Vancouver's Empty Homes Tax could be lowered from 5% to 3%

Downtown Vancouver skyline (Cheryl Hill/Shutterstock)

More than a year after the previous makeup of Vancouver City Council approved a hike of the municipal Empty Homes Tax (EHT) to 5%, staff with the City of Vancouver are now recommending that the hike starting in 2023 be rescinded and return to its previous rate of 3%.

This recommendation is based on the findings of an analysis by City staff and their third-party consultants, including Ernst & Young and academics.

Ever since the EHT went into effect in 2017, the taxable rate based on the percentage of the property’s assessed value has been increased three times from 1% to 1.25% in 2020, then 3% in 2021, and now 5% for 2023. The 2021 and 2023 hikes were moved by previous Mayor Kennedy Stewart.

City staff were previously opposed to hiking the EHT beyond 1% due to the law of diminishing returns and the provincial government’s introduction of its own Speculation and Vacancy Tax starting in 2018.

According to the City, there were 160 fewer properties declared vacant between 2020 and 2021 and about 130 fewer properties declared vacant between 2021 and 2022, representing a 20% drop in vacant declarations year-over-year for both cycles.

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Ernst & Young’s analysis acknowledged that further increases to the EHT rate beyond 3% could potentially encourage more owners to convert their properties from vacant to occupied and generate more revenue for the City, but they also suggested large increases to the rate could result in a spike in false declarations and a concurrent need for more audit resources.

City staff note both Ernst & Young and academics have suggested a “graduated rate,” which would establish a lower rate for short-term vacancies and a higher rate on longer-term repeat vacancies. This would help “address some of these administrative and compliance challenges, and also mitigate potential unintended consequences that could lead a property to be vacant for a shorter period of time (e.g. owner unable to sell property for one year due to market conditions).”

While the EHT hike to 3% may have had an impact on the downward trend in vacancies, it is also suggested the earlier effects of the pandemic on housing supply and demand may also be a major contributing factor.

The original intent of the EHT was to discourage speculation and encourage more homes to be converted into rental housing by their owners while also generating some new revenue for affordable housing projects. As of November 2022, the municipal government has collected over $115 million in net revenues throughout the history of its EHT.

In addition to cancelling the EHT rate hike in 2023, City staff have made a number of other policy recommendations for City Council’s consideration to improve the “fairness and effectiveness” of the tax.

This includes 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; for vacant new inventory that is unsold for each vacancy reference year after the occupancy permit has been obtained until it is sold or occupied; if a property is not able to be occupied due to a hazardous condition or disaster (such as fire) 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.

There would also be 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. If approved, this exemption would end in 2024.

Other recommended amendments to the EHT by City staff entail 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.

Not including the cancellation of the 5% EHT hike, the various exemptions and amendments could lower EHT revenue by as much as about $14 million, including $6 million on exemptions for renovations/redevelopments, $3 million for vacant new unsold inventory, $1 million for medical purposes, and $4 million for late declarations.

Additionally, City staff are requesting City Council’s permission to explore adopting a graduated tax rate framework for longer-term (repeat) vacant properties.

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