Canada’s two most expensive cities for housing are seemingly haunted, not by ghosts but by the spectre of empty homes. Some believe vacant homes exist on a widespread basis, bought up by a stream of investors so consumed by speculation — or just a safe place to park their money — that they can’t even bother to rent out their properties in markets in where the going rate can easily top $3 a square foot.The vacant unit theory has enough backers that the city of Toronto demanded the power to levy an extra tax on vacant property owners, something that was granted by the Ontario government in April, and one that follows a similar path laid out in Vancouver by the British Columbia government in 2016.

It’s “the vacant unit red herring,” said Patricia Arsenault, executive vice-president of research at Altus Group Ltd. in a note about the data that seem to indicate there were as many as 66,000 vacant units in Toronto in 2016. That’s equivalent to about 5.6 per cent of the city’s total stock of 1.2 million private dwelling units.

You can count Toronto Mayor John Tory as one of the believers in the potential the tax has as another tool to deal with housing affordability in the city.

Toronto wants to look at hydro accounts and water bills to try to get some indication of whether a unit is actually vacant.

The question is what are the unintended consequences of … a vacancy tax

As part of Ontario’s sweeping changes on real estate rules in April, the province also altered how it will record data when land is transferred and taxed. In addition to forcing buyers to declare their citizenship, Ontario will require them to say whether they plan to occupy their residence — information that could be used to track whether housing ultimately gets rented.

Plenty of anecdotal tales exist of condo buildings where the lights never go on at night, but vacancy theory proponents often support their argument by citing a Statistics Canada release in February 2017 that looked at the total number of private dwellings in the country versus private dwellings occupied by usual residents.

The agency said that’s just wrong.

“Sometimes, people believe that they can use the census counts to get a picture of unoccupied dwellings by subtracting total private dwellings from private dwellings occupied by usual residents,” StatsCan said in an email response to a query.

“This is not the case since unoccupied dwellings only represents a portion of the remainder. In other words, the data should not be used to analyze unoccupied dwellings.”

Arsenault at Altus said the gap between the total number of private dwellings and those occupied by usual residents includes units that were occupied full time at the time of the census by people whose regular residence is elsewhere.

Therefore, the number could include domestic students whose usual residence is elsewhere in Canada, foreign students who usually reside somewhere else abroad and other foreign residents temporarily in the country.

The gap would also be larger because “vacant” includes units occupied on a part-time basis as second homes by Canadian residents or foreign residents with principal residences elsewhere.

It’s hard to miss the rise of Airbnb in most cities and those properties would also not count as occupied by usual residents, nor would other investment properties being rented out on a short-term basis.

But Andy Yan, a Vancouver planner and director of the city program at Simon Fraser University, believes that city’s vacant home problem has transferred to Toronto.

“Welcome to what Vancouver has been saying for the last 10 years,” Yan said. “I’ve always thought of Toronto as a market that does work. You have a thriving financial industry and to a certain extent a manufacturing industry. There is an economy that powers real estate versus Vancouver.”

But he said Toronto is now subject to global capital flows that drive demand for property from abroad and investors who are content to leave property vacant as housing prices rise.

Starting with the 2017 taxation year, homes in Vancouver deemed empty will face an additional one-per-cent tax of the property’s assessed value.

The city plans to conduct random audits and failure to declare whether a property is occupied or rented will result in the tax being collected. A late penalty of five per cent on payments in arrears will also be levied and false declarations are subject to a fine of up to $10,000.

Non-principal residence owners have until July 1 to rent out their property through Dec. 31, 2017, to avoid paying the tax. Property owners must declare whether their property is a principal residence by Feb. 2, 2018, for the 2017 taxation year, or the property is declared vacant and subject to the tax.

The privilege of owning a home in Vancouver seems to include not living in it

The city of Vancouver examined electricity consumption from 2002 to 2014 and found 4.8 per cent of all housing types were unoccupied and that 10,800 homes were vacant for one year or more. Of the empty homes, 90 per cent were condos or apartments.

“The privilege of owning a home in Vancouver seems to include not living in it,” said Yan, adding it’s important to understand the patterns of why units are vacant.

To determine the number of empty units in Vancouver, Yan looked at more than hydro consumption or lack thereof. He also examined property assessment data to determine if letters were sent to the unit or elsewhere as well as homeowner grants that allow for a small waiver on property taxes for local owners.

His assessment was that five to eight per cent of downtown Vancouver condos were “dark” or empty.

But he adds that it seems harder to get data on Toronto than in Vancouver.

A survey of condo owners by Canada Mortgage and Housing Corp. in 2015 found that only 4.1 per cent of Toronto respondents said their units were vacant, down from 7.6 per cent in 2014. The Vancouver vacant condo number jumped to 4.1 per cent in 2015 from four per cent the year before.

Craig Alexander, chief economist at the Conference Board of Canada, said there is no simple way of identifying which properties are vacant.

“It won’t be easy just to survey the market because I think the respondent rate will be pretty low. What are you going to say? Please tell us if your property is vacant so we can tax you,” he said, adding you can indirectly monitor people through utility usage. “You can also have a snitch line, but if that is something policymakers have to have, that tells you how hard it is to identify vacant property.”

Toronto-Dominion Bank economists said there are very few examples of a vacancy tax and Vancouver’s is too new to properly assess. They note that in the borough of Camden in the United Kingdom, a 50-per-cent additional property tax on vacant units led to about one-third of the vacant units being brought to market.

“However, the tracking of vacant properties can be difficult and often subjective,” the economists noted. “For instance, Camden relied on a hotline through which residents could call if they noticed property sitting empty, with the potential for increased underreporting and loophole usage.

Vacant units may be just the price cities such as Toronto and Vancouver pay for being so-called global cities where people want to own property.

“This is on people’s minds in those cities that have been affected by investors and speculators,” said Pamela Alexander, chief executive of Re/Max Ontario-Atlantic Canada.

“I think it is happening, but the question is to what extent (are properties vacant)? Then the question is what are the unintended consequences of something like a vacancy tax? It can really affect the unsophisticated investor who sees all this and thinks this is just too much red tape for me.”

gmarr@postmedia.com
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