Toronto’s vacancy tax may have a big impact on real estate investors, according to a local board survey. The Toronto Regional Real Estate Board (TRREB) released the results of their survey, conducted by IPSOS in the fall. More than half of investors said they’ll either sell or rent their unit if a vacancy tax is implemented.
Toronto Vacant Home Tax
Shortly after the survey was conducted, Toronto laid out plans to implement a vacant home tax. The hope is, in their own words, to encourage “homeowners to sell or rent their unoccupied homes.” If they aren’t willing to do either, owners will have to pay for the privilege of an empty home.
Only some details have been released on how the tax will be implemented. Owners will be required to declare their occupancy every year. The tax will start at 1% of assessed value, which is almost twice the property tax rate. Vancouver’s vacancy tax is escalating to 3% though, so Toronto will still be a deal. The full details won’t be known until the second half of 2021, but so far it looks like it’s already effective. Most investors plan on responding to the tax in the desired way, before even getting hit by it.
Toronto’s Vacancy Tax Will Lead Many To Sell
The most common investor response is, they plan on selling due to the vacant home tax over the next year. The survey found 40% of investors said they would sell in the next year, up from 34% a year before. This is up from just 31% two years ago, when a vacant home tax was less likely. The rate is high enough that it implies even owners that don’t have a vacant home, intend to sell. This may be due to a perceived impact on valuation if a vacant home tax is implemented.
Toronto Investor Response To Vacancy Tax
How Toronto real estate investors intend to respond to a vacancy tax. Source: TRREB, IPSOS. Better Dwelling.Almost A Third of Toronto Real Estate Investors Will Lease
A large number of investors plan to rent their property to long-term tenants. The survey found 28% of investors will find long-term tenants if a vacancy tax is implemented. This is the same as the year before, but down from 32% two year before. The loss of points are likely to have shifted to sales.
Almost A Third of Investors Not Impacted By Vacancy Taxes
Almost a third of investors will not be impacted by a vacant home tax, down from a few years ago. The survey found 30% of investors said they weren’t impacted, down from 36% just a year before. Two years ago, the rate of those not impacted was a similar 35%. The sharp decline in the latest survey is noteworthy. Fewer people are not impacted by the tax, meaning there’s more investors not wanted by the city than in previous years.
Investors that plan on selling due to a vacancy tax join a number of other investors planning to list soon. The same survey found new short-term rental regulations also encouraged investors to sell. This is added to investors in general, that have stated they plan on cashing in on gains. All three of these factors would add more supply to the market.
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The trick is to be the one that sells right at the top, just before the rest.
The vacancy tax is just a cash grab this time. Not going to be the main motivating factor. What do you care if you’re charged 1% to make many more? You don’t, it’s just for show.
Now 3% like Vancouver is getting might get interesting.
Punitive measures like vacancy taxes always motivate people to sell before they’re counted, and then when they’re implemented people think it wasn’t a big deal.
The goal isn’t to hit people with a tax though. It’s to make sure people use property more efficiently, and avoid getting hit by the tax. It’s like a parking ticket. You can pay $50 to park anywhere, but it’s just easier to pay $3 at a lot.
What exactly do they think people are going to do with all of the units built specifically for AirBNB and pied-a-terres? It’s not like students are going to use them as $600,000 dorm rooms.
For it too actually cool down the hysteria they need to increase the vacant tax enough so that they won’t make any capital gains
I’ll believe it when I see it. Many people answer surveys based on wanting to send a message, not based on what actually plan to do. Vacancy tax is a positive move, though, that should motivate real estate hoarders to at least rent it out at market rates.
The 1.6 million empty homes in Canada is part of what is keeping prices high
1.6 million seems high considering Toronto only represented 100k during peak, depending on how they define empty.
Not impossible, just high.
https://www.mortgagebrokernews.ca/news/over-a-million-canadian-homes-are-empty-306013.aspx
As much as 1.34 million homes across Canada lie empty or merely hold temporary occupants, according to a report by Point2 Homes.
Toronto accounted for 66,000 of those empty homes, while Montreal had 64,000. Markets with more than 20,000 unoccupied dwellings include Calgary, Ottawa, and Edmonton.
Yea not sure about 1.6 million empty homes. Also the grammar in the comments has seriously slid which makes me questions the education level of those leaving comments.
The vacancy tax is not a cash grab. It’s the city’s attempt to try and fix their housing shortage. If you are land banking houses to drive up prices then you are the intended target. Pure and simple.
Jason,
Could you share where you found the data that 1.6 million homes are empty.
That is huge considering we are building 250k of new homes a year.
It also solves the housing shortage puzzle..because it definitely seems like we are building enough homes.
If this is true if the govt force the release of this stock into the market it would definitely lower prices…maybe devestate prices.
Approximately 13 million households in Canada.
10 percent are empty…possible but certainly hope not.
My bad only 1.34 million .
https://www.huffingtonpost.ca/entry/empty-homes-canada_ca_5d559bace4b056fafd08bdfb
https://www.ctvnews.ca/canada/tens-of-thousands-of-homes-are-sitting-vacant-across-canada-report-1.4621000
I can’t find the one I read that said 1.6
This looks insane, sure for province and feds this is a big part of their budget. In the end lot of people suffer.
Rock bottom interest rates will not help to cool the market. People are fed up of having zero percent interest on their cash so they will continue to buy real estate. At the current path of money printing there will be massive asset inflation followed by high interest rates in an attempt to lower inflation. Affordable homes may come if enough people sell due to being unable to refinance at higher interest rates. Look at the early 1980’s as an example. Those who don’t study history are bound to repeat it.
The only issue with real estate long term relative to other assets like commodities and crypto is that their is a cost of maintaining it. And with things like property taxes and other expenses set to go up the roi will need to be even greater to justify keeping it.