Empty Homes, Vacancy Taxes, and Housing Affordability

In an effort to address severe shortages in the rental housing market and improve housing affordability more broadly, the provincial government in British Columbia, Canada introduced taxes on vacant residential properties in selected metropolitan areas in the province. The tax was targeted at owners speculating on price increases in the housing market and those owning additional properties for their own periodic use. In this paper we explore the effects of the policy on owner affordability by testing whether the tax reduced house prices and house price appreciation. Our analysis exploits micro level data in the tax incidence, comparing house prices before and after the tax between neighbourhoods with high and low concentrations of empty houses. We also exploit subsequent changes in the tax rate applied to different classes of owners to identify the effect of the tax on house prices. This change, in which the change in the tax rate differed by owner type - domestic vs foreign - identify differential responses by household type. Foreign owners were more likely to gain an exemption from the tax by leasing their property, while households with a majority of declared income from non-Canadian sources were more likely to gain an exemption through ownership changes. In both cases housing units were more likely to become exempt than those owned by domestic Canadian earners.