Vancouver's Empty Homes Tax to stay at 3%, developers get $3.8M break

Vancouver's Empty Homes Tax to stay at 3% as developers given $3.8M tax break

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The City of Vancouver’s planned Empty Homes Tax (EHT) rate increase to 5%, originally put forward by former Mayor Kennedy Stewart last year, has been axed.

In a public meeting Wednesday, the ABC Vancouver majority in City Council voted to follow the recommendations of City staff in keeping the EHT rate at 3% for the 2023 taxable year. The EHT is taxed on the assessed value of a property deemed to be vacant.

When the EHT was first introduced in 2017, it began at a rate of 1%. Subsequent decisions by the past City Council hiked it to 1.25% in 2020 and then to 3% for 2021 and 2022. Ahead of Wednesday’s meeting, City staff recommended maintaining the EHT at 3% in 2023 based on the advice of consultancy firm Ernst & Young and academics, given the potential unintended impacts on the effectiveness of the tax at a 5% rate.

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Revenue generated by the EHT is used to help fund new affordable housing projects, with the tax raising $115 million in net revenue throughout its history, as of November 2022. As a policy, the EHT is ultimately intended to encourage homeowners to occupy their homes, including the generation of much-needed rental housing if it is not their principle residence, and discourage speculation.

A majority of City Council also approved various exemption and policy change amendments to the EHT framework as recommended by City staff, including directing City staff to explore the potential of introducing a graduated rate structure to establish a lower rate for short-term vacancies and a higher rate on long-term repeat vacancies.

“I think the evidence borne out from the information provided by outside consultants and City staff makes it more clear to me that the best amount that we would be charging is 3%, and I’m pleased that we’re looking at possibly a graduated increase,” said ABC councillor Mike Klassen.

The ABC-dominated City Council also approved Klassen’s amendment to City staff’s policy change of creating a new exemption for vacant newly-built homes that are unsold for each vacancy reference year after the occupancy has been obtained, until it is sold or occupied. City staff recommended the exemption, with Klassen amending it to have it be applied retroactively beginning with the 2022 vacancy year.

It is estimated Klassen’s retroactive amendment will reduce 2022’s EHT revenues by $3.8 million. Most of this sum from developers has already been collected by the City, so the measure means the municipal government will now provide a refund to anyone who has already paid the tax on an unoccupied newly built home that has yet to be sold in 2022.

“It’s a relatively small amount of money that will help keep the cost down of the development for those who are purchasing or occupying those buildings. It also sends a signal that we want more people to be working in the City of Vancouver to build more housing, creating more affordability and more supply,” said Klassen. It was suggested during the deliberations that developers would ultimately pass the added cost of the EHT to the future homebuyer.

“Without doing this, we would send a signal that we don’t care about that, and I think this is an opportunity for us to level set and ensure people are paying the tax as it is intended,” continued Klassen.

Klassen also noted the provincial government has the same policy for its own Speculation and Vacancy Tax.

ABC councillor Peter Meiszner suggested these unsold newly-built homes are mainly larger family-sized units that are much more expensive to buy. These family-sized units with multiple bedrooms are required under City policies.

“They can be harder to sell and we want to ensure these units continue to be built, and we want developers to continue to want to build them and not be fearful of being subjected to a tax,” said Meiszner.

Green councillors Adriane Carr and Pete Fry and OneCity councillor Christine Boyle were opposed to both Klassen’s amendment and City staff’s recommendation on keeping the EHT at a rate of 3%.

“I feel strongly that reducing the rate of the Empty Homes Tax is a step backwards, and I’m sorry to see that happen. I’m particularly distraught to see us retroactively exempting new unsold vacant homes,” said Boyle.

City Council also approved various other recommendations by City staff, including new EHT exemptions for the following scenarios: if a building permit was issued within the vacancy reference year; if a development permit, rezoning enquiry, rezoning application, or policy enquiry has been submitted within the vacancy reference year; if a property is not able to be occupied due to a hazardous condition or disaster for at least six months of the year that the event occurred; and for properties being used as a secondary residence closer to medical treatment.

“We were seeing people who went through a flood or fire, and their home wasn’t able to be occupied, and they were being subject to this tax. I’m glad we are addressing that,” said Meiszner.

Other approved recommended amendments by City staff include a one-time, temporary exemption for the 2023 vacancy year for properties with strata rental restrictions following the provincial government’s November 2022 legislation change to prohibit stratas from banning rental restrictions. This exemption will end in 2024.

City Council also approved City staff’s recommendation allowing owners to file a late property status declaration after the late declaration deadline, and a late declaration penalty of 5% (based on the percentage of the EHT rate) charged to owners wanting to file a late property status declaration after the late declaration deadline.

Klassen shared a predicament he heard from a homeowner who was out of the country during the filing period. Even though the home was occupied, the homeowner was on the hook for a $30,000 tax payment. With the new late filing ability, a homeowner in such a situation will only have to pay the late filing fee.

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