Photo: Craig Paterson/Flickr
Vancouver Mayor Gregor Robertson plans to tax real estate investors for letting their houses sit empty, but at least one major economist thinks targeting real estate speculation may be a better way to cool Canada’s least-affordable housing market.
“Vancouver housing is first and foremost for homes, not a commodity to make money with,” Robertson says in a statement.
“We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply at a time when there’s almost no vacancy and a real crunch on affordability,” he adds.
However, taxing house-flipping, which is the rapid buying and selling of a home for a quick profit, could have “more of an impact in cooling the market,” Sal Guatieri, a senior economist with BMO, tells BuzzBuzzHome News.
Guatieri floats the idea of a special tax for people who buy and sell the same home within a very short period of time, such as six months or less.
A recent BMO report flagged speculation as one factor supporting residential real estate prices in Vancouver, where the benchmark price of a detached home was $1,513,800 in May, having skyrocketed 36.9 per cent in 12 months. The telltale sign of speculation the bank cited was flipping.
As with the empty-house tax, Guatieri acknowledges that policymakers would need to set a speculation tax high enough to have an impact on activity.
Empty-house tax could target the wrong investors
But unlike an empty-house tax, one focusing on speculation wouldn’t strike homeowners simply unable to rent out their homes, he notes.
“That’s why I’d probably lean a little more towards the speculation tax,” says Guatieri.
“There are times where you can buy a property for investment purposes and not be able to rent it out and that unit is sitting vacant,” he tells BuzzBuzzHome News in an interview.
This could happen — even in Vancouver, the country’s hottest market — with units on the high-end side of the market, which Guatieri explains are harder to rent (only so many people can afford $15,000 monthly rent, after all).
Another example sees Guatieri taking a longer view, one in which the city’s ultra-low vacancy rate of 0.6 per cent rises.
“If Vancouver fell on harder times for whatever reason, [and] there’s a slowdown in the economy and in job growth in that region that set the vacancy rate higher, then investors would have greater difficulty renting their units,” he explains.
“You don’t want to punish investors generally, especially those who are having a greater difficulty renting their units,” Guatieri says.
He suggests a series of “caveats” to protect non-investors from a number of scenarios, such as if one needs to sell their home quickly after losing a job.
A Vancouver city report outlines two separate models for how the proposed empty-house tax might be rolled out, reports CBC.
One, which the broadcaster says the report favours, would see the provincial government create a new “residential vacant” property class to be applied to both empty and under-occupied homes. Properties designated as such would be subject to steeper taxes.
The levy could also take the form of a business tax applied to empty and under-occupied homes deemed to be investment properties.
An economist supports the mayor’s proposal
Benjamin Tal, CIBC’s deputy chief economist, voiced support for the Vancouver mayor’s plan.
“I think it’s a step in the right direction,” Tal tells BuzzBuzzHome News. “Something has to be done about foreign investment, especially when it comes to speculation,” he adds.
Tal cautioned against policy that casts too wide a net, however. “I think that we have to be careful not to tax foreign investment period, because foreign investment should be welcome in Canada,” he says.
“But to the extent that there is a segment of foreign investment that is not really contributing to the economy — namely, flipping, or empty units — and people that buy (these homes) simply don’t pay income tax or any tax in Canada, I think that we should follow the example of other countries like Australia and New Zealand and at least try to limit this,” suggests Tal.
In Australia, foreign buyers are limited to the new-construction market in general, with the exception of those with visas. They still have to sell their existing homes once their visas expire, however.
Addressing Guatieri’s concern that investors with difficult-to-rent units could be unfairly penalized, Tal says the empty-house tax should not apply to dwellings that are up for rent on the market.
However, he too supports a speculation/flipping tax. “If you also introduce a flipping tax… it probably will remove a small portion of unnecessary, unneeded… investment,” says Tal.