The whole world is undergoing a housing shortage, but vacant homes are barely budging. The OECD‘s latest data drop shows 42 million of its 426 million homes are vacant. Yes, roughly one in ten homes in advanced economies are empty. There are literally years of housing supply being used as an alternative to gold.
Rather than pondering why it’s so attractive to have vacant homes, many countries doubled down on reasons to hoard. If we only build more homes and give the investors cheap money, there can be enough to hoard too, right? I mean, you almost tried, so partial points. Let’s take a look at how bad the issue has become.
Canada Has Over 1.3 Million Vacant Homes, About 6 Years of Supply
Canada has one of the highest numbers of vacant homes in the world. The OECD’s latest data shows 1.34 million homes were vacant, or about 8.7% of the country’s 15.41 million homes in total. That works out to nearly 1 in 12 homes, or 6 years of housing supply at the average construction rate from 2016 to 2019. Canada has the fifth most vacant homes of the group of advanced economies.
America Has The Most Vacant Homes In The World
U-S-A! U-S-A! The birthplace of the chicken-fried everything is also the king of vacant homes. The latest data shows 15.55 million homes were vacant, about 11.1% of the country’s 139.68 million homes. That works out to 1 in 9 homes, or nearly a decade of supply for the country. No other country is even close to that volume of vacant homes. Japan, notorious for its vacant homes, is in second, and it has nearly half the number.
Vacant Housing In OECD Countries
The most recent update for vacant homes for OECD countries that track housing vacancy.
Source: OECD; Better Dwelling.
Japan Has The Highest Rate of Housing Vacant, About 1 in 7 Homes
Speaking of Japan, the country tops the data set for the highest rate of vacant homes. The latest data shows 8.46 million homes were vacant, about 13.6% of the country’s 64.42 million homes in total. It’s about 1 in 7 homes vacant, which is a lot of frickin vacant homes. The country is less like its G7 peers, and more like an emerging market — Cyprus (12.5% vacant), Hungary (12.3%), and Brazil (11.1%). At least in regards to housing.
Vacant Housing Rates In OECD Countries
The most recent update for the rate of vacant homes in OECD countries that track housing vacancy.
Source: OECD; Better Dwelling.
Vacant Housing In The UK Is Annoying, But Comparatively Low
The UK is notable due to having relatively few vacant homes for an advanced economy. The latest data shows 225,845 vacant homes, just 0.9% of the country’s 24.41 million homes in total. In contrast to other countries, having 1 in 108 vacant homes seems like a lot less of a problem. It’s still a problem though, so if you’re a part of our rising UK readership, no need to fire off an angry email. It’s just not as big of an issue as it is in say, the US or Canada.
The methodology used in the UK highlights some issues across the board though. Their number doesn’t consider a second home vacant, which is the issue in many regions. When second homes are included, the rate doubles the OECD reported numbers. That said, this underplays the issue of vacant homes. Global numbers are likely to be slanted to a lower estimate. Sandbagging numbers might make people feel more comfortable, but won’t resolve the issue.
Incentives Are Slanted To Having Vacant Homes
Why keep a home vacant? There are a lot of reasons, but incentive is one of the biggest. Countries with the most vacancies have low carrying costs, and welcome foreign capital. Most of these countries don’t even collect beneficial ownership data, which is wild. In non-technical terms, it means they don’t want to know who the real owner of the home is, just someone to contact.
When prices advance faster than carrying costs, it makes sense to hold vacant homes. Especially in a housing crisis, since it creates an artificial supply shortage. The vacant units don’t just rise in value, they also contribute to the rise in home prices.
The UK’s Low Vacancy Rate Might Be Due To High Carrying Costs
High carrying costs might explain why the UK, which has seen high price growth, has so few vacant homes. The country’s policies are somewhat hostile to property investors these days. This makes it a much less attractive place to hold a vacant property. Especially considering there are so many other places to hold vacant property.
Take the UK’s non-resident speculator taxes. UK housing has been subject to a Non-Resident Capital Gains Tax (NRCGT) of 18% to 28% since April 2015. This was extended to non-housing in 2019. That’s right, it’s applied to the sale price, not the purchase price. If applied to the purchase price, who cares? It helps drive up the cost of housing by limiting supply, meaning you can still make out like a bandit after a few years.
In addition, property owned by “non-natural persons” (e.g. companies, etc.) are subject to an annual tax. The Annual Tax on Enveloped Dwellings (ATED) adds a point to annual carrying costs for homes over £500,000. Remember, if your annual costs rise higher than carrying costs, you lose money every year.
On top of that, you’re not going to want to keep that pricey property handed down to you. The UK also has an inheritance tax for gains over the £325,000 threshold. This makes passing on property less of an ideal store of wealth than a company.
