In cities across North America, local politicians are considering imposing a tax on unoccupied or vacant properties. The main stated reasons behind such policies are usually the implied effect of increasing the housing supply as owners of vacant properties choose to sell their assets and the ability to raise additional tax revenue for reinvestment in other efforts.
Nevertheless, critics say that such policies will have a relatively minimal impact on the overall housing supply and are not worth the trouble. Instead, they suggest that cities consider addressing some of the issues causing properties to remain vacant.
Do vacant property taxes work?
Because the taxes created on vacant properties have been, by and large, recently implemented, there is a lack of data as to whether it achieves the stated goals that caused them to be considered in the first place. However, evidence from Vancouver, Canada, suggests that it did reduce the number of vacant properties and increase the overall housing supply, though not by too much.
The main issue with vacant property taxes is the uncertainty regarding how many properties qualify and the challenges of gathering this data. As a result, many property owners are left wondering whether their secondary homes will be the target of such policies. This is leading many to begin creating lobby groups and research efforts to divert the attention of politicians.
What alternatives could we consider?
Many suggest that governments of all levels should instead be considering efforts to increase the housing supply by creating construction and development incentives for affordable properties. Additionally, there is reason to suggest that vacant property taxes disproportionately target specific groups – like individuals with secondary, part-year vacation homes – rather than addressing the root causes of housing inaccessibility.
Indeed, to address the former most cities have adjusted their proposed legislation to make exemptions for owners who legitimately care for their vacant properties and, thus, are not the proper targets for taxation. For example, proposed taxes could be linked to the presence (or absence) of a specialized vacant dwelling insurance policy, with credits for property owners who protect their assets appropriately.