Vancouver’s tax on vacant homes misses the point—we need to build more homes

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Appeared in the Vancouver Province, November 25, 2016

Vancouver City Council recently approved an annual one per cent tax on the value of vacant homes, ostensibly to encourage their owners to rent them out and, in theory, boost the city’s rental housing supply and rental vacancy rate, which is consistently below one per cent.

Beyond potential issues of enforceability, it’s unclear how much the tax will increase the supply of rental units in Vancouver, especially in the longer run. Consider this. According to city hall, the estimated percentage of housing units that are unoccupied year-round sits at just under five per cent. While that number might seem big to some, there are plenty of legitimate reasons why a unit might not be occupied at any given time. This is why exemptions will be granted for situations ranging from snowbirds claiming principal residence in homes they don’t spend all year in, to condos where strata rules restrict rentals. But even if a reasonable number of those units find their way onto the rental market, it would only be a one-time boost rather than a lasting solution.

Highly desirable cities such as Vancouver will always attract newcomers, from vacationers to job-seekers to investors. This is not likely to change, spurring growing demand for housing. Rather than trying to dissuade this demand, the city would benefit from ensuring an adequate supply of new housing units. It’s a simple equation. When the number of new homes does not keep up with demand, more potential buyers or renters will bid for a dwindling pool of listings, eventually pushing prices up, and pushing some people out.

Growing the housing supply in a geographically constrained city such as Vancouver will ultimately require city hall to permit more density. This means reducing red tape—the regulatory barriers and costs to building more apartments, laneway units, townhomes, and other alternatives to single-dwelling houses.

When compared to its neighbours, Vancouver creates an inordinate amount of red tape. According to Fraser Institute research, long and uncertain timelines for building permit approvals from city staff can significantly slow the pace at which new housing enters the market. In this regard, Vancouver ranks worse than almost any other city in the Lower Mainland, averaging more than 15 months to get a permit to build a new housing unit.

To encourage the construction of new homes, Vancouver can look to its neighbours for best practices. Timelines for permit approval are five months shorter, on average, in Burnaby where per-unit costs—another important factor—to comply with local regulation are half what they are in Vancouver. Incidentally, uncertainty in building permit approval timelines is lowest in Abbotsford, Port Moody and Pitt Meadows.

Vancouver is one of the world’s most attractive cities, so strong demand for housing will likely persist into the foreseeable future. Vacant homes, like foreign ownership, are a convenient scapegoat for declining affordability in Vancouver. But it distracts from the underlying problem of supply not keeping up with demand. As the province and city hall attempt to address demand for housing in Vancouver, they should not lose sight of homegrown barriers to the construction of new housing.

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