‘Ghost Home’ Tax Failing to Improve Housing Crisis
Officials in some of the world’s largest cities want to tax the empty homes of the rich as policymakers struggle to control an affordable housing crunch. By 2022, Los Angeles is planning to put a vacant house tax on the ballot in the face of a mounting housing crisis. In Hong Kong, officials consider taxing condo developers to deter them from keeping new units. Barcelona has already threatened to seize empty apartments from landlords to convert them into affordable rentals. Back in 2017, Paris officials tripled the taxes on second homes.
Authorities are deciding to take drastic measures to not only discourage people from parking cash into homes instead of living in them but to also stop distortion of supply-and-demand metrics with properties off the market. Lawmakers say that trends are depleting inventory which makes it difficult for low-to middle-income renters and homebuyers. Lawmakers hope that taxes will fund affordable housing efforts or push landlords, as well as the wealthy, to put their properties on the market.
While in theory this change may make a difference, many aren’t convinced that it will work. Brendan Coates, economics policy program director at Think Tank Grattan Institute located in Melbourne, believes that it will be a distraction from the main issue. Many economists say factors such as record-low interest rates, population growth, an imbalance between supply and demand, as well as a lack of affordable housing construction have a much bigger impact. There are three main reasons why many economists believe that adding another tax won’t work.
- No Inventory. Vancouver implemented a vacancy tax of 1% of a property’s assessed value due to a rental market with near-zero inventory. While landlords in the city were able to convert more than 5,000 existing condominium units into long-term rentals, the actual number was not so impressive. Vancouver originally expected there to be more than 10,000 homes that were empty or “under-utilized. In practice, the city identified only 2,538 units that fit that description. That number fell by 25% over the next two years. There has been no notable improvement in the availability of condos for rent. This can be seen by the vacancy rate in the Vancouver metropolitan area, which was at 0.8% in 2020; 0.3% higher than in 2019. While the city had hoped the tax would push vacancy rates as high as 5%, any new stock was quickly absorbed.
- No enforcement. Looking at Melbourne, middle-class families are finding themselves priced out after a two-decade-long housing boom. Across Australia, the number of low-income households in rental stress has more than doubled in that time as well. Melbourne’s tax was meant to increase for-sale and rental inventory, but few have had to pony up. For 2019, Melbourne estimated a gain of A$80 million over the next four years. Officials soon realized that this was not going to happen after they had taxed 587 properties and only raised A$6.2 million. This was a huge disappointment to advocates. Karl Fitzgerald, director of research at Prosper Australia, had estimated there were 24,042 properties in Melbourne that consumed zero liters of water a day, meaning they couldn’t have been occupied, but only 587 properties were taxed. He now believes that taxing both land and property regardless of use each year might be a simpler way to discourage speculative buying and encourage developers and owners to make more properties available for use.
- Moral Optics. Los Angeles-based Strategic Actions for a Just Economy published a report last year arguing that the city should implement its own vacant-homes tax. Arguing that while the tax itself wouldn’t be enough to turn the situation around and taking into account that vacancy rates are higher for more expensive properties, such legislation would send an important message. For some cities, it’s not about money or redistribution, but the political and moral optics of not having more homes than you need while others struggle to even hold onto one. In Vancouver, tripling the tax from 1% to 3% since it launched sends an even stronger message that homes are for people, not speculation.
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