Vancouver council takes heat for vote to refund millions in Empty Homes Tax to developers

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Empty Homes Tax rollback and refund criticized
WATCH: Vancouver city council is being criticized after voting to return millions of dollars to developers, as part of a rollback of the city's Empty Homes Tax. Emad Agahi reports – May 11, 2023

Vancouver city council’s ABC majority is facing criticism for a move that will see millions of dollars already collected under the Empty Homes Tax returned to property developers.

The refund was added as an amendment to a Wednesday vote to scuttle a planned EHT increase from three to five per cent, and to add multiple new exemptions to that tax.

One of those new exemptions applies to newly built units that haven’t yet been sold to their first occupant. The ABC council majority approved an amendment from Coun. Mike Klassen to make that exemption retroactive to 2022, meaning $3.8 million in tax dollars from that year — much of it already in city coffers — will be refunded.

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“It’s outrageous. We’re in a housing crisis,” Coun. Christine Boyle, one of three opposition councillors to vote against the retroactive tax cut, told Global News.

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“People are really struggling to stay in Vancouver and keep up with the cost of housing and the cost of living, and to be writing checks back to some wealthy and well-connected folks that should be money spent on social housing is outrageous. I think it’s a slap in the face to people who are struggling with the cost of housing in Vancouver.”

Boyle said she supported a compromise that would give developers a one-year exemption, but that refunding tax already assessed won’t speed up new construction, and takes money from a fund meant to build new social housing.

She said the city has no way to ensure the tax refund will be used to lower prices on units in developers’ unsold inventory.

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“The city has no way of ensuring that, absolutely no,” she said.

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Klassen said the retroactive refund was a one-time exemption and was meant to send a signal to the housing industry “that they need to get working.”

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The tax on those units, he added, only serves to make new units more expensive.

“This Empty Homes Tax was never intended for standing inventory, for these kinds of buildings. It was for places that are being left unoccupied for years,” he said.

“It’s not going to be developers, it’s not going to be the banks that are going to pay those additional costs. It’s going to be the people who purchase the homes or occupy them as renters.”

Asked how the city would ensure the tax refund would result in lower unit prices, Klassen said it would “make sure industry is going to,” and would “work closely with industry,” but did not provide specifics.

Klassen added that the money collected by the EHT doesn’t affect residents’ property taxes as it is not used for infrastructure maintenance or city services, but instead goes into a specific fund that is used only for affordable housing.

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That fund has collected a total of $115 million since the program’s inception.

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“It really just goes right into non-market and social housing projects,” Klassen said.

“Ultimately if we can keep this tax working, well then we’ll be able to raise more money that will go straight into that housing.”

Tom Davidoff, an associate professor with UBC’s Sauder School of Business, said there were pros and cons to the idea of taxing developers on unsold inventory.

He said the city doesn’t want to disincentivize developers from new construction, but added that the industry also has the option to pre-sell units or rent them until they sell in order to avoid the tax.

He agreed that levelling a tax on unsold units could potentially result in a higher-end price for completed units.

But he argued a reasonable compromise would have been to give developers a one-year exemption to sell their units before applying the tax, but argued offering a tax refund was a move in the “wrong direction.”

“Nobody thinks developers are the neediest group in Vancouver. Some people, myself included, think they play a very valuable role creating housing. Other people probably politically just think, ‘Anything that’s bad for developers makes me happy,'” Davidoff said.

“But I don’t think anybody in the world thinks the neediest people in Vancouver are real estate developers. So taking money that’s already been raised and handing it to developers — that doesn’t make a lot of sense.”

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New exemptions to the tax approved on Wednesday will cover properties with a building permit, development permit, rezoning inquiry, rezoning application or policy inquiry issued in the tax reference year.

Other new exemptions include properties that can’t be occupied due to hazardous conditions, properties being used as a second residence closer to medical treatment, and a one-time exemption in 2023 for properties with strata rental restrictions.

Wednesday’s decision on the empty homes tax will also see city staff study the idea of a graduated tax rate, which would assess higher taxes on properties left vacant for multiple years.

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