
Vancouver Tax on Empty Homes to Target Near-Zero Rental Supply - petethomas
http://www.bloomberg.com/news/articles/2016-09-14/vancouver-tax-on-empty-homes-to-target-near-zero-rental-supply
======
djfergus
There is a lot of speculation that Chinese buyers are driving up the Canadian
market. I have no insight to whether this is true but leaving homes vacant
does correlate with my observations - Asian and especially Chinese property
buyers value a home that has never been lived in significantly higher than a
'used' home. This is regardless of age. From my understanding its a
combination of feng shui/superstition (bad spirits!) and lack of taste/trust
(interior decor preferences, dodgy renovations).

I saw this a lot in the Malaysian market during the previous frothy years
until 2014, many many vacant units, zero ability to negotiate rent - owners
were going to get their asking price (rent or sale) or sit on an empty
house/apartment. They were making ~10% a year so who can blame them. Then the
Malaysian government slapped a retroactive (!) punitive capital gains tax on
foreigners. In addition Selangor state (think most of the Kuala Lumpur
suburban area) banned foreigners from buying landed, non-strata property.

Instead of lowering prices, this had the effect of driving the transactions to
almost zero (very few forced sellers), very little property over RM1m (the
minimum limit for foreigner purchase) sells these days. Lots of RE agents are
losing their jobs/driving uber to make ends meet. The foreign (predominantly
Chinese) owners have deep pockets and holding power. The coming years will be
interesting if it continues though.

I look forward to reading the economic thesis papers in the future on whether
this Canadian measure works and what the unintended 2nd/3rd order effects are.
Its fun when govt's experiment like this, good grist for the mill for
economic/psychological research.

~~~
jseliger
In reality, the simple solution is to build more housing; one may notice that
articles about housing shortages in Houston and Dallas don't crop up. See
[http://www.vox.com/cards/affordable-housing-
explained](http://www.vox.com/cards/affordable-housing-explained). Housing
ought to be a fantastic export:
[http://www.slate.com/blogs/moneybox/2013/05/19/exporting_hou...](http://www.slate.com/blogs/moneybox/2013/05/19/exporting_housing_services_a_huge_economic_opportunity.html),
but we restrict building enough of it.

~~~
gamblor956
The problem isn't building _more_ housing, the problem is that existing
housing is being bought above-market by foreign deep-pocketed buyers and left
empty. This doesn't just increase housing prices above affordable levels, it
also destroys neighborhoods by hollowing out actual residents.

~~~
jseliger
I'd really suggest you read the original links in the parent post, which
address this very issue.

~~~
dalke
I read both of Yglesias' articles.

You wrote "the simple solution is to build more housing", and point to Houston
and Dallas as examples where there is no housing problem.

Yglesias proposes a more restricted solution, high-density zoning. This lets
people build more housing in the same area, rather than going outwards as
Houston and Dallas do.

gamblor956 mentioned a problem which is an issue in London and a few other
places; foreign investment in (nearly unused) second homes has secondary
negative effects. For example, with fewer actual residents there are fewer
restaurants, stores, and other services for those people who live there, and
who moved there because there were services.

The NYT at [http://www.nytimes.com/2013/04/02/world/europe/a-slice-of-
lo...](http://www.nytimes.com/2013/04/02/world/europe/a-slice-of-london-so-
exclusive-even-the-owners-are-visitors.html?_r=0) gives a few real-world
examples. It's made worse in London by the low tax rate for secondary homes,
which is why Vancouver specifically wants higher tax rates for those homes.

Along the lines of Yglesias' description in Slate, suppose foreigners
purchased American-made luxury cars from union factories in Detroit and parked
them all in your neighborhood. As Yglesias says, "Great news, right?" It
builds a lot of upstream production in the US, and "it should be providing
lots of employment for working class men."

Except that now you don't have anywhere to park your own car, or for visitors
to park, or even for the delivery truck to park.

How much livability would you give up for the benefit of the rest of the
country? How much livability should Vancouver residents give up?

Foreign ownership of unused housing decreases density. I think it's possible
to compensate by building even more density, with the expectation that 1/3rd
of it won't be used. (Hopefully the market will be stable enough.) But my
point is that it isn't as simple as looking towards Houston and Dallas.

