Vancouver Empty Home Tax: Benefiting local housing, tax on foreign nationals, or just an overall tax on the lazy?
The Vancouver Empty Home Tax is the hottest topic right now for many different reasons. It relates to the influx of foreign investment in properties, the locals that have multiple properties and of course anything that's a tax will always be a touchy subject regardless of where you stand. While only implemented in the city of Vancouver, many around the United States have been discussing what kind of effect it could have on their cities. If you're wondering what this tax is all about, read on and maybe you won't be so confused.
The tax states properties that are vacant, empty, or do not contain a principle resident will get taxed at the rate of 1% per year. At the end of every year, property owners will have several months to file an "Empty Home Tax Declaration" where they will be asked to prove that they are principle residents meaning it's their primary residence or that the property is being rented out for at least 6 months out of each year. If they don't meet these constraints, they'll be taxed at 1% of your property value. And if they don't submit a declaration, they'll be charged that 1% tax anyways in addition to a $250 fine. The bill, in response to the growing number of empty residences is trying to combat the growing rental prices as options to rent begin to dwindle from the lack of supply. The idea is that as incentive not to get taxed, property owners will start renting out their properties which would help alleviate the renting supply issue. Or if they live in their property themselves, they will at least contribute to the local economy. And if they decide to leave their properties empty, at least the tax will have, "net revenues from the Empty Homes Tax" which "will be reinvested into affordable housing initiatives", according to the Vancouver city site.
Vancouver will never formally state this, but it's widely believed that this tax is in response to foreign investment in local properties. With uncertain futures in their home country coupled with extremely favorable immigration laws in Canada, many affluent Chinese see Canada, and specifically Vancouver in this case as a great investment opportunity.
But first taking a step back, to understand the Empty Home Tax, we'll have to look at a program that has helped speed up the influx of immigration. The Immigration Investor Program is a program that essentially fast tracks citizenship through an interest free investment in Canada. The 3 requirements to be considered are: "1. show that they have business experience, 2. have a net worth of at least C$1,600,000 that was gained legally and 3. invest C$800,000". In short, if you want citizenship, just buy it. Making it so easy for the rich to achieve Canadian citizenship has paved the way for real estate investment that has been slowly leading to the big empty property issue. With empty properties just being used as investment vehicles, the market for real estate continues to rise while the overall supply dries up. While foreign investment isn't inherently negative, the issue that's brought up is that these vacancies could provide housing for those that would consume and contribute to the local economy. Instead left empty, only benefiting the property owner. With the empty home tax, in theory, the city will get back the money that's being lost out on.
So, overall the tax seems to be a good thing for the local citizens of Vancouver right? Well, in actuality, possibly not. This tax isn't a broad bill that just outright taxes everyone that has an empty property. In fact, there are several points that will exempt property owners from being taxed that include: if the property is under a court order, the property owner is undergoing medical care, and more. Of course, with these exemptions proof must be provided, but there is a possible loophole that seems to be fairly easy to take advantage of. Under Vancouver's site, they list a principal residence as: "the place where you usually live and make your home and conduct your daily affairs. This is the place where you receive mail and pay your bills from, including utility bills." Question is, what's stopping someone from just having the majority of their mail being sent there and hiring an individual to take charge of collecting it. Is it a possibility that this tax could really be a tax on lazy property owners?
Possibly, but after a year of the tax being in effect, a little more than 8,000 properties were deemed taxable. Of course, we should hold our breath, and wait another year or two to see if results continue to play out. In the following years, does the number of "vacant" homes lower? And if so, does the number of additional residents actually rise in-line with the opening of new vacancies? While maybe not the end all to ever rising property and rental prices, this is a step in the right direction in helping with the local populace and their fight for affordable housing and could help your city if it's seeing the same issue of empty foreign real estate investment.
Understandably this issue is a hot topic however you stand, with or against it. On one hand, the tax is helping the local economy and making up for the lost consumption that additional citizens would contribute if housing was more affordable. On the other hand, property owners are already being taxed and contributing to the local economy. They still are being paid charged property taxes that benefit the city already, so the empty home tax is just another tax being sprung on property owners. Whatever side you support, let me know what you think.
(check out the quick video below for a summary of the tax)
For further reading, check out the links below: