HomeMy WebLinkAboutFIN-2022-284 - Vacant Home TaxFinancial Services Department www.kitchener.ca
REPORT TO: Finance and Corporate Services Committee
DATE OF MEETING: 8, 2022
SUBMITTED BY: Saleh,Saleh,Director, Revenue Division,519-741-2200ext. 7346
PREPARED BY: Saleh, Saleh,Director, Revenue Division,519-741-2200 ext. 7346
Danielle Sbeti, Manager, Realty Services, 519-741-2200 ext. 7357
WARD(S) INVOLVED: ALL
DATE OF REPORT: May 20, 2022
REPORT NO: FIN-2022-284
SUBJECT: Vacant Home Tax
RECOMMENDATION:
That a Vacant Home Tax notbe implemented at this time.
REPORT HIGHLIGHTS:
Legislation allows municipalities to charge a Vacant Home Tax (VHT) to owners of
vacant residential properties.
The VHT is intended to provide municipalities with an option to improve housing
supply and is not designed to be a revenue tool for the municipality.
The City of Kitchener has one of the lowest vacancy rates in Canada according to
the Canada Mortgage and Housing Corporation (CMHC).
Currently only between 100-125 residential properties are suspected to be vacant
within the City of Kitchener.
Many municipalities are currently exploring the feasibility of implementing a VHT.
It is expected that the expenses incurred to implement a VHT would be greater than
revenues collected for the City of Kitchener.
The City of Kitchener continues to move forward with the action items identified in the
Both the Federal and Provincial governments have announced several strategies to
increase the affordable housing supply.
BACKGROUND:
As housing prices and the need for affordable housing increase, the City of Kitchener
continues to explore every opportunity available to improve the housing supply and to add
more affordable housing inventory to the market.On December 13, 2021, Council passed
the following motion as it relates to the feasibility of implementing a vacant home tax (VHT):
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and in the City of Kitchener continues to be
an issue requiring municipalities to consider every tool available to them in efforts to increase
the supply and affordability of housing; and,
The
municipality; and,
WHEREAS Kitchener continues to seek opportunities to address the local housing crisis
recognizing the need for safe, adequate and affordable housing; and,
WHEREAS the City of Toronto is implementing a tax on vacant residential units to
encourage property owners to rent out those properties and other municipalities in the
Province are considering doing the same;
THEREFORE BE IT RESOLVED that City of Kitchener staff be directed to work with the
Region of Waterloo and area municipalities to consider the feasibility of implementing a
property tax charge on vacant residential units as a means of encouraging occupancy of
those vacant units and that staff report back on the findings to the Finance and Corporate
This report is expected to provide the following information:
1. Purpose of a VHT.
2. Understanding of the current legislation as it relates to the VHT.
3.
and trends.
4. Shared experiences of other municipalities who have implemented the VHT.
5. Understanding of Vacant Homes in Kitchener
6. consideration
REPORT:
Purpose
municipalities to impose a tax on vacant units that are classified in the residential property
class. The main purpose of this legislation was to encourage residential property owners of
vacant premises to either sell or rent their properties, thereby, increasing the supply and
affordability of housing. This legislation is intended to provide municipalities with an option
to improve housing supply and is not designed to be a revenue tool for the municipality.
Current Legislation
units that are classified in the residential property class and that are taxable under the Act
for municipal purposes. The Act further clarifies that for a municipality to be able to impose
a vacant unit tax, the Ministry of Finance must designate the municipality by regulation.
Historically and legislatively, property tax policy formulation in a two-tier system, is the
responsibility of an upper-tier municipality. However, in this case, as it relates to legislation
around the vacant unit tax, the Act is not clear on whether a program built on a vacant unit
tax for properties in the residential property class, is the responsibility of the upper-tier
municipality. Staff sought clarification from the Province and the Ministry of Finance on this
issue but did not receive any clarity. However, staff from the Ministry of Finance, strongly
encouraged a regional approach to any tax policy with the caveat that if the City of Kitchener
decided to create a VHT program for Kitchener properties only, the Ministry would review
may provide the designation. The City of Toronto currently has this
designation through the City of Toronto Act; further, the City of Ottawa recently received
approval from the Ministry of Finance for this designation. Both, the City of Toronto and the
City of Ottawa are single tier municipalities.
