By Kate Lambert
Walking around the financial districts of larger cities in the evening can be an uncanny experience. Bustling in the daytime, many city centres are empty at night. There are apartments there, as well as businesses, but the lights are off and there’s no one home. This is true in London, Paris, New York and Toronto. These are lovely cities to live in so where is everyone, and what is causing this?
The answer lies in money. If you look at a graph of house prices in any of these cities, you wouldn’t be surprised to find that it’s a fairly consistent upward trajectory. You can make more money owning a home in Toronto or Vancouver than you can working 9-5 in almost all jobs. That doesn’t include renting out the home, just owning it. Interest rates have been stagnant so putting your money in a bank gains you very little interest. And if you are an oil billionaire in Saudi Arabia or a factory owner in China, Western democracies look extremely stable with a low chance of losing your money. Stable governments, no recent history of regime shifts, low crime and a very healthy return on investment. Even criminals are laundering money through property.
It’s clearly better to ‘bank’ your money in a high-end apartment than a traditional bank. Better return; low risk. Investors, often absent ones, buy up high-priced apartments and homes and their money sits there. They don’t want the stress and legal implications of renters, so the homes remain empty. These are zombie, or ghost, apartments.
The problem is that, unlike Picassos or Ferraris, people actually need housing. And it’s not portable like art or cars. If the homes are empty, people aren’t living in them. There were 25,502 unoccupied or empty housing units in the City of Vancouver in the 2016 census. Ten times as many units as there are street homeless people in Vancouver. Local governments report tens of thousands of empty units in all the aforementioned cities. Not all empty homes are zombie apartments, but there are a large and increasing number. Of course, it’s not as simple as saying if the empty units were filled, there would be no homelessness epidemic. The people sleeping on the streets of Toronto aren’t going to move into the 22% of homes vacant in the King Street West condos. But it is true that if the higher-earning city dwellers lived in these apartments, more of the other units would be available. As we all know, it’s not just affordability; it’s availability that causes homelessness.
Working on an empty homes policy is key. Cities as diverse as Jerusalem, Paris, London and Vancouver have instituted taxes to discourage property speculation and empty homes. Jerusalem doubled property taxes on empty homes. Vancouver has a foreign buyers’ tax of 15%. The Parisienne tax was tripled to 60% recently after the previous tax did very little to reduce the issue. If there are complaints about empty properties in London, they can be compulsorily purchased by the local authority.
But these taxes and policies have had patchy and limited success. The very rich have deep pockets and effective lawyers. And when average properties go up by hundreds of thousands of dollars a year, an increase in property tax is pocket change. Governments need to delve into this problem and look at how taxes, fees, legal vetoes and other policies have worked, and how best to ensure that our cities don’t turn into a safe to bank money, rather than a place for people to live.
BREAKING NEWS in BC is the roll-out of the new speculation tax. In Kelowna, Abbotsford, Chilliwack, Mission and most of Metro Vancouver, The Capital Region District / Greater Victoria and Nanaimo-Lantzville people with empty second homes over $400,000 will pay 0.5% of the property value in 2018, rising to 1 or 2% of the property value in 2019. There are lots of exemptions. How much impact this will have depends on house prices. In Kelowna, for example, 2018 house prices rose 6%. In Chilliwack, the price rise was double that. Even with a 0.5% tax, an empty home looks like a good investment. Some analysts are saying Metro Van is due for a correction which means the speculation tax could make a real difference.