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The Occupancy Tax – An Argument for Taxing Property based on Vacancy

1 Dec

Like many scientific bodies, StatsCan has suffered horridly at the hands of the Conservative government, and is left with limited resources to assess issues such as the impacts, real or false, of off shore investors on the affordability of real estate in Canadian cities.

Yet while Statscan data is limited, bodies such as the MLS have cobbled together data that demonstrates single family homes, duplexes, and large condos in the City of Vancouver, Richmond, and the North Shore have become detached from the rest of the real estate market and are no longer related to real incomes of people living in the GVRD. Furthermore, while no formal data exists, inhabitants of many of these neighbourhoods attest to quiet streets and empty unoccupied houses, while small local store owners complain of fewer clientele. This of course is not a phenomenon limited to the GVRD, it is also happening in the cities of other stable western democracies – Melbourne, Sydney, London, Paris, San Francisco. Some of these cities have reacted to the rise in vacant properties and prices by contemplating occupancy taxes to discourage owners from leaving homes empty.

I believe it is time for British Columbia to do the same thing, to add an occupancy tax to residential property tax bills. Each home would be charged this tax; however, all landlords and resident owners would be exempt from paying it if the property in question was occupied or tenanted for at least half of the year. Proving occupancy would be based on a trust system, similar to the homeowner grant; however, it would be enforced with steep fines and criminal charges for false claims. A small audit team would conduct random audits of properties in B.C. to ensure compliance. If faced with an audit, owners would prove compliance by showing a B.C. rental lease with a tenant, bank statements, utility bills, and correspondence from Revenue Canada proving someone was living there.

While I remain convinced the best way to bring affordability is through upzoning, there is much to be said about how an occupancy tax can reduce the amount of vacant properties, while also financing the construction of lower priced housing stock. If such a tax is implemented, it must be clearly explained it will not affect the wallets of renters, resident owners, and landlords, as they can all claim the full rebate on the tax.


5 Nov

Zoning is a protectionist measure, which much like trade tariffs, constrain supply and restrict the ability of the market to respond to real demand. In the case of restrictive zoning, the housing market experiences a rise in the price of houses due to limited supply, a situation that leads to a market becoming detached from the real economy, to the detriment of the city and the region as a whole.

In a normal balanced market, the supply of housing stock either rises with the corresponding demand so as to keep prices stable, or rises only slightly more than inflation. In the condo market in Vancouver, comprehensive zoning allows developers to build sufficient product to meet consumer demand so prices neither rise nor fall dramatically. This is a healthy situation, as it allows future and current homeowners to better plan their housing needs, while at the same time permitting developers to better project budgets and sales revenues. Another benefit of this zoning environment is the neighbourhood can grow and evolve, meeting the needs and representing the ethnic diversity of a dynamic city.

Sadly in the case of a market distorted by a protectionist measure such as zoning, the prices of the available product rise quickly and unpredictably, faster than real wage increases. This reduces the number of potential buyers, as they fail to save fast enough to access the single family home market. Families, professionals with large amounts of student debt, seniors with rising property tax bills are among those forced to move elsewhere for their housing needs. Over time the profile of residents in a neighbourhood begins to narrow and become ethnically uniform, where more established ethnic groups who arrived in Vancouver early and benefited from the modern real estate booms, start to dominate the single family zones of the city. This explains why the City of Vancouver is a mostly Caucasian and Chinese city, while Surrey, much newer, is more ethnically diverse and representative of the population dynamics of Greater Vancouver.

I do not advocate turning Vancouver into a giant comprehensive development zone similar to the downtown, since this would lead to utter chaos in the market and destroy the livability of the city. What I propose is that each area in the city be up zoned, meaning single family zones become duplexes, duplex zones become more comprehensive low rise, and so on. This will permit more people to live in and enjoy the City of Vancouver’s amenities and give home buyers more choices than either moving to the suburbs or living in a condo in the downtown. It must be noted that the stock of single family homes will not dry up under such a measure, rather the market will adjust their price and quantity to match the buying power of potential home owners – those who want a single family home will demolish a duplex or retain a single family home. Up zoning will also preserve the aesthetics of the city without overly crowding neighbourhoods – one can just look at the success of the duplex zones in Kitsilano, which have preserved character and tree cover while providing a lot more housing than Dunbar or Point Grey.

The time to act is now. Restrictive zoning is strangling Vancouver, it creating a socioeconomic divide that is not healthy for our economy, our city and the region as a whole.