(Appendix A) to this report.
Key highlights from this report include:
The supply of housing units per capita in the Kitchener CMA is well below the national
average and has been falling since 2016. The months of inventory in the residential
resale market reached an all time low of 0.2 in December 2021.
Rental vacancy is at an unhealthy level, with an overall vacancy rate of 2.1% in the
City of Kitchener as of October 2021.
Within the secondary rental market (condo units that are rented), the vacancy rate
in Kitchener-Cambridge-Waterloo was only 0.8% as of October 2021.
Available studies relating to the impact of foreign buyer taxes on house prices
suggest the effect is minimal and temporary in nature, and to date there is a lack of
data correlating vacant home taxes to price decreases.
The investor category of purchasers is broadly defined, and the proportion of
investor-buyers has been relatively consistent over the past several years.
The point at which investor activity becomes problematic requires further study, and
there are aspects in the development of housing, including rental, where investors
serve a positive function.
Government action to address housing has typically been on the demand side, and
much more policy focus needs to be on the responsiveness of supply to demand.
shows that Kitchener-Waterloo-Cambridge have one of the lowest residential vacancy rates
in Canada at 2.0%.
Municipal Survey
Currently there are many municipalities in Ontario studying the legislation and considering
the VHT. Some examples of municipalities reviewing the feasibility of implementing the VHT
include the City of Hamilton, Niagara Region, Halton Region, City of Mississauga, Region
of Peel, City of St Catharines, and the City of Windsor. Every municipality surveyed is
looking to allocate net revenues from this potential tax to support affordable housing
initiatives.
The City of London has already announced that they will not be implementing a VHT as
based on their analysis, the costs of such a program would be higher than the revenues.
The City of Vancouver was the first municipality to implement the VHT with an initial tax rate
of 1% in 2017. Subsequently, this rate has been increased to 3% in 2021 and a further
increase to 5% is being considered at the City of Vancouver. In 2022, the City of Toronto
implemented the VHT with results yet to be determined as the tax will be collected in 2023.
The City of Ottawa is also moving forward with the VHT in 2022 with results yet to be
determined.
The following table reflects important statistics and compares the City of Ottawa, the City of
Toronto and the City of Vancouver.
City of Ottawa City of Toronto City of Vancouver
Population (2021) 1,017,000 2,794,000 662,000
Total Number of Properties 330,000 789,000 186,000
Estimated number of Vacant 1,650 7,900 2,200
Properties
VHT Rate 1% 1% 1% (currently 3%)
Estimated Revenues $6.6M (Year 1) $55M-$66M (Year $37M
1)
Startup Costs $3.9M $10M-$13M $10M
Annual Operating Costs $1.4M $5.8M $2.5M
Additional staff 8 15-20 15-20
Key observations to consider:
Population sizes and housing markets are much greater than Kitchener
Significantly higher number of total properties than Kitchener
Requires significant staff resources to administer the program
The City of Kitchener has a population size of approximately 257,000 per the 2021 Canadian
Census. The total number of properties is approximately 84,000. Based on size, population
and the estimated number of vacant homes, Kitchener is much smaller in scale than Ottawa,
Toronto or Vancouver who have implemented the VHT.
Understanding of Vacant Homes in Kitchener
Estimating the number of vacant homes in a municipality is a challenge. Both the City of
Toronto and the City of Ottawa have decided to request every property owner to attest
annually that their property is not vacant. This is a very time and resource consuming activity
which can also result in many challenges such as incorrect information being submitted, late
submissions or even no submissions. Initially, the City of Vancouver used hydro
consumption data to estimate the number of vacant homes. Subsequently, on further
investigation, the City of Vancouver found that the number of vacant homes was significantly
lower than initially estimated. For example, there were properties in the initial data set which
were in the redevelopment phase and would not qualify for the VHT. Currently, the City of
Vancouver also requires all property owners to makea property status declaration each
year, to determine whether their property will be subject to the VHT.