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jacquesm
Until 2010, in NL in areas with housing shortages if a house was not occupied
for 12 months it was legal to squat. This was a pretty good deterrent against
'empty homes'.

~~~
robk
So theft is ok? Jacques what if I saw your camper was unused for a few weeks
and wanted to take it?

~~~
csomar
He didn't say theft is okay. He said it deterred empty homes. However, I
wonder if the home will be filled with security guards instead of real owners.

~~~
undersuit
I guess it is slightly better that the foreign owner pay security guards
American Dollars to protect his property than for it to sit empty.

~~~
runamok
Sure. House police officers and their families which frees up the normal
properties those folks would be renting...

------
crdb
A step in the right direction. However, the rule ought to be pretty simple: if
it's your tax residential address, it's your home. Anything else isn't.

If people want to invest in stuff, let them go for stocks, where their capital
will at least be supposed to create value.

~~~
ctdonath
If people want to invest in stuff, let them invest wherever they want. A
person with money has a better idea what to do with it than legislators &
voters having no personal stake therein (or, worse, ulterior motives
detrimental to the investor).

~~~
crdb
This used to be my position as a committed (or idealistic, young) libertarian,
but, following the principle that you should be able to do anything _so long
as it does not infringe another individual 's rights_:

\- there is such a thing as the commons;

\- there is a cost to the government to protect your rights which is much
higher for land than "virtual" assets and the cost to investors ought to
reflect it.

Commons: I like that Singapore, for example, is taxing drivers around $90,000
per 10 years for the privilege of riding a car. The air is much cleaner and
streets freer of traffic. Both of these were damaged by too many car owners.
Similarly, the supply of land is limited whilst population can grow ad
infinitum, creating ever upwards pressure on land prices.

Cost: in terms of individual rights, the army, police and justice defend your
right to own that land free of damage, spurious lawsuits to drain your
resources, land grabs by powerful men, and foreign invasion forces. This forms
the basis of modern society and the implementation of your individual rights.
The cost is proportional to land area but not as strongly correlated with
company size in the equity case (you might have a few more problems but not
proportionally to market capitalisation, and they involve court cases rather
than policing, with most of the high costs - lawyers - born by private
parties).

In theory, any land owners ought to be taxed, however, I make an exception for
one's primary home (tax residence) considering that all citizen are naturally
short housing (they need a place to live) and buying a home puts them in a
housing neutral position and also has many positive effects on the commons
(people are more invested in the future of their country if they own their
home, less likely to move somewhere else, etc.).

Vancouver is a great example of citizen who have created ideal conditions for
home ownership by participating in building a peaceful, prosperous economy
which respects individual rights. Foreigners have accordingly swarmed to take
advantage of the fact they were not charged for the benefits arising from
ownership.

This has caused citizen - beyond the first generation of land owners - to be
penalised for having built their own country up, as they end up unable to
afford to live in it, burning up valuable income into paying high rents and
house prices. A tax - which should offset what Canadians would pay elsewhere
on productive activities, like income - is one of the best way to correct this
imbalance, by charging the cost of enforcing individual rights to those who
benefit from it.

~~~
mistermann
Very well said, I wonder if a well fleshed out argument along these lines
would help to persuade the portion of the population that "doesn't get" (aka
those who already own real estate) why we should tax foreigners.

~~~
Pxtl
We don't need to "tax foreigners". If it was Toronto Bay Street investors or
Albertan oil millionaires, the problem would be similar (smaller, of course,
because there just aren't as many of them as there are wealthy Chinese
scions).

To me the correct approach is to simply shift the tax burden higher onto
investment properties, and expand the definition of "investment property" to
include homes owned and occupied by able-bodied people who don't work for a
living and never earned the kind of money that would be needed to afford such
a home.

If you don't pay and never paid income tax, you don't need the tax exemptions
that are given to homeowners.

~~~
Kadin
> to include homes owned and occupied by able-bodied people who don't work for
> a living and never earned the kind of money that would be needed to afford
> such a home.

That sort of means testing isn't required (and would be open to system-gaming
/ perverse incentive creation anyway). You just apply capital gains tax to all
properties with the exception of one primary residence per person, and you
could even cap the primary-residence exemption at the median value of a home
in a particular area. So if you own property and rent it out rather than
living there yourself, it gets taxed as an investment, period.

So that this cost isn't just passed on to renters, you should make the rental
payments for your primary residence tax deductible, again perhaps capped at a
median level so as not to perversely encourage higher rents.

I think you could construct a tax regime that was revenue neutral pretty
easily this way.

