Affordable Housing

Vacant Homes Aren't Making Cities Expensive

And vacancy taxes won't make them affordable.

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Taxing vacant homes as a means of improving housing affordability is a hot idea right now, despite mounting evidence that it wouldn't do much good.

Earlier this month, Canadian Prime Minister Justin Trudeau—whose Liberal party is coming out ahead in yesterday's parliamentary elections—tweeted that "houses shouldn't sit empty when so many Canadians are trying to buy a home. So, we're going to ban foreign ownership in Canada for the next two years, and tax the existing vacant, foreign-owned properties."

That national tax would duplicate local measures in Canada. In 2016, Vancouver, British Columbia, became the first city in North America to impose a tax of 1 percent of a property's assessed value on empty homes. This year, the tax increased to 3 percent.

Here in the U.S., a number of California cities have adopted or are considering adopting vacancy taxes. Oakland voters approved a vacancy tax in 2018, which charges the owners of empty or undeveloped properties between $3,000 and $6,000 a year. The Los Angeles City Council will put a vacancy tax on the 2022 city ballot.

The idea behind these vacancy taxes is two-fold. First, the financial penalty would incentivize the owners of empty homes—supposedly real estate speculators holding out for higher rents—to put their properties on the market. Second, the revenue from the tax could then be spent on affordable housing programs.

A vacancy tax "would help deter speculative vacancy, mitigate the harms of speculative real estate investment, and deliver necessary financial resources for community-centered programs to address evictions, housing instability, and houselessness," reads a 2020 report from a coalition of Los Angeles social justice groups.

Yet a new report published on vacant properties in San Diego—one of the cities that is now considering a vacancy tax—suggests that any levy on empty units would do little to raise revenue or boost housing supply.

That report, published by the city's Housing Commission (SDHC), used utility records to determine how many units in the city were left vacant for six months or more. (The study considered a unit unoccupied if its utility usage fell three standard deviations below a 60-month average.)

The SDHC obtained gas and electric records for 468,352 individual units from 2014 to 2019. During those five years, between 1,500 and 3,700 units were vacant for six months or more, giving the city a long-term vacancy rate of between .32 percent and .79 percent.

When examining water records, the SDHC study found 2,183 out of 252,324 units were potentially vacant for six months or more—a vacancy rate of .85 percent.

Contrary to what some politicians think, there isn't a mass of hoarded homes that would be pushed onto the market by a vacancy tax.

We can see this in the performance of Vancouver's vacancy tax too. Bloomberg reported in August that the city had hoped its vacancy tax would affect 10,000 empty or "underutilized" units in 2017, but discovered only 2,538. The number only fell by 625 units over the next two years—which the authors call "a rounding error in a housing market of nearly 200,000 properties."

The tax is credited with encouraging condominiums to be converted to long-term rentals. Nevertheless, rents in the city have continued to rise.

Indeed, if one wants to see housing affordability improve in hot real estate markets, more vacant units would be something to shoot for. The collapse in rents in ultra-expensive cities during the worst of the pandemic is closely linked to a rising number of empty units.

That's a phenomenon that predates the pandemic.

"Although the relationship is imperfect, there is a clear trend to the data: higher vacancy rates are associated with lower [rent] inflation," wrote Nicolas Buffie in a 2016 article for the Center for Economic and Policy Research. "The concept here is relatively simple: when a large number of rentals are vacant, rentiers must set prices relatively low in order to compete for potential renters."

Taxing vacant units is obviously politically popular. It's easy for politicians to make a scapegoat of real estate speculators or absentee foreign buyers.

But leaders interested in more than demagoguery should consider trying to boot affordability through expanding the supply of new vacant units, which will put downward pressure on prices across the board.

NEXT: Quarantined L.A. Schoolkids Have Lower COVID Rates Than Vaccinated Teachers

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  1. San Fran has “rent control”, which “controls” rents to higher than they would otherwise be.
    Case in point: The contrived ‘crisis’ around the wu-flu put many out of work; not being able to pay the rent, many unilaterally broke leases.
    Well, many of those units remain empty for the very good reason that if a landlord rents at a much lower rate, it will take years to get the rent back to where it needs to be; it is in the landlord’s best interest to keep it empty until rents return to trend.
    Sevo’s law:
    When a third party sticks its nose in a transaction between two parties involved in a trade, at least one, and likely both, lose.

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    2. Not only that but in some cases the landlord is incentivized to remove the unit from the market for a time to let housing cost controls lapse so they can start again at current market rates. Yes, removing a property and collecting $0.00 in rent and paying property taxes can be better revenue generating plan in SF due to their insane cost controls on rental prices.

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  2. Meh. As long as property taxes exist, the right to the use of taxed property is only granted for as long as the taxes remain paid. Should we be surprised when the actual owners demand that the property be put to a use more productive for them? Should we be appreciative that they they didn’t just condemn it?

  3. The reason properties get left vacant is because of the tax games. Has nothing to do with rents (which are close to the highest in the world relative to renter’s incomes). Has everything to do with tax code. Foreign ownership may well be incentivized by prop taxes or vacancy taxes since it raises the carrying costs. But that ain’t quite the same thing.