The most verifiable data to estimate the number of vacant homes is water consumption. It
is estimated that between 100-125 properties in the City of Kitchener may be vacant based
on a water consumption analysis. This represents a very low percentage (0.15%) of total
properties in the City. However, like Vancouver, this figure could also be lower when further
investigation is done.
The Region of Waterloo conducted an informal survey with builders, developers, realtors,
and investors. The feedback from the survey resulted in the following conclusions:
There is no evidence of a vacant home issue within the Region.
Some vacant homes are either under renovation, waiting for redevelopment, Airbnb
units or probates (death of owner). Under Toronto, Ott
policy, these properties would not qualify for a VHT.
Recommendation/Conclusion
The main goal of the VHT is to increase the supply of affordable housing. Factors that are
important to consider when determining whether to implement a VHT and how they relate
to the City of Kitchener are outlined below.
Vacancy rate- The City of Kitchener has a very low vacancy rate (2.1% as of October
2021) when compared to the City of Toronto (3.4%) or the City of Ottawa (3.9%) as
reported by Canada Mortgage and Housing Corporation. The Advocacy Centre for
market. Further, a review of properties where water consumption was either at a
minimum or zero for at least six months revealed that approximately 100-125
properties in the City may be vacant. This represents a very small percentage
(0.15%) of total properties in the City which are potentially vacant.
Revenue/Costs- If the City were to implement a VHT, based on the estimated number
of vacant properties of between 100-125 and an average assessed value of
$325,000, it is expected that the revenue generated with a 1% VHT will be
approximately $406,000 at the high end. However, expenses to administer the
program will also be incurred including:
o Billing system changes
o Hiring of additional staff to audit, review, deal with public inquiries and
implement the tax annually
o Appeal process would need to be established
o Printing, advertising, and communication costs
It is expected that the expenses related to the implementation of a VHT would exceed
the revenues resulting in a net loss to the
Affordable Housing Strategy- The City had developed a robust affordable housing
strategy, Housing for All, to invest in solutions which will increase the affordable
housing supply. There are several detailed action items identified in this plan which
will require time and resources to implement. Implementation of a VHT was not
considered or recommended
Federal/Provincial Initiatives- Both the Federal and Provincial governments have
announced several strategies to increase the affordable housing supply. Examples
include:
o More Homes for Everyone Act which will speed up the construction process.
o Increase in tax to non-residential homebuyers from 15% to 20%
Based on the factors described in this section, it is recommended that at this time,
the City of Kitchener, not move forward with a VHT.
STRATEGIC PLAN ALIGNMENT:
This report supports A Caring Community.
FINANCIAL IMPLICATIONS:
None.
COMMUNITY ENGAGEMENT:
INFORM advance of
the council / committee meeting.
CONSULT This report has been shared with the Region of Waterloo.
PREVIOUS REPORTS/AUTHORITIES:
Municipal Act, 2001
APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services
ATTACHMENTS:
Attachment A Housing Market Dynamics Summary
Canadian Housing Market Dynamics
Summary of Current Issues
May 19, 2022
The following summary of current issues in the Canadian Housing Market discusses key trends
related to housing demand and supply and the effect on house prices and unaffordability. While
this discussion is not exhaustive, it focuses on the primary concerns, available local and national
data, and providing context to the statistics. The summary concludes with an overview of current
and recommended government actions to address market imbalances.
Highlights
The supply of housing units per capita in the Kitchener CMA is well below the national
average and has been falling since 2016. The months of inventory in the residential
resale market reached an all time low of 0.2 in December 2021, and currently sits at 1.2.