Oh yeah, they also collect beneficial ownership information these days. Originally the UK had no idea who owned what, a relic from days past so Royalty could hide their wealth. The Queen even lobbied for exemptions, since they don’t want you to know how much cash they have stashed. Over the years, more and more transparency was adopted. It’s now generally a bad idea to stash your drug cash in UK homes at this point. Especially when there are more attractive options, like many of the Queen’s Commonwealth countries that still don’t collect that info.
Canada Is An Ideal Place To Hoard Vacant Property
Canada might have non-resident taxes, but they’re mostly just a PR tool to dismiss the issue. The taxes only apply to a small region, which can be avoided by investing outside of the boundary. The country’s re-elected leadership promised to outright ban non-resident purchasing. However, they have no idea who is a non-resident, and would prefer to keep it that way.
Canada has no beneficial registry, with BC being a recent exception to the rule. There’s no way to tell who ultimately owns a property, just the person to contact. Setting up an entity such as a corporation or trust web can ultimately circumvent that. Or at least obfuscate it to the point where it’s impossible to tell who actually owns it. Some experts acknowledge this is true, but dismiss it as “too complicated.” Yeah… paying $10,000 in legal fees to avoid paying a six-figure tax bill is certainly something a rich person would never do.
I tend to disagree with that narrative, since that’s not the data we’ve been looking at. A Transparency International study on Canadian real estate (which I was lucky enough to assist with) found this is a huge problem. It found $28.5 billion in mortgages registered to corporate entities from 2008 to 2018. That was just in Greater Toronto, not across the country. Are they owned by the mom and pop investor with a couple of investment properties, or transnational drug king pins with a lot more to spend?
No one knows, because Canada goes out of its way to make sure that data isn’t known. That sure doesn’t stop the government from declaring it domestic though. What’s the term? Wilful Blindness? Anyway, the point is this renders the measure as a vacancy deterrent useless.
Canada also has notoriously low property tax rates AND cheap money. Usually it’s one or the other, but the combination is like asking you to hold homes vacant. It’s a country with sub 1% property taxes, a central bank pushing mortgages below 2%, and 4% inflation. You would have to be an idiot not to hold vacant property with this setup.
The lack of inheritance tax also means if you inherit someone’s primary residence, you pay nothing. Personally, I’d be hoarding property as well if that was my setup in Canada. Especially in the “always goes up” environment it’s trying to create.
Fixing The Incentives To Hold Vacant Housing Will Be Like Unleashing Years of Supply
Vacant housing might not seem like such a big deal in a higher rate environment. High rates mean needing to put property to the best use, since carrying costs increase profit risk. The current low rate setup is ideal for building up a portfolio of vacant properties though. If prices rise fast enough, you can even borrow cheap debt against the vacant property to realize the wealth. Or buy another property, as is the Canadian way.
This isn’t an accident. Some of the wealthiest people in the world are being advised to do this. It exploits a well-intended tax policy designed to “help” families. In reality, it makes it worse. It’s hard to convince the people on the wrong end of property speculation that more expensive debt makes housing cheaper though.
Years of supply are sitting unused as policymakers try to build enough to “catch up.” None realize accelerating supply in a short period places excess demand on construction. This drives the cost of building homes higher, thus making housing more expensive.
They also don’t seem to realize they’re printing money faster than housing can be built. This arms investors with a supply of capital, ready to scoop up property faster than they can be built. For example, investors are capturing over a quarter of Toronto’s housing supply. Or maybe they do realize these things, and they’re just hoping the people impacted don’t.
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Vacant homes are a market inefficiency caused by piling on market inefficiencies.
The irony here is no policymaker could ever say they’ll do nothing, which is the best way to fix this. They always need their cheerleaders to support any policy, even if it makes things worse.
Excellent article as always. The narrative used to be these are houses in rural areas, and no one wanted them.
During the pandemic there were a ton of people moving to small towns, and they’re still struggling to find housing.
The free market works. Stop QE and mortgage bonds goosing, and this whole thing solves itself.
They can’t stimulate demand, and then complain the demand is out of control.
A wise man once said, “Capitalism is one of man’s greatest inventions. Politicians are one of its worst.” 😉
I have two homes. One in the city and one in the suburbs. I bought the condo downtown when it was $200,000 and it was convenient for work if we didn’t want to travel back to the city every night during the week. A lot of people at my office do the same, and carrying costs are so low why would we rent it out? That’s not why we bought it in the first palace.
Have I sold it now that I’m working from home? Heck no. I’ll need it when I go back. A unit on my floor sold for nearly a million a couple months back.
