LAURA KANE (CANADIAN PRESS) - Vancouver's proposed empty homes tax would include secondary properties being booked on the vacation rental website Airbnb, with the maximum fine for people who evade the levy set at $10,000.
New details of the tax emerged on Tuesday, when council voted to push ahead with public consultations. Mayor Gregor Robertson stressed the aim was to free up supply in the city's crunched rental housing market.
"Ultimately, the goal is to get thousands of units back into rental housing at a time when it's almost impossible to find a rental home," Robertson told council.
The province granted Vancouver the authority to create the tax in July, months after a city-commissioned report found that about 10,800 homes were sitting empty, most of them condos.
Staff have been speaking with experts and researching other jurisdictions' taxes and presented a report Tuesday with their suggested approach. The levy would be the first of its kind in Canada.
Principal residences won't be taxed
The report proposes that the tax be administered similarly to the British Columbia Home Owner Grant. A parcel of residential property that serves as a principal residence for an owner, long-term tenant or a friend or family member would not be taxed.
That means that secondary properties — such as investment condos — that are sitting empty or being rented out for short-term stays using sites like Airbnb would be subject to the tax.
Tsur Somerville, a University of British Columbia business professor, said it made sense to apply the empty homes tax to properties being used for short-term rentals, even though they're not actually empty.
"In a city where accommodation is really, really scarce, the first priority should be housing people who live and work here," he said in an interview.
The tax would not apply to people renting out their primary residences on Airbnb, or to basement suites, rooms or laneway homes that are either sitting empty or rented for short-term stays.
Airbnb said in a statement it's committed to working with government to establish fair, sensible rules, including around taxation.
The city is also working on separate regulations for short-term rentals, with a report to council expected next month.
Details still being worked out
Public consultation on the empty homes tax will begin this fall, with a proposed bylaw introduced to council in November. The tax would be in place for the 2017 year, with the first payments in 2018.
There are many questions left to be settled through public talks, including whether secondary residences that are vacant for only part of the year should be exempt. The tax rate is also still being considered, with a current proposal of between 0.5 and 2 per cent of assessed value.
Penalties are also still being debated. The maximum fine the city can impose under its charter is $10,000, but it will consider a combination of the fine plus a higher tax rate for people who fail to self-declare or fraudulently declare, said Kathleen Llewelly-Thomas, general manager of community services.
Robertson said the city has asked the province many times to increase the maximum fine.
NPA opposes motion
The council vote was split 7-3, with councillors from the centre-right Non-Partisan Association opposed. Coun. George Affleck called the tax a "bureaucratic nightmare" and said the city should instead encourage the building of more townhomes and rowhomes.
The mayor dismissed the councillors' concerns as "fear-mongering." Residents will be asked to declare the status of their properties as part of the regular property tax process, with enforcement through random and targeted audits and response to complaints, Robertson said.
"I'd ask Coun. Affleck if he thinks the Home Owners Grant is a bureaucratic nightmare or income tax is a bureaucratic nightmare," he said.
Vancouver's rental vacancy rate of 0.6 per cent is the lowest of any major city in Canada and its rents are the most expensive, housing planner Matthew Bourke said. If just 2,000 units became available for rent, the vacancy rate would lift to a healthy 3.5 per cent, Bourke said.
Tony Gioventu, executive director of the Condominium Home Owners Association of B.C., said condos built since 2010 do not have restrictions on rentals. Many of the vacant units are thought to be in new buildings in upscale neighbourhoods like Coal Harbour, he said.
But if those condos were rented out, they wouldn't be "affordable housing," he pointed out.
"They'd probably be rented out for $3,000 a month."
VICTORIA SMITH (HIBUSINESS) - Vancouver intends to tax homeowners by two percent of assessed value for units that are declared vacant.
Mayor Gregor Robertson mentioned new details of the tax prior to its introduction to city council next week, with the desire to have it implemented in 2017.
According to Robertson, the most conservative estimate of profit the tax could generate is $2 million, which will mostly be spent on cost recovery in administering the tax.
The reason behind the tax is to push owners to rent out their empty properties, in order to better Vancouver’s vacancy rate, which has been lingering near zero over the years.