Rental vacancy is at an unhealthy level, with an overall vacancy rate of 2.1% in the City
of Kitchener as of October 2021.
Available studies relating to the impact of foreign buyer taxes on house prices suggest
the effect is minimal and temporary in nature, and to date there is a lack of data
correlating vacant home taxes to price decreases.
The investor category of purchasers is broadly defined, and the proportion of investor-
buyers has been relatively consistent over the past several years.
The point at which investor activity becomes problematic requires further study, and there
are aspects in the development of housing, including rental, where investors serve a
positive function.
Government action to address housing has typically been on the demand side, and much
more policy focus needs to be on the responsiveness of supply to demand.
Housing Supply Issues
The current situation in Canadian housing markets primarily reflects a chronic
insufficiency of home supply that has been temporarily exacerbated by pandemic-related
impacts linked to record-low mortgage rates and a shift in preferences for housing by
type and geography.
As summarized by Scotiabank Economics, the principal challenge facing the housing
market, and a major underlying cause of recent rising prices and diminished affordability,
is the substantial insufficiency of supply relative to demand.
Even before the pandemic, the supply of housing had not been keeping up with
population growth, reaching a near-record imbalance.
Imbalance of Demand vs. Supply
One measure of the imbalance of demand vs. supply is the ratio of new home
completions to the change in population. Since 2018, this ratio in Canada has been well
below its historical average, and while it improved slightly in 2020 due to the halt on
immigration, this is expected to reverse as immigration resumes.
Looking at another measure, Canada has the lowest number of housing units per 1,000
residents of any G7 country, and this ratio has been falling since 2016.
1
Across the G7, the average numberof housing unitsper 1,000 residents is 471. In
Canada, this ratio was 424 in 2020. An additional 1.8 million homes would be needed to
achieve the average G7 level of supply nationally, with 1.2 million units needed in Ontario
alone (Scotiabank Economics).
In the Kitchener-Cambridge-Waterloo CMA, the number of housing units per 1,000
residents fell from 389 in 2016 to an estimated 376 in 2020 (Scotiabank Economics).
The imbalance of demand vs. supply is also reflected in the number of resale listings.
Prior to the pandemic, the number of available listings nationally was already at a 14-year
low, with an average 4 months of inventory (CREA).
There were just 1.6 months of inventory on a national basis at the end of January 2022
(CREA). In the Kitchener-Waterloo market, the number of months of inventory
reached an all time low of 0.2 in December 2021. Since the start of 2022, months
supply has started trending upwards, reaching 1.2 in April (KWAR).
Unhealthy Rental Vacancy
In the primary rental market, the overall vacancy rate in Kitchener was 2.1% as of
October 2021. The vacancy rates for 1- and 2-bedroom apartment units ranged between
1.0% and 3.1%, depending on location. Data on bachelor and 3-bedroom+ units is more
limited but indicates a vacancy rate at or below 1.1% (CMHC).
When rental townhouse units are excluded, the vacancy rate for rental apartment units
only was 2.0% as of October 2021.
When analyzed by rental rate, the data indicates that vacancy rates increase as rental
rates increase. For units below $999 per month in Kitchener, the October 2020 and 2021
vacancy rates ranged between 0.0% and 1.1%, depending on location and unit size.
A healthy rental vacancy rate is considered to be 3.0% or above. The vacancy rate in the
Kitchener-Waterloo-Cambridge area has been at or below 3.0% since 2010. In Kitchener
in particular, the vacancy rate has only exceeded 2.7% once since 2015 (in 2018)
(CMHC).
In the secondary rental market, which consists of condo apartments that are
rented, the vacancy rate in the Kitchener-Waterloo-Cambridge CMA has been at or
below 2.5% since 2015. As of October 2021, the secondary market vacancy rate
was just 0.8% (CMHC).