~~~
Pxtl
People are already gaming the principal residence exemption by loaning the
money unemployed friends and family "students" who actually buy the homes and
claim them as principal residences. That's why the principal residence
exemption should be means-tested by income-tax, imho. If you do not and have
not paid any income tax in Canada, then your property is really a de-facto
investment property or a vacation home and it does not need a subsidy.

------
tacostakohashi
As high as 2%? That doesn't seem nearly enough to have the desired effect.

If you have an empty house, you've already decided to pay a "tax" in the form
of lost potential rent, not to mention actual property taxes and maintenance,
and and an extra 2% isn't going to make huge difference.

Maybe 10% would be more like it.

~~~
conanbatt
Or we can just send the policy and beat them up, why stop at 10%. /s

I understand the problem but i dont see how raising taxes is the solution. Why
are these houses vacant in the first place?

In Buenos aires this is a huge problem, in a census they found like 20%+ of
units are vacant. The economy minister once hinted at implementing this tax
and had to retract quickly.

The main reason property is vacant in Buenos Aires is because the state is
failing to enforce contracts between tenants and owners, and owners do not
trust tenants. A bad tenant can literally ruin you, because he can destroy the
property, make himself impossible to evict, and a lawsuit can take up to 20
years to resolve, which is enough time for the perpetrator to liquidate his
assets before the loses the trial.

And as you mention, if the reason behind these vacant units is rich people,
then such a tax will prove a poor deterrer.

~~~
Jacqued
Even "rich people" don't like to take a 10% hit every year on their estate
though. 2% is much less of a burden, especially in a bubbly market where the
paper value rises by way more than that yearly.

The vacant home issue is prevalent in nearly every large city in the world and
it has a vast social cost. If you don't want to suppress it through tax (force
them to live there, sell, or subsidize the locals by paying extortionate tax),
another way would be facilitating squatting of empty property.

When you do that, you actually have charities that specialize in "opening up"
unoccupied spaces and setting them up for homeless people to live there. I
actually like the way we do it in France where if you stay there for a couple
of days you are legally an inhabitant so it takes up to a years worth of legal
proceedings to expel you.

~~~
conanbatt
> Even "rich people" don't like to take a 10% hit every year on their estate
> though.

And nobody likes to get coerced into anything. There should be no policy with
the intent to punish anyone, whether rich or poor. And it is not the rich that
cause the housing problem, which is real and global.

> The vacant home issue is prevalent in nearly every large city in the world
> and it has a vast social cost. If you don't want to suppress it through tax
> (force them to live there, sell, or subsidize the locals by paying
> extortionate tax), another way would be facilitating squatting of empty
> property.

It is vastly different to see an inefficiency as a cost over seeing as a lost
of potential gains. A property owner that does not rent his property is not
costing anyone anything: only he is the loser of the potential gains of
renting the property. It is a benefit for a renter when he rents it out, not a
cost when he doesnt. If we start seeing potential gains and costs that have to
be subsided, you will notice a very uneven application of such criteria.
Should people be spending time for leisure? maybe we should force them to do
charity. Not doing charity is a vast social cost! 10% tax on wages if you dont
do charity!

Any law that artificially lowers the value of property, for example by
allowing squatting, or forcing taxes will lower both demand and supply. IF
people buy less of those property, developers will build less, and often in
the end you end up with less properties to begin with.

Not only that, but forcing things on people have the funny side-effects of
getting push back. If you allow squatting, you will now see empty buildings
getting boarded up (you can see this in Buenos Aires very often). That is
costly to the property owner, costly to the neighborhood by showing an eye-
sore.

>When you do that, you actually have charities that specialize in "opening up"
unoccupied spaces and setting them up for homeless people to live there. I
actually like the way we do it in France where if you stay there for a couple
of days you are legally an inhabitant so it takes up to a years worth of legal
proceedings to expel you.

Thats terrible, a huge deterrent to buy property, and so, of building
property. People always have the greatest ideas when it comes to doing things
with other people's resources.

~~~
Jacqued
Owning property and not using it _is_ indeed a vast social cost. What you're
doing is forcibly depriving everyone else of the land (and not using it for
anything). This is not a big deal where land is plentyful, and terrible when
land is scarce.