The British Columbia government, in July, granted the city the power to create the tax, which is different from the province’s 15 percent tax on foreign purchases of Metro Vancouver real estate.
A study ordered by the city earlier this year discovered that as many as 10,800 homes were lying vacant in Vancouver, most of them condominiums.
FRANCES BULA (GLOBE & MAIL) - Vancouver’s new empty-homes tax, the first of its kind in Canada, will rely on homeowners to declare whether they are living in their properties or renting them out as part of an effort to battle foreign capital, absentee owners and speculation.
The vacancy tax, first floated by the city this spring as a bold solution to its overheated real estate market and the lack of rental housing, would be charged to people who leave their unit empty for a year or more when it’s not their principal residence.
News that the tax will rely on self-reporting comes on the heels of reports in The Globe and Mail that some speculators falsely classify properties as their primary residence to avoid federal taxes while making millions in profits. The Globe’s extensive investigation on housing has raised questions about access and affordability and prompted a new foreign-buyers tax by the provincial government.
The city says declarations about whether a property is occupied will be checked by audits, but it hasn’t decided on penalties for violators. The levy would be instituted for the 2018 tax year, and may cost owners as much as $20,000 a year on a million-dollar home, Mayor Gregor Robertson said Wednesday.
But experts are skeptical about whether the new tax will have the effect the city is hoping for.
“I don’t know how successful they’ll be at getting people to comply,” said University of British Columbia business professor Tsur Somerville.
One tax lawyer, whose firm doesn’t allow public comment, was also doubtful that the city would get the majority of owners who are leaving units empty to voluntarily declare that and pay the tax.
Canada’s income-tax system also relies largely on self-reporting, said the lawyer, but the federal Canada Revenue Agency has much stronger tools. Tax evaders can be criminally charged. They pay very stiff penalties – the tax owing, plus a 50-per-cent penalty – and the agency has an “army of auditors.” Jail sentences are also possible.
The mayor, the lawyer said, seems to be “just kind of hoping that some will pay and some will get caught.” But likely “some people will get away with it.”
The rental vacancy rate in Vancouver has been hovering at 1 per cent or lower for the past five years. Real-estate and rental prices have skyrocketed at a stunning pace in recent years, amid a swirl of stories about investors from mainland China.
“The main goal of the empty-house tax is to put more homes on the market,” said Mr. Robertson. “This empty-homes tax is not a silver-bullet-solution … but we expect this will be an important tool to start the shift.”
City staff looked around the world to find models, said the general manager of community services, Kathleen Llewellyn-Thomas. Mostly they discovered examples of what not to do, she said.
As a result, the city has decided not to determine vacancy by electrical or water use, but to require owners to declare on their annual tax-payment form whether it is a principal residence.
That will be backed up by audits, especially in parts of the city that previous studies have shown have high vacancy levels, she said. As well, staff will act on complaints phoned in by residents.
Mr. Robertson hasn’t said yet how many auditors the city will hire or what the penalties will be for wrongly claiming a principal residence.
Dr. Somerville said if the city’s tax motivates even 10 per cent of owners to rent out their units, that would double the number of vacant apartments in the city and that would be a benefit.
Vancouver will conduct a consultation in the fall to get public input on what the tax rate should be and who should be exempted. Mr. Robertson said the vast majority of Vancouver residents won’t be affected. It won’t apply to snowbirds, he said.
The staff report also suggests other categories that might be exempted, such as people who own units in strata-titled buildings that don’t allow rentals, people who have a principal residence somewhere else but live and work in the city at least nine months a year, or people who are renovating their houses.
A city survey earlier this year found that, in 70 per cent of the cases where residents called in to complain about vacant houses, the owner was waiting for building permits.
Certain cities around the world have been struggling with the phenomenon of empty homes or “ghost apartments.”
“Over the last decade, as globalization processes have intensified, ghost apartments have become a worldwide phenomenon,” said two Israeli scholars in a study published last September that looked at the impact the phenomenon was having in that country.
Jerusalem doubled its property taxes this January for its estimated 10,000 ghost apartments.
But in places as far apart as New Zealand, Mumbai, Dublin, Paris and London, authorities have either considered vacancy taxes or implemented them.
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