2
Source: Canadian Mortgage and Housing Corporation (CMHC)
According to rental leads analysis by Rentsync, Kitchener consistently ranks in the
top 10 Canadian cities in rental demand, with a demand score of 6.5 as of April
2022. Between April 2021 and 2022, Kitchener saw a 78% increase in unique leads
per property.
Short-Term Rental Market
The number of short-term rentals actively listed per quarter in the City of Kitchener has
ranged between 350 and 493 since the end of 2018. As of May 2022, there are
approximately 366 active rentals listed through Airbnb and Vrbo (per airdna data).
Roughly three-quarters of listings are for the entire dwelling or house, with the remaining
listings offering a private or shared room in a home.
Only 15% of listings are available full time, meaning that most short-term rental listings
are not year-round rentals. Approximately 60% of rentals are available 1-90 days of the
year, and 25% are available 91-180 days of the year.
Source: airdna, as of February 23, 2022
3
Vacant Dwelling Units
It is difficult to precisely estimate the number of truly vacant dwelling units in the City of
Kitchener. The latest census data (2021) shows that there were 3,576 private dwelling
units not occupied by usual residents, which equates to 3.46% of all private dwellings in
Kitchener (Statistics Canada).
Removing the estimated vacant rental units from this figure, based on CMHC vacancy
rates, leaves 3,093 units that were unoccupied at the time of the 2021 Census. This
represents 3.0% of the total number of private dwellings in Kitchener.
The 3,093 units not usually occupied includes secondary homes and student housing
where these units are not considered to be the occupants primary residence.
Units left vacant due to renovation or redevelopment would also be captured in this
figure, as well as some newly constructed units that are not yet occupied. For additional
context, there were 29 and 66 residential demolition permits issued in the City of
Kitchener in 2020 and 2021, respectively. Most of these demolition permits were for
single detached dwellings, often replaced with a greater number of units.
While the absolute number of unoccupied private dwellings in Kitchener has increased
since 2006, the percentage of unoccupied units declined between 2006 and 2016
and remained relatively unchanged between 2016 and 2021 (3.43% vs. 3.46%)
(Statistics Canada).
Source: Statistics Canada, Census 2006, 2011, 2016 and 2021
Insufficient Supply is Causing Price Appreciation
A study released by the Bank of Canada in September 2021 found that cities with more
inelastic housing supply face higher increases in house prices in reaction to positive local
or aggregate shocks.
In 2020, the pandemic put a premium on space. High income households were able to
make the most of ultra-low mortgage rates stemming from an unprecedented era of
expansionary fiscal and monetary policy. Demand for single family units surged,
outstripping supply, and put strong upward pressure on prices. This upward trajectory in
the Kitchener market is depicted in the graph on the following page.
Canadian residential real estate prices are projected to rise by 14.3% in 2022 (CREA), a
decelerated rate compared to the past two years, and there are early signals that rising
interest rates are starting to put downward pressure on prices.
4
The average resale price for single detached and townhouse units in Kitchener declined
in March and April2022,butremain well above April 2021 prices.Apartmentprices have
so far continued to appreciate.
Impact of Foreign Investment
There is persistent speculation and misinformation about who is buying new
condominium units in Canada (Baker Insights Group).
It can be tempting to blame investors and foreign buyers for high house prices and the
unaffordability of new builds, but planning policy, lack of supply, development fees and
land prices tend to be the bigger culprits.
An analysis of new condo sales completed through Baker Real Estate Group indicated
that of 39,000 sales, 37,585 of the purchasers (96.7%) were residents of Canada at the
time of purchase. Purchasers from China were the second most prevalent at 2.3%,
followed by the U.S. at 0.4% (Baker Insights Group).
CMHC studies have indicated that between 4 to 7% of Toronto condos were foreign
owned, however this pre-dates Ontarios implementation of a foreign buyer tax in April
2017. Outside of major cities such as Toronto, the percentage of foreign owners is
marginal.
