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In the mid-2010s, when people looking to rent in Vancouver faced near-zero vacancy rates, the city commissioned a study to find out how many rentals were sitting empty. It sought to quantify the widespread perception that numerous investors had parked their money in condos, but left the lights out amid a tight rental market.

The study looked at electrical consumption and landed in early 2016. It estimated almost 11,000 homes were vacant, about 5 per cent of the total. Most of them were condos. Vancouver took action. In late 2016, the city instituted an empty-homes tax of 1 per cent on a property’s assessed value.

In the first year, it turned out there were fewer vacant homes than estimated – a total of about 8,000 – and many qualified for an exemption. For 2017, the tax was paid on 2,538 vacant properties.

The next year, the NDP provincial government introduced its own vacancy tax, covering Metro Vancouver, Victoria and other urban areas. The rate was 0.5 per cent for Canadians and 2 per cent for foreigners.

The tax squeeze worked. Vancouver reported 1,893 vacant properties in 2019. That figure was 25 per cent lower than two years earlier. The tax is also widely popular.

Vancouver continues to tighten the squeeze. A year ago, city council raised the tax to 1.25 per cent, and in late November, Mayor Kennedy Stewart won backing for his proposal to more than double the tax to 3 per cent for 2021. “Too many homes,” the mayor said, “remain empty.”

The idea is catching on elsewhere. A Toronto City Council committee will consider a proposal on Thursday to create a vacancy tax to begin in 2022. On Wednesday, Ottawa City Council plans to ask staff to study the idea. And the federal government is inching toward its own version.

The Liberals in the 2019 election campaign promised a national tax on vacant residential properties owned by foreigners who do not live in the country. The finance minister thereafter was directed to work on a 1-per-cent tax and “to track housing ownership and speculation.”

A year later, Ottawa has yet to move, but, in the recent fiscal update, the Liberals reiterated their promise to tax foreign owners who do not live in Canada, and whose empty properties have been removed from the domestic housing supply.

These sorts of vacancy taxes are useful policies – but they are also something of a patchwork solution. Toronto isn’t even sure how many vacant homes it has. And renting a condo is inherently a precarious form of housing. A renter can be evicted at any time, and on short notice, if the owner decides to sell or wants to move in, or to move in a family member.

The bigger and more important change has to come in a renewed effort to construct purpose-built rentals, something Canada did decades ago. Both Vancouver and Toronto’s city councils have goals to get tens of thousands of rental units approved over the next decade.

But in stretched housing markets in Canada’s big cities, even small gains are wins. The Vancouver experience shows a vacancy tax can shift the overall picture. Research for Toronto City Council called it a “helpful tool.”

A Canada Mortgage and Housing Corp. study found an “unprecedented” increase of condos on the rental market in the Vancouver metro area in 2019, a jump of about 11,000 units, or close to 20 per cent.

Almost 9,000 of those were existing condos that were converted to rentals, while the rest were newly constructed and immediately rented out.

About half of the units were in the city of Vancouver itself. CMHC pointed to strong demand for rentals as a potential factor. It is also said the vacancy taxes, as well as restrictions on short-term rentals, were “strong incentives” to rent out a condo.

While the aim is to push empty homes into the rental market, the taxes also generate useful funds.

Vancouver has brought in a total of $61-million and invested the money in affordable housing. B.C. took in $115-million in the first year of its vacancy tax and estimates it will get $80-million this fiscal year, cash that also goes to affordable housing. Toronto estimates a 1-per-cent tax could generate about $60-million a year.

Vacancy taxes will not solve big-city housing problems. But in Vancouver, they have made a difference. Toronto, Ottawa and the federal government are all moving in the right direction as they consider similar policies.

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