate and vote about one councillor’s suggestion to apply a special tax on “vacant homes” in the city to encourage landlords to rent them out instead of letting them sit vacant, and to use the tax proceeds to support the development of affordable housing. The introduction of a similar tax in Vancouver was cited as support. You can read the full article via the link below.

As the article explains, St Catharines city council voted to endorse the idea in principle and to ask the Region of Niagara to investigate it further. That probably means it will ultimately disappear when someone eventually comes up with a good legal or governance reason why it’s not a good idea. Needless to say, landlords don’t like the idea, but lots of weird ideas pass through government and never get adopted or implemented, so landlords probably shouldn’t lose sleep over this idea.

Putting aside the question of whether or not the idea will be adopted, there are a bunch of good reasons why proposal isn’t workable. First, most landlords have no vacancies. Any landlord who is serious about renting, whether it’s a house they own or an apartment tower, knows that a vacant dwelling or apartment unit is a money drain. There is no advantage to keeping a dwelling vacant for weeks or months in the hope of achieving some high rent. That’s a form of speculation that just doesn’t pay off, especially as the vacancy extends over months. No serious landlords are waiting for a unicorn renter with deep pockets to come along and pay an outrageously high rent for their unit.

Second, it’s difficult to identify vacant dwellings. As I said above, most landlords have no vacancies. That got me thinking: how would I identify vacant dwellings if I was asked to do it? In Toronto I would dig through MLS listings and check “days on market” for dwellings offered for lease. That would a good start. There are probably ways to check using land registry or tax assessment records, none of which I know anything about. Insurance companies might know if the dwellings they are insuring are vacant, although most people probably don’t bother to keep their insurance company updated on things like that, and, even if they did, the insurance companies wouldn’t share the info. I guess a public drive to get people to notify the city about vacant dwellings might yield results, but city employees would have to physically check every property and busybodies would generate a lot of false positives. One method might be to drive around in the evening and see which houses had their lights on or not, but there’s a bunch of accuracy problems with that approach and it’s mostly anecdotal. I won’t go on with more examples, but I think I’ve made clear the difficulty of identifying vacant dwellings with the accuracy necessary to apply a tax.

Third, most vacant dwellings are vacant for good reasons which have nothing to do with asking rents being too high. Good reasons, for example, could be the property is tied up in an estate dispute or other legal problems, it’s being held vacant in anticipation of a sale, it’s owned by several owners who can’t decide what to do with it, the owner died and his or her family is reluctant to dispose of it for sentimental reasons, the property is not safe or ready for occupation, the owner is awaiting an insurance settlement, etc.

Fourth, demand for housing is so high in southern Ontario that many renters are willing to pay (almost) any rent for (almost) any quality just to have someplace to live. This means that if a landlord is asking too high a rent for his or her unit, whether because the rent is too high compared to pricing in the local market, or the rent is too high for the quality of the unit, then the landlord is clearly out of touch with reality and no amount of taxing is going to budge his or her stubbornness.

Finally, St Catharines is a lot different than Vancouver. What worked in a city of nearly 2.4 million people won’t necessarily work in a city of around 133,000 people. Also, Vancouver’s real estate market was dealing with a set of special circumstances and challenges that aren’t found in other cities in Canada, at least not at the scale and scope of the situation in Vancouver.

In summary, I’ll repeat my view that landlords probably shouldn’t lose any sleep over this councillor’s proposal. If the Region studies the claims underlying this proposal I expect they’ll find there is no real problem. I’d be willing to bet that the councillor who suggested this idea got a handful of telephone calls from constituents complaining about a couple vacant houses in their neighbourhood, so if there is a problem it’s likely localized and small-scale—by contrast, hundreds of vacant units all over the city would be a much different situation. That said, it’s important for professional landlords to keep engaged with the city and city councillors and to keep making the case for the development of new purpose-built rental housing as a solution to affordable housing shortages, and to remind everyone that ideas such as this tax—which would affect only a handful of dwellings in a city that contains thousands of houses, townhouses, condos, and apartments—would provide no help at all in getting new housing built in the city, and, for the reasons I’ve discussed in this post, would be very difficult to implement.