In the Kitchener-Cambridge-Waterloo CMA, 1.3% of properties were owned by non-
residents as of 2020. The rate of non-resident ownership is highest in the condo
apartment category (2.9%) and lowest in the single detached and vacant land categories
(0.9%) (Statistics Canada - Canadian Housing Statistics Program).
5
Effectiveness of Foreign Buyer Taxes
Introduced in 2017, Ontarios Non-Resident Speculation Tax (NRST) requires foreign
nationals, foreign corporations, and taxable trustees to pay a 15% tax on residential
home purchases within the Greater Golden Horseshoe Region. This tax has recently
been increased to 20% and expanded to all of Ontario.
Current data on the impact of Ontarios tax is limited, but a recent study on the impact of
the Additional Property Transfer Tax for Foreign Entities in B.C. found that the tax
reduced relative house price growth by approximately 1%, with this effect occurring
immediately after the announcement of the tax and fading over a period of 6 months.
Real Estate as an Investment (Speculation)
Canadian Economy is Driven by Real Estate Investment
Real estate is a considered a safe investment in Canada and residential investment has
surged to 10% of GDP, more than double the U.S. rate.
A Broadbent Institute study found that half of Canadian couples between 55 and 64 years
of age lack employer-provided pensions. A large proportion of their future livelihood is
bound up with the continuing growth of Canadas housing market.
Many Canadian pension funds invest heavily in real estate because of its nearly
unmatched returns. The housing sector is in many ways propping up the economy, and
government policy has served to support this.
Lack of Data on Speculation
More recent concern about price speculation in the market has been driven in part by
reports from CMHC and Teranet.
A recent CMHC Housing Market Assessment release noted that "exceptionally strong
demand and home price appreciation through the course of the pandemic may have
contributed to increased expectations of continued price growth for homebuyers in
several local housing markets across Ontario and Eastern Canada. This, in turn, may
have caused more buyers to enter the market than was warranted."
While CMHCs Housing Market Assessments have identified significant imbalances that
could increase the risk and consequences of a housing market downturn, there is no data
specific to the prevalence or impact of price speculation in the market.
Recent reports of speculators dominating the market were also fueled by Teranets Q4
2021 Market Insights Report, which analyzed sales by buyer segment. Teranet reported
that purchases by Multi-Property Owners have climbed steadily and represented over
25% of total transactions between January and August 2021.
The proportion of buyers defined as Multi-Property Owners was roughly 16% in 2011
but increased steadily to approx. 23% in 2017. The proportion has been within the 22%
to 25% range since that time (Teranet).
It is important to caution, however, that Multi-Property Owners are not
necessarily speculators. As an example, Teranets report highlights trends in Waterloo,
where the data validates the anecdotal accounts of parents purchasing second properties
to house children pursuing post-secondary education.
A recent Bank of Canada financial system review found that investor-buying rebounded
to 20.1% of all purchases in the country. Investors were defined in the review as
borrowers who obtain a mortgage to buy a property while maintaining a mortgage on
another property.
6
It is important to note, however, that the proportion of investor-purchasers has
been relatively consistent since 2014, with current trends comparable to the
previous peak in 2017-18. The Bank of Canada also cautioned that determining the
level at which investor activity should be a cause for concern is difficult and requires
further study.
In 2019, 13.4% of residential properties in the Kitchener-Cambridge-Waterloo CMA
were owned by Multiple-Property Owners. Based on available 2018 data, most of the
Multiple-Property Owners in the area (76.9%) own two properties (Statistics Canada
Canadian Housing Statistics Program).
Family Assistance is Sustaining Demand
While not a new phenomenon, many parents are also assisting first-time home buyers or
young movers with down payments and acting as co-signors on mortgages.
CIBC reported that the average gift for first-time homebuyers rose from $52,000 in 2015
to $82,000 in 2020, with over 30% of first-time buyers receiving financial help from their
families. Parental down payment assistance totaled an estimated $10 billion in 2020.