When the government says there are no vacant homes, they don’t consider people like me because they’re “used.” The fact that I’m paying less than 1% to carry the place means I’ll almost never lose money on it. With a variable rate mortgage at 1.45%, I’d also be dumb to pay it off too. My costs are less than $1k/month, and I’m technically crowding out buyers that now have to pay $4k, $5k/month.
Is it wrong? Probably, but it makes my life easier and no one else seems to care. Will I stop doing it? Zero chance, since it’s almost certain even with a vacant home tax, this is going to be cheap compared to the rising cost of value.
So what’s the solution? Just keep letting people that older get away with hoarding the supply for comfort, or harvesting a third of our wages? You need to be hit with more taxes.
Liquidity. If mortgage rates are lower than the cost of inflation-adjusted carry, it’s always a good investment, that gets further out of reach for other people. If mortgage rates are higher, it becomes inefficient to speculate on housing.
There’s a very obvious reason this became a global phenomenon after the GFC.
The solution is clearly for Canadian wage earners to keep paying crushingly high income tax while old people like the person above (probably foreign born) who won the birth year lottery get bailed out, time and time again, by the government and Bank of Canada.
I think if we did away with beneficial ownership then we could actually examine the numbers in greater detail with the transparency and see people in your position are not the ones creating the problem.
Without having all the data we just know x is a problem…
And yes great article. All the links back to previous articles helps me see this as a penultimate sort of post that really sums up why in the not too distant future we are going to be in some serious trouble. People will be looking for the reason why it happened and I’m hoping we all know where to look or at least who is responsible.
Excellent article, as usual, a splendid display of the author’s wisdom. I really wonder why these articles are not published in mainstream media ( I know the media’s have their own agenda that doesn’t glance with Author’s POV). I think we should make an attempt to create awareness to the public and policymakers(self-proclaimed intellectuals).
I’m an editor at a “main stream media” company, and Steven knows he has an open invitation to write for us whenever he wants. I think he’s content growing his own audience.
who cares if there are empty houses – Canada is not a communist country. We value private property. If foreigners are interested in housing then let’s capitalize on this as a valuable export. Create “zones” where foreigners are permitted to buy and maintain an empty premises. Have a special tax rate that applies to foreigners – levy a dedicated capital gains tax. Provide for stiff penalties for professionals such as immigration consultants, lawyers and accountants who assist foreigners to avoid the system and escape the rules. For God’s sake if countries such as Panama and Costa Rica, Mexico, states like South Carolina have figured this out why can’t we?? The rest of the world does not want to buy Canadian manufactured goods – we are stuck with just selling the world commodities ….. so let’s not throw away a valuable export…. look at it and begin to treat it as an export and this way the challenge can be dealt with opportunistically in a way that assists Canadians to manager our fiscal deficits.
This is actually a relic of socialism. The services that make the homes so cheap to carry is the result of subsidies to keep property taxes and mortgage bonds low. Markets are efficient, but socialists create inefficiencies and call itself capitalism.
Capitalism doesn’t involve a +50% tax rate, so the government can push down the cost of borrowing by non-market capital dilution, and using those tax revenues to pay for mostly middle class homeowners with no skills.
Once again, excellent article! Now we know what the main cause of Global Warming is. 80 tonnes of C02 to build one house. That’s 3.36 billion tonnes of C02. Can I put my housing portfolio into my “Green Fund”? Or better yet, a carbon tax on the whole shebang…
Joint Ownership is one thing for no estate taxes. If house is Tenants in Common, and one dies, that portion of the house will be charged Estate Taxes in BC.
Also, BC gov is collecting information on all the beneficiaries in a will now, even if a beneficiary just gets a knick knack. We’re talking names, addresses and SIN numbers. They are obviously cooking something up.
In my area, I know of at least two houses empty for over 10 years. Another place I heard about was empty for 10 years and a pack of coyotes moved in. I assume the places belong to older women who are in care homes. However, they should be sold. At least one more family would have a home. Or it would be torn down and rebuilt and a family and renters would have a place.
Sounds like England is doing a pretty good job, eh?
In Waterloo Ontario there are three heritage style houses vacant and falling apart on my street. There are many more owned by this landlord in surrounding streets. These are beautiful homes in a desirable downtown neighbourhood. Saplings are growing out of the foundations and animals are in the roofs. The landlord owes thousands of dollars in back taxes to the City. The City has boarded up the houses; the landlord won’t sell them, and for some unknown reason the city can not reclaim them and sell them for back taxes. The area houses is this area are very desirable many are over the one million Mark and many people would be willing to buy them, even in the state they are in. Property laws need to be changed so that people can buy these abandoned homes.
Percentage wise more homes are vacant in US and Australia. But prices are not skyrocketing there like in Canada. Why? Because this is not the real reason for skyrocketing home prices!
What is the real reason?
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