Vancouver's Empty Homes Tax rate should not be changed: City staff

Aerial of central Vancouver. (Google Maps)

Staff with the City of Vancouver have reaffirmed their position that the Empty Homes Tax (EHT) rate should not be increased any further beyond the current rate of 3%.

In May 2023, Vancouver City Council approved the recommendation by City staff to not increase the rate any further, rejecting the previous makeup of City Council’s decision to hike the rate to 5% starting with the 2023 taxable year.

Over the years, at different junctures, City staff have made previous recommendations to not increase the rate any further over the concerns of unintended consequences and the effect of the law of diminishing returns in EHT revenues to the municipal government — all compounded with the provincial government’s separate Speculation and Vacancy Tax, which is also applied on Vancouver properties.

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The rate is applied to the latest assessed value of a home. For example, a single-family house deemed to be vacant with an assessed value of $5 million would be taxed $150,000 for the taxable year, based on the 3% rate.

City staff are recommending that the 3% rate should be maintained moving forward and that the structure should not be changed to a graduated rate after being asked by City Council this past spring to explore the implications.

A graduated rate essentially establishes a lower rate for short-term vacancies and a higher rate for long-term repeat vacancies.

In a new report to be deliberated by City Council next week, a panel of housing experts and consultants with EY provided findings that led City staff to conclude the existing EHT rate should be maintained and a graduated rate should not be used.

“The economics of implementing a graduated tax rate program is unclear; a lower rate may encourage more vacant properties due to a lower financial penalty but a higher rate may encourage avoidance behaviours leading to a reduction of revenue to support housing initiatives and not meeting the overall objectives of the EHT program,” reads the report.

“The Panel suggested that if a graduated tax program is considered that it should look at vacancy over a period of time rather than consecutive years to avoid property owners gaming the system, though this may add complexity to administer the program.”

Moreover, repeatedly vacant properties are small in number but contribute to EHT revenues, which are dedicated to supporting new affordable housing projects. A graduated rate could potentially increase the risk of “non-compliance, reduce revenue to fund affordable housing initiatives, and increase the costs of program administration.”

As well, the number of properties declared vacant has been trending downwards for years, and therefore it appears the current rate of 3% is “working effectively,” according to the panel.

Empty Homes Tax impact. (City of Vancouver)

Empty Homes Tax impact. (City of Vancouver)

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. Between 2017 and 2021, the tax collected $115 million in net revenues for new affordable housing projects.

Instead, the panel and City staff recommend improving the EHT through exemptions, which have already been made by City Council this past spring.

This includes expanding the late declaration period from the current duration of 1.5 years to five years and creating a new exemption for vacant newly-built homes that are unsold for each vacancy reference year after the occupancy permit has been obtained until it is sold or occupied. This new exemption for vacant new homes will also be applied retroactively for 2022.

As of the data compiled in November 2022, of the 1,755 homes declared or deemed vacant under the EHT in 2020, 49% were converted to occupied status during the 2021 tax year. This includes 868 occupied homes, 158 exempt homes, 706 vacant homes, and 23 homes that do not require a declaration.

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