What you're saying is you should be able to do whatever you want with your
property.

I guess what I'm saying is that it is only your property because we who live
here allow it to be, and uphold your ownership. If you're not using it
responsibly - and leaving it empty is not using it responsibly - it's our
right as a community to have you GTFO. And the softest way to do that is to
tax you out.

The only reason the property is valuable in the first place (and rising) is
because we who live here patronize shops, organize things in the area, and
make it a good place to live. So you're piggybacking on our efforts while
depriving a real person from living here. Again, the right thing to do seems
to get together and get rid of the parasite...

------
aurelienb
We have a similar tax in Paris, France. Tips: it doesn't work (in current
design). Plenty of room for improvement, either around the full renting
subject (ex: lowering barriers to set up a new contract between landlord and
renter, to remove some laws which overprotect some renters) or around this
particular subject (decreasing time before the tax, increase tax, increase
control or fine, or even more violent solution (huge fine, jail, etc)) Note
that I don't know what would be the most efficient

~~~
carlob
I don't think the housing shortage will be fixed with tweaks to rental laws.
Most of France happens in Paris (jobs, culture, …) and Paris has not kept up
with the pace.

[https://upload.wikimedia.org/wikipedia/commons/6/66/Croissan...](https://upload.wikimedia.org/wikipedia/commons/6/66/Croissance_population_Paris.PNG?uselang=fr)

If you look at this plot you will see that the metro area has grown a lot,
while the boundaries of the city haven't moved since 1860. There are various
incentives in living in the city proper as opposed to one of the neighboring
counties.

This is horizontal growth. Vertical growth has been forbidden for a while now
as there are very tight laws about how tall new buildings can be and whether
old buildings can be torn down.

Without relaxing at least one of these two constraints regulations on rent are
going to do very little.

~~~
aurelienb
Fixed: no. But temporary improved: yes. Why: Because around 10% of Parisian
flat are currently unoccupied. For a city like Paris, that's huge!

------
inputcoffee
"A trickier issue facing the city is defining what constitutes an empty house.

A city-sponsored study in 2014 used electricity-usage data to determine that
about 5 percent of homes in Vancouver were uninhabited over 12-month periods."

If that becomes the criterion, we will have _empty homes running power for no
reason_! Worst of both worlds.

------
saiya-jin
i don't get that part about Airbnb rentals - those are probably as utilized as
possible and are just different type of rental (or similar, depends on the
choice of the owner)

~~~
BrentOzar
The owners may not be paying tax on the rental income, like if they're running
it through a company.

It's not just a tax on empty homes - it's an attempt to tax under-reporting
AirBNB hosts.

(Source: I'm just a guy wearing a tin foil hat)

~~~
koolba
> The owners may not be paying tax on the rental income, like if they're
> running it through a company.

It's sad that modern laws have to optimize for crap like this.

> It's not just a tax on empty homes - it's an attempt to tax under-reporting
> AirBNB hosts.

Which would also unfairly impact accurately reporting AirBnB hosts.

Note that I don't actually think the tax itself is a bad idea. It's a clever
way to get owners to live local and is a pretty smart as far as " _Out of
towner 's tax_"'s go.

------
AstroJetson
It's interesting how the government is working on different tax schemes to try
to fix the housing problem. But the people that are buying these houses from
overseas have the money, so it's not going to make a difference.

But locally it's a problem. There are lots of non-Canadians living there and
the purchase tax is a real problem for them, it adds to the cost of really
overinflated homes.

My plan is to start a business call "Sim-Live", I'll make your house looked
lived in for a small fee every month. Lights on, people in an out, small party
every other month, trash out to be picked up, Amazon boxes, mail, etc.

~~~
gtirloni
I hope your are joking because it would be trivial to sue your company and its
customers ;)

But yeah, what are the criteria for deciding whether it's empty or not. People
will get creative quickly.

~~~
AstroJetson
Yep, a joke. There are people that when they go away on an extended trip they
stage their homes to look lived in while they are gone. Real Estate Agents
stage empty homes that they are selling to help the sale. A sofa, table and
two chairs, etc. from a second hand place isn't much effort.

