As policymakers struggle to control an affordable housing crunch, officials in some of the world’s biggest cities have their sights set on a tactic: taxing the empty homes of the rich.
Los Angeles is planning to put a vacant homes tax on the ballot for 2022, in the face of a mounting homelessness crisis. Hong Kong officials are considering taxing condo developers to deter them from hoarding new units. Ireland is exploring its options. Barcelona has gone as far as threatening to seize landlords’ empty apartments—paying half of market value—and convert the units into affordable rentals. Paris tripled its tax on second homes in 2017.
The rationales vary: Discourage people from parking cash in homes instead of living in them, or stop distortion of supply-and-demand metrics with properties kept off the market. Lawmakers say the trends are depleting inventory, making it tougher for low- to middle-income renters and homebuyers in an already squeezed and pricey global market. The hope is that the taxes fund affordable-housing efforts or push landlords and the wealthy to put their properties on the market.
Not everyone is convinced.
“Vacant property taxes fall into the bucket of something that sounds good but won’t make that big a difference in practice,” said Brendan Coates, economic policy program director at think tank Grattan Institute in Melbourne. “It is a distraction from the main game.
Economists say factors like record-low interest rates, population growth, an imbalance between supply and demand, and a lack of affordable-housing construction have a bigger impact. Critics say the taxes are more political posturing than a meaningful revenue stream, much less an approach that will make a dent in the global affordable-housing crisis. Some of that comes down to design, some to enforcement. Others worry the concept is flawed altogether. So, can these taxes succeed?
At least some answers may lie in two of the world’s least affordable cities, which each recently implemented levies on “ghost homes.” In Vancouver, which enacted the tax in 2017, revenue has exceeded expectations but rental inventory hasn’t budged. In Melbourne, where the tax was put in place in 2018, the take has been tiny. In neither city is there compelling evidence that homes have gotten any more affordable.
No Inventory
A rental market with near-zero inventory drove Vancouver to implement a vacancy tax of 1% of a property's assessed value.
In 2019, landlords in the city converted more than 5,000 existing condominium units into long-term rentals—which the Canadian federal housing agency attributed at least in part to the new tax. And the levy generated more than C$84 million ($67 million) in revenue from 2017 to 2019, exceeding an initial estimate of C$2 million a year. The funds are allocated toward developing affordable housing and supporting renters.
Though those figures are encouraging, Vancouver originally expected there to be more than 10,000 homes that were empty or “under-utilized.” The city actually identified only 2,538 units that fit that description in 2017. That number fell by 25%, or 645 units, over the next two years—a rounding error in a housing market of nearly 200,000 properties.
Though the tax plays well politically among the city’s residents, Mayor Kennedy Stewart indicated there is still room to refine it.