As Canadian cities struggle to increase housing supply by taxing vacant properties, an expert in France says French vacancy taxing is worth studying because it produced tangible results over the last two decades.
France was one the first countries in the world to adopt a taxation system for vacant housing units, starting in 1999 with cities of more than 200,000 inhabitants.
French economic scholar Mariona Segú said metropolitan areas in France have successfully lowered their vacancy rates from six to five per cent and reduced long-term vacancies. She credits the method of taxation in France for the decrease in vacant properties.
French cities tax vacant homes based on their yearly rental value, starting at 10 per cent. That amount rises each year and applies to homes left vacant for at least two years.
Toronto taxes its vacant homes at one per cent of their assessed taxable value starting after a property is left vacant for six months.
Segú said that secondary residences are taxed more heavily than primary ones in France, incentivizing homeowners to sell them. This led to a decrease in secondary residences, and an increase in primary ones.
In Toronto, there are no distinctions between primary and secondary housing units.
Toronto relies on resident declarations of occupancy each year to determine whether a property is vacant or not. The city faced criticism earlier this year after thousands of residents were improperly charged and given late fees. Approximately 108,000 charges were reversed, according to a CBC article.
Determining vacancy means checking each declaration individually and going through random audit processes asking the resident to provide proof of occupancy.
France uses a different method of taxation that relies less on individual claims and more on a home’s “habitation taxes.”
“We have a very good way to measure vacancy, and it is through taxes,” Segú said.
“In France there are national taxes, so apart from property tax, which is the municipal tax you pay for owning a house, there is a tax called a living tax, or habitation tax. It is a tax paid for every unit that someone lives in needs to pay. Providing this is a very easy way to measure vacancy because all properties where no one is paying this tax are considered vacant,” she said.
Derek Stacey, an associate professor of economics at the University of Waterloo, has spent years studying Vancouver’s Empty Homes Tax (EHT), the first of its kind in Canada.
He recently co-authored a paper modelling the effects of the tax and found that while the tax may result in an increase of properties to rent, it could also encourage a decrease of availability for properties to own.
“Rents do decline. Even in the long-term, rents appear to be more affordable as a result of the empty homes tax, but prices of owner-occupied homes, even though they do decline in the short run, climb back up in the long run,” he said.
Frictional vacancies are the result of the time it takes to sell a property, and Stacey said they are a normal part of the housing market.
He said that sellers might not want to risk putting their homes on the market if it means paying a vacancy tax. This means fewer homes will be sold, driving prices up over time.
“If the Empty Homes Tax is something that sellers and developers are concerned about by possibly having to bear the burden of the tax, then it might reduce the supply of homes to the owner-occupied market. It might reduce what we call frictional vacancies, and it may result in higher prices,” Stacey said in an interview with the IJF.
Vancouver’s EHT program currently asks for three per cent of a property's assessed taxable value as of 2021. That's up from one per cent at the time of its installation in 2017 and 1.25 per cent in 2019.