And because of your post I've changed my company name to "Sim-Secure" We keep
your house from being broken into and vandalized by making it look lived in.
Thanks for suggesting the pivot! :-)

------
estefan
They should do this in London, but unfortunately our officials rarely seem to
give a shit in the face of foreign money.

~~~
dood
I was curious so I did a quick bit of Googling:

Since 2013 councils can levy an “empty homes premium” of an additional 50%
council tax [1]. No idea how many actually do.

The rate of unoccupied dwellings in London is 1.7% [2]

1\. [https://www.theguardian.com/society/2016/feb/21/tens-
thousan...](https://www.theguardian.com/society/2016/feb/21/tens-thousands-
london-homes-deemed-long-term-vacant)

2\. [http://www.emptyhomes.com/wp-
content/uploads/2011/05/Empty-H...](http://www.emptyhomes.com/wp-
content/uploads/2011/05/Empty-Homes-in-England-Final-September-2016.pdf)

~~~
estefan
Empty homes is one thing. Taxing foreign investors would make a massive
difference over night.

------
Tiktaalik
Given that Vancouver has a sub 1% vacancy rate, a tax on unoccupied housing is
good policy. My concern however is that the city's implementation of the
concept is really weak and this will be difficult to enforce.

Some economists at the local university proposed instead a property surtax
that would be waived if there was enough locally generated income. That seems
to me to be a more elegant solution.

[https://www.biv.com/article/2016/1/local-economists-have-
sol...](https://www.biv.com/article/2016/1/local-economists-have-solution-
unaffordable-vancou/)

------
tnli
Sounds like a self-made problem with nimbys and inefficient planning for new
housing.

~~~
graeham
Arguably, the main driver of the problem is foreign purchase of investment
properties which aren't rented. Speculation drives this further, as lots of
people have made high returns on a market that 'can only go up'.

Nine students 'own' a combined $57M in vancouver property:
[http://www.news1130.com/2016/09/14/nine-students-
own-57m-wor...](http://www.news1130.com/2016/09/14/nine-students-
own-57m-worth-of-vancouver-property/)

Another point that is not often raised is the crazy increases are mainly in
detached houses. Condos and attached properties have increased a lot, but not
nearly as frothy as detached houses. Suggests the type of purchase that is
driving the increases. [http://www.news1130.com/2016/02/02/vancouver-house-
price-new...](http://www.news1130.com/2016/02/02/vancouver-house-price-new-
record/)

~~~
zo1
I must be missing some part of the equation here. How is it possible that
these properties are not being rented out? Even if the price of the homes are
over-inflated, the owners should still be able to get some extra money out of
such a capital asset?

Is there something that is tilting the balance the other way? I.e. Making
renting out for some amount not worth it?

~~~
mattm
One possible reason is that house prices have gone up so much in the past few
years that people can sell quickly and make a huge profit. If you have people
renting, you can't just kick them out immediately if you want to sell. Renters
would be a liability in this case.

~~~
jdavis703
I don't know about Canada, but in California you can evict people in 30
days... If you (the tenant) really work the court system, maybe it'll take up
to 50 days. 50 days should be enough time to kick someone out and put the
house for sale.

~~~
breitling
Can't do that in Canada so quickly. In Toronto at least, the landlord is not
allowed to evict the tenant even if they have stopped paying rent. It can take
months and months of court visits.

One reasoning I heard is because our winters are so brutal, it would be
inhumane to kick people out in the cold.

------
djfergus
Does anyone have any insight as to whether this 2% additional cost can/will
trigger the banks to reassess borrowers and potentially hit them with a margin
call?

If it doesn't drive forced sales I can't see the prices falling significantly.

~~~
reverend_gonzo
Banks can't perform margin calls on property. That simply doesn't exist.

If you have a mortgage, that is a contract. As long as you are paying the
mortgage off as agreed upon, the banks can't take your house.

~~~
jcriddle4
Actually I think something like it used to exist. While not a "margin call" a
bank could call you and tell you to repay the full amount immediately. I think
even today some loans are structured so if you miss a few payments the full
amount becomes due. In theory, in a more libertarian market, a loaner could
structure the loan any way they pleased.

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itisbiz
www.lonelyhomes.ca is a new "registry" of empty residential dwellings in
Vancouver.

These "lonely homes" are shown only by first 3 characters of the postal code
(aka FSA) to preserve their anonymity.

The goal is to identify how much of an issue this is and show how it affects
neighbourhoods.

------
2AF3
Some cultures don't trust banks and prefer to park their money in real estate.