    The only way you can change the tax code to eliminate the preference for leveraging assets via debt without end is to impute income on a debt load or in some other way only allow a much smaller deduction against other sources of income. Much of Europe (x UK and spain) does this – and the result is a lot less real estate speculation, more real estate investment, and lower rent to income ratios.

    1. Doesn’t matter how high the current market rental rates are if you’re in a lease that is 20 years old or are barred from increasing rents if you have a vacancy until it’s been unrented for years.

  4. Vacant Homes Aren’t Making Cities Expensive

    The rare occasion when Reason gets it right. It’s the other way around; the government policies making cities expensive are also making homes vacant.

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  6. I agree that we shouldn’t tax vacant homes, but the author is mixing up correlation and causation by claiming more empty homes cause lower rent prices. Let rent prices and empty homes are caused by the same thing, so just having more empty homes won’t lower rents.

    1. In the absence of laws warping the property owner’s actions the excess rentals would lower prices. Toss in bad policy and you now have unrented units that won’t be leased any time soon but are still part of the idle stock they’re using to make that determination.

  7. I find it odd that a libertarian rag doesn’t appreciate that there is little downside to forcing the market to work better.

    On the one hand, if they pay the tax then the city makes out and can provide money for whatever program (or roll back taxes on their citizens at least somewhat, or defer tax rises.)

    On the other, maybe the houses get freed up, supply goes up and partially meets demand.

    So tell me, what’s the downside?

    1. Simple, you stupid pile of lefty shit:
      Sevo’s law:
      When a third party sticks its nose in a transaction between two parties involved in a trade, at least one, and likely both, lose.

    2. They are already paying their fare share of the property taxes. Why charge them more? Discouraging absentee owners would cause property values to fall.

      Foreign cash buyers are always the bad guys, until you try to sell your house or apartment building.

      1. You could even argue they are being overcharged now, since no one is living in the vacant homes and using city services.

    3. “I find it odd that a libertarian rag doesn’t appreciate that there is little downside to forcing the market to work better.”

      does this person read what they write? Libertarian and forcing the market are oil and water dip shit. And work better? Did you read the article? In SF (at least), there is like .83% rental properties that would qualify as vacant and be hit with the tax. Gubment can’t make drug laws work where 90% of the population does drugs, you think the gubment will make a .83% problem better?!?!?!?!?

      no wonder why you and other idiots are stilll yelling “masks, get vaxed, etc.” event though the WuFlu only has its .097% death rate.

    4. I find it odd you come here to troll, without even grasping one of the foundational principles shared by most libertarians.

      https://en.wikipedia.org/wiki/Non-aggression_principle

      1. “I find it odd you come here to troll, without even grasping one of the foundational principles shared by most libertarians…”

        Naaah. Stupid is as stupid does. And shitfordinner is nothing if not stupid.

    5. “the city makes out and can provide money for whatever program ”

      That right there is the problem shitlunches. The “whatever program” is lining their own pockets and greasing their supporters.

      Even a dumbass leftie could figure that much out.

    6. The vacant property is consuming far less government resources than one occupied. They should pay less in taxes.

  8. No such thing as a bad idea that Justin’s puppeteers won’t try.

    He’s Joe and Kamala’s prototype.

  9. While I disagree with the vacancy taxes, of course having homes/buildings not on the market raises prices. It’s basic supply and demand.

    1. No it’s not. Vacant homes lower the value of all the home around them.

      Typical new homebuyers don’t like to live in an area without neighbors. They are looking for a healthy community.

    2. Then buy the property yourself then sell it at a lower rate.

  10. Vacant properties are not sending kids to the local schools so they should get a tax break.

    1. Neither are the shriveled up Karens who vote for idiots like Trudeau.

  11. Downtowns and historical districts may be subjected to vacancy tax. Unoccupied units distrubs the existing living style and augment the house prices, while oldtimers had nothing to do with those “developments” they want to continue as they were but their income won’t suffice now for their neighborhood. But newly build quarters at suburbs or similar has nothing to do with demand fluctuations.. at the end, it’s just a bite from house price manipulators. Use it carefully.

  12. Houses shouldn’t sit empty when so many Canadians are trying to buy a home. So, we’re going to ban foreign ownership in Canada for the next two years, and tax the existing vacant, foreign-owned properties.

    Way to go, Castro-lover! That will surely attract foreign investment in housing!

    1. Hmm maybe its not a lack of investment of housing but a problem of too many people (immigration) coming in, esp with low Canadian birth rates.

  13. But leaders interested in more than demagoguery […]

    Citation needed.

  14. There is no case of high housing prices anywhere in North America that couldn’t be solved by the wholesale adoption of Japanese zoning laws by the appropriate state/province.

    But if you really want to see market efficiently solve the problem, follow that up by switching the basis of real estate taxes from property value to land value.

    1. depopulation means theres no Japan housing problem. From what i have read, vacant houses there are not allowed to be demolished…

      Don’t worry, after decades of rampant corporate wage suppression, depopulation is coming to the USA and will solve our housing problems eventually.

      1. … will solve our problems in some 20-30 years))

  15. i don’t think it as bad idea at all

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