Vancouver councillor pitches Empty Homes Tax hike, targets unsold new builds | Daily Hive

Vancouver city councillor proposes Empty Homes Tax hike, targets unsold new builds

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If Vancouver city councillor Sean Orr of the COPE party has his way, the City of Vancouver’s Empty Homes Tax (EHT) would see significant hikes and broader application starting next year.

In a member motion heading to Vancouver City Council next week, Orr is proposing to raise the EHT from the current three per cent to five per cent in 2026. The tax is applied to a property’s assessed value; for example, the owner of a condominium deemed to be vacant by the City and worth $1 million would face a $30,000 bill at the current tax rate, rising to $50,000 under Orr’s hiked rate proposal.

He is also calling for the removal of the current exemption on vacant new inventory, instead applying a new one per cent EHT to such properties beginning in 2026.

In addition, Orr wants City staff to study the introduction of a tax on unsold newly built homes, starting at one per cent and escalating each year to “disincentivize the under-use of properties.”

These proposals, however, run counter to repeated advice from City of Vancouver staff, who — backed by the municipal government’s contracted Ernst & Young analysis and academic commentary — have warned the effect of the laws of diminishing returns on both the housing supply impact and City revenues and other unintended consequences from higher rates and expanded scope.

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In May 2023, the ABC Vancouver-led City Council cancelled a previously planned EHT increase from three to five per cent, after hearing City staff’s recommendations. It was at this juncture that the exemption on vacant new inventory was created, which was supported by City staff.

When the feasibility of a graduated tax rate was being discussed in October 2023, City staff again reaffirmed their recommendation to not change the EHT or increase the taxable rate.

The EHT already layers on top of the provincial government’s Speculation and Vacancy Tax (SVT), compounding the tax burden on Vancouver properties.

Meanwhile, the housing market has weakened further since late 2023: mortgage rates remain high, developers face elevated borrowing and construction costs, and sales volumes are sluggish. Some projects have stalled or been cancelled for failing to meet pre-sale thresholds, while others have slipped into receivership.

Moreover, ever since the last time potential changes to EHT were discussed in late 2023, the residential real estate market has only continued to further weaken, with continued high mortgage costs for prospective homebuyers, high construction financing and construction costs for developers, and sluggish pace of sales.

Some newly completed projects see many of their units remain unsold, some projects that were to begin construction have been put on hold or cancelled entirely due to the inability to meet the minimum pre-sale targets to obtain full construction financing as a stipulation from lenders, and some developers have gone bankrupt and projects gone into receivership from a combination of these perform storm of factors.

Some real estate developers and industry businesses have publicly announced layoffs, while many others have quietly reduced staff without drawing attention to the challenges driving those cuts.

Earlier this summer, dozens of Metro Vancouver-based developers urged the federal and provincial governments to relax some of the interventionist policies that limit foreign buyers, including the temporary years-long federal ban on foreign buyers in Canada and the provincial foreign buyers tax. The real estate industry asserted that this could enable some housing construction projects to proceed, and prevent a cumulative shortage of housing supply years from now, given that it takes years to realize a project.

Orr’s proposal to remove the exemption on vacant new inventory — and to introduce a tax on unsold units — would conceivably provide pressure to developers to cut home prices further. Currently, developers have been avoiding the scenario of selling newly built properties at a loss against the high construction and land acquisition costs.

Vancouver’s municipal government first introduced the EHT in 2017 during very different real estate market and economic conditions, when there was rampant sales activity and a higher degree of speculative activity and prolonged vacancies. The intention of the EHT was to return more of these homes to the long-term rental housing market for people who live and work locally, and also create a new revenue stream for the City to help fund affordable housing projects. Between 2017 and 2023, about $170 million in net revenue has been created for the City by the EHT between.

When the EHT was first introduced in 2017, it began at a taxable rate of one per cent. Subsequent decisions by the previous makeup of City Council hiked it to 1.25 per cent in 2020 and then to three per cent since 2021.

Due to the EHT, SVT, and other policies by various levels of government and economic factors, the number of vacant properties identified by the EHT has been trending downward — from over 1,000 in 2017 to 550 in 2018, over 300 in 2019, over 200 in 2020, about 160 in 2021, and just over 100 in 2022, as of City staff’s analysis in 2023. A subsequent analysis in 2024 showed the continuation of the same trend in 2023.

Empty Homes Tax impact trend, November 2024 analysis. (City of Vancouver)

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