In addition, the number of parents co-signing for mortgages has increased 45%
compared to before the pandemic. Parental co-signers likely make up some of the
multiple mortgage holders that are broadly being classified as Investors (Financial Post).
Investors Contribute to Housing Supply
Analysis from CMHC indicates that the longer-term effect is that investors are often a
source of financing to develop more housing and increase supply.
In many ways, investors contribute positively to the overall supply of housing,
including rental. In Canada, most developers are required to sell 65-75% of revenue in
a development before they can qualify for construction financing. When end-users dont
feel comfortable buying at that stage, this creates an opportunity for investors to act as
middlemen, and in doing so they provide a function to the development industry (Baker
Insights Group).
7
A recent Financial Post article inferred that investors represent a large market segment in
part because the data includes mortgages for new home sales. Investors are critical for
sustaining the new home market because they finance the construction phase and may
not have urgent occupancy needs. They likely represent a smaller share in the resale
market.
The supply of purpose-built rental apartments (PBRs) also hinges on investors, as PBRs
represent investors taking a longer-term view, and they are often supported by pension
funds and REITs that are looking to make consistent, modest returns over a longer
horizon.
Condo owners or investors also contribute to the supply of rental housing. The
number of condo apartment units in the Kitchener-Waterloo-Cambridge CMA increased
from 8,825 to 13,319 between 2015 and 2021. At the same time, the number of condo
units that are rented out (secondary rental market) grew from 2,053 to 4,372. The
percentage of condo units that are rentals has steadily increased from 23.3% in
2015 to 32.8% in 2021 (CMHC).
Source: Canadian Mortgage and Housing Corporation (CMHC)
Government Policy and Actions
Current Actions
Government action to address housing issues has typically been on the demand side. At
the federal level, this has included shorter amortizations, tougher lending practices,
stricter mortgage rules and regulatory changes.
Current federal proposals or commitments include bans on foreign ownership, additional
taxes on existing foreign property left vacant, an end to blind bidding, a tax to discourage
home flipping, a tax-free savings plan for first-time buyers, and funding for builders to
build middle class homes.
While demand-side measures are politically popular, many experts argue that
making money easier to get a hold of does not bring down affordability but has
opposite effect of supporting high prices.
8
Toronto has proposed a vacant home tax on properties that remain unoccupied for more
than six months starting in 2022, with some exemptions. The prevalence of vacant
homes in Toronto is not well known, with some estimates suggesting approx. 1% of
dwellings could be empty. Other municipalities such as Hamilton are following suit.
While data following the implementation of Vancouvers vacant property tax indicates that
the number of vacant dwelling units did decline, there has been no noted correlation
between the tax and a decrease in house prices.
There is also a lack of clarity concerning the proportion of vacant dwelling units that are
uninhabitable or under renovation, relative to those simply left unoccupied.
While not a direct response to the housing market issues, the recent and continued
increase in interest rates should also serve to cool the demand for housing.
Needed Actions
As stated in a report by Scotiabank Economics, a key challenge is finding an approach
that can overcome political obstacles very often within City limits, measures to increase
density pit current owners vs. prospective residents. It is argued that Canada needs a
truly collaborative, multi-stakeholder process and likely federal funding to incent
provinces and municipalities (e.g., tie future transit funding to density and speed of
approval objectives or offer density incentives).
While it is a positive sign that housing starts rose sharply in 2021, further analysis and
measures are needed to support new supply of all forms of housing.
The supply-side challenges regularly identified by developers and the real estate
industry include:
o Lengthy development approvals processes and lack of infrastructure to support
growth;
o Structure of requirements to build inclusive housing (concern with government
policy unintentionally interfering with market forces);
o Regulatory burden of small-scale intensification (exclusionary zoning);
o Rising Development Charges (up to 25% of development costs in some areas)
reduces returns relative to existing buildings; and
o Shortages of skilled trades are increasingly likely to affect builders ability to meet
demand (need to see more support for skills development programs).
