Toronto real estate could be in for a change in 2022, if a proposed vacant home tax gets the green light. The City of Toronto has proposed a vacant home tax in an effort to boost the city’s low housing supply and fund more affordable housing in the city. But RE/MAX Executive Christopher Alexander is casting doubts on the purpose of the tax and the possible repercussions.
The City’s report says the tax could raise up to $66 million in annual revenue, a figure that’s modelled on Vancouver’s vacant home tax that took effect in 2017, and based on a 1% vacancy rate of Toronto’s housing stock, and a tax rate of 1% on the average Toronto home’s current assessed value.
To give you an idea of average selling prices in the Toronto real estate market, the average price across all property types was $979,224 in November, according to the Toronto Regional Real Estate Board (TRREB). Single-detached homes were selling at an average price of $1,477,226, while condominium apartments were going for an average price of $640,208.
The proposed tax will be going before City Council on December 16 & 17, with the recommendation that it be levied starting in 2022. According to a news release issued by the City of Toronto late last week, “A vacant home tax increases the housing supply by encouraging homeowners to sell or rent their unoccupied home, and if they choose to continue to keep the home vacant, a tax is levied. This revenue can then be used to fund affordable housing projects.”
However, Christopher Alexander, Regional Director and Executive Vice President, RE/MAX of Ontario-Atlantic Canada, is doubtful.
“There’s currently no hard data indicating that empty residential units are a significant contributor to Toronto’s housing supply crisis. Condo rental listings and vacancy rates are up year-over-year. Given these trends, I’m not convinced a tax will solve the problem of availability,” he says.
Alexander highlights the possible negative impacts of such a tax, which he says “could deter buyers and further deepen the glut of condos on the market. Furthermore, many of these buyers are hard-working Canadians who purchase a single condo unit as a savings and investment vehicle, to fund things like their children’s education. They could be hesitant to list their rental units due to the pandemic-related decline in rental prices, but they are also feeling the acute impacts of COVID-19. This tax will only further the divide between the haves and the have-nots who are trying to build financial security.”
A Closer Look at the Toronto Real Estate Market
The Toronto real estate market has seen its rental vacancy rate triple to 2.4% compared to just 0.8% one year prior, according to Urbanation. In downtown Toronto, it’s higher. The Toronto resale condo market has moved in lockstep, with listings up 113% in the third quarter, according to the Toronto Regional Real Estate Board. Demand and rental prices have plummeted due to ongoing border closures, the pause on immigration and travel restrictions, the decreased need for student housing, stricter rules for short-term rentals, and shifting consumer behaviour since the pandemic took hold in mid-March.
The 2021 RE/MAX Housing Market Outlook Report says many regions are experiencing increased interest for detached homes in suburban and rural communities, coupled with a migration away from dense urban centres. Buyers moving out of the Greater Toronto Area have had a significant impact on markets including Durham Region, Windsor, Niagara, Kitchener-Waterloo, Hamilton-Burlington, Barrie, Muskoka, Sudbury and North Bay.
Solving the Housing Supply Crisis
RE/MAX expects average residential prices to rise between 4% and 6% in 2021, and prices will likely continue on this upward trajectory unless the housing supply problem is solved at its root. A vacant home tax, Alexander says, is not the answer.
“Governments need to have the proper checks and balances in place before implementing a tax, to ensure fairness across the board. A vacant home tax is a Band-Aid solution to a housing supply crisis that’s caused by a shortfall in housing development. The only thing that’s going to solve this problem is a national housing strategy to increase supply at the development level.”
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