Have you been tracking the potential vacancy tax that was announced for Toronto? To help you catch up, we’ve pulled together all the facts and the latest updates below. At the very least, it’s important to know that Toronto has officially delayed adding a vacancy tax to homes for at least another year. Further investigation will be conducted to determine whether or not a new vacancy tax will actually increase the city’s supply of rental homes or cause unintended consequences on the housing market and property owners. To learn more about the potential impacts that this new vacancy tax could have on you as a renter, owner or investor, read on.
It has become incredibly difficult to find affordable housing in Toronto. A vacant housing tax would aim to mitigate the housing crisis by increasing rental supply in the housing market and helping to lower rental rates. The money brought in could also be used to build more affordable housing in the city, adding even more supply.
Homeowners and investors, on the other hand, don’t see the tax in the same light as tenants. Many homeowners argue that it’s not their responsibility to put more affordable housing units back on the market. Some believe it’s a potential infringement on property rights and that it might not remove the obstacles for gaining new housing supply. And if homeowners are not planning to put their unit on the market as a rental, then the City is simply taxing owners with no benefit other than revenue generation. In this situation, instead of solving a supply problem, the tax would merely hurt homeowners who are already struggling with the cost of living in Toronto.
In 2017, Vancouver issued an empty homes tax at 1% (currently 1.25%) of the assessed value for properties that are not listed as the principal residence of the owners or are rented out for at least six months of the year. Since inception, the tax has generated nearly $40 million in net revenue and has led to a decrease in vacant properties across the. However, most of the supply added was in high-end properties and not affordable units. Considering most people could not afford to rent these properties, the tax has proven to be more of a revenue generator than a method of directly increasing affordable rental supply.
This leaves the question, are there better ways to bring on more rental supply? Many experts believe so. The Toronto Real Estate Board has also raised the issue of private property rights and administrative challenges and believes that the City should exercise caution while taking necessary measures to avoid any inadvertent consequences on homeowners and investors.
Right now, it’s all in the hands of the City’s financial officer. Once the 2020 budget has been set, the City’s financial officer will be required to complete a report on the proposal by the second quarter of the year. For now, we wait for the report to see what direction the City will take and how Vancouver’s experience with their vacancy tax will influence the decision.
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