Inclusionary zoning policies need to be thoughtful to avoid unintended consequences
(e.g. shift burden to new condo purchasers). There are also arguments that the creation
of affordable housing needs to be public housing, such as rent-geared to income or other
programs, otherwise the effectiveness of such policies is limited.
Overall, much more policy focus should be devoted to finding ways to increase the
responsiveness of supply to demand and removing the obstacles that limit
housing supply (Scotiabank Economics, BILD Toronto, OREA).
9
Highlighted References
Airdna, Kitchener Short-term Rental Overview.
https://www.airdna.co/vacation-rental-data/app/ca/ontario/kitchener/overview
Baker Insights Group, B.I.G. Market Report, Foreign Buyers Analysis, October 2021.
https://www.flipsnack.com/bakerrealestate/big-market-report-foreign-buyers-analysis-dhf6mmkrzp/full-view.html
Bank of Canada, Financial Stability Through the Pandemic and Beyond, November 2021.
https://www.bankofcanada.ca/2021/11/financial-stability-through-the-pandemic-and-beyond/
Bank of Canada, Staff Analytical Note Canadian Housing Supply Elasticities, September 2021.
https://www.bankofcanada.ca/wp-content/uploads/2021/09/san2021-21.pdf
Canada Mortgage and Housing Corporation (CMHC), Housing Market Information Portal, as of October 2021. https://www03.cmhc-
schl.gc.ca/hmip-pimh/en#Profile/1/1/Canada
Canada Mortgage and Housing Corporation (CMHC), Rental Market Report 2021.
https://www.cmhc-schl.gc.ca/en/professionals/housing-markets-data-and-research/market-reports/rental-market-reports-major-
centres
Canadian Real Estate Association, Quarterly Forecasts, September 2021.
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Deaglan Jakob, University of Victoria, Do Taxes on Foreign Purchasers Lower Housing Prices? April
2020. https://www.uvic.ca/socialsciences/economics/assets/docs/djakob_thesis1.pdf
Kitchener Waterloo Association of Realtors (KWAR), Stats Reports, November 2021, December 2021 and January 2022.
https://kwar.ca/category/market-updates/
Kitchener Waterloo Community Foundation, Waterloo Region 2021 Vital Signs Report.
https://www.kwcf.ca/vital-signs
Moodys Analytics and RPS Real Property Solutions, Canada Housing Market: Slower Price Growth, October 2021.
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Ontario Housing Affordability Task Force Report, February 2022.
https://files.ontario.ca/mmah-housing-affordability-task-force-report-en-2022-02-07-v2.pdf
PMA - CIBC Summit Series, Season 2 Episode 7, GTA Housing Crisis Solutions to Affordability
and Supply Summit, November 2021. https://www.youtube.com/watch?v=Purco-Ta_hs&t=10s
RE/MAX, 2022 Housing Market Outlook Report, December 2021.
https://blog.remax.ca/re-max-expects-canadian-real-estate-prices-to-rise-9-2-in-2022/
Rentsync, National Rental Demand Report, 2021.
https://www.rentsync.com/resources/demand-report/rentsync-national-rental-demand-report:-december-2021
Ryerson City Building Institute and Evergreen, Getting to 8,000 Building a healthier rental market for the Toronto Area, October
2017.
https://archive.citybuildinginstitute.ca/wp-content/uploads/2017/10/Gettingto8000_Report-web.pdf
Scotiabank Economics, Estimating the Structural Housing Shortage in Canada: Are We 100
Thousand or Nearly 2 Million Units Short? May 2021.
https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-note.housing-
note--may-12-2021-.html
Scotiabank Global Economics, Housing Note, Which Province Has the Largest Structural Housing Deficit? January 2022.
https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-note.housing-
note--january-12-2022-.html
Statistics Canada, Canadian Housing Statistics Program.
https://www.statcan.gc.ca/en/subjects-start/housing
Statistics Canada, Census 2006, 2011, 2016 and 2021.
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Teranet, Market Insights Report, Q4 2021.
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