A Note on Taxation in Light of the new Vacant Unit Tax
The province has given municipalities only a few limited tools with which to raise revenues for public spending. Meanwhile, the provision of public goods and services has been increasingly downloaded to the municipal level from higher orders of government. Without an attendant augmentation to the city’s revenue generating powers, this results in ever-increasing upward pressure on the city’s main source of revenue: property tax.
Unlike with the income taxes collected by higher orders of government that have progressive rate structures (i.e. higher income households contribute more taxes, as a proportion of their income, than lower income households), our property tax rates for residential properties are regressive: whether you own a palatial estate or a modest home, everyone pays the same flat rate.
It is with this context in mind that we must consider the introduction of a Vacant Unit Tax (VUT). In lieu of the ability to introduce progressive taxation rates for residential property, a tax targeting property owners who have properties in addition to their own primary residence, and who allow this additional property to sit vacant for the majority of a calendar year, is a practical way for the city to start to reallocate the property tax burden in a more progressive way.
It is worth keeping in mind that whether we introduce this vacancy tax—a tax that is meant to fund more affordable housing development—or not, we will nevertheless have to pay a price. In fact, we already do. There are costs associated with both building affordable housing and not building it. The price of not building it is by far the dearest price, and not just in terms of the inhumane suffering that is homelessness in a winter city, but in terms of the actual tax burden as well.
To put it succinctly, paying to create a bed in a non-market housing unit will always be the cheaper option for taxpayers than paying for a bed in a shelter, a hotel, a hospital, or a prison.
Not addressing the growing unaffordability of housing costs the public, including the municipality, in other ways, too: the increasing cost of housing contributes to impoverishment and all the social ills that come with it, which means a greater need for health services, protective services, social services, social security, and the bureaucracy that comes with all of that. It can also fuel costly urban sprawl through a phenomenon known as the suburbanization of poverty: more people forced to live further and further outside of the core due to the cost of housing.
In other words, the consequences of growing housing unaffordability in Ottawa and beyond is costing us more than it would if we were to, instead, better invest in the creation of affordable housing now. Not making this investment will put upward pressure on taxes at every level of government. The current vacancy tax proposal, then, puts us on a path that will both see us pay less overall and will better target those most able to pay.
This step towards greater fairness in local taxation is reason enough to celebrate, but the tax also directly disincentivizes bad behaviour that is contributing to the housing crisis in Ottawa directly: property owners allowing their properties (not including primary residence) to sit vacant for the majority of a calendar year (for speculative or other reasons). Therefore, even if municipalities could introduce progressive property tax rates, this targeted tax still benefits Ottawans.
The 2016 census identified more than 20,000 empty and temporarily occupied homes located in Ottawa. It remains unclear how many of these would be subject to a VUT given the untested criterion that units be vacant for more than 184 days in a calendar year, but we expect that this may nevertheless help curtail some of the speculatory behaviour that leads to homes sitting empty in our city while hundreds if not thousands of Ottawans are experiencing homelessness within any given year.
We have people without houses and houses without people in Ottawa. It is time we seriously get to work on putting two and two together. We cannot afford not to. Helping even one thousand people get housed would represent a significant dent in Ottawa’s affordable housing waitlist which has over 12,000 households on it currently, with many waiting over a decade to be offered housing.
Practical Concerns Regarding Implementation of the VUT
We have heard concerns from several residents regarding aspects of how the VUT will be implemented. The primary concern is in relation to the mandatory declaration that all property owners will have to make regarding whether or not their property is their primary residence or is vacant at tax time.
Granted, many property owners have arranged for their property taxes to be paid rather seamlessly through direct withdrawal, or through a third party, so requiring a new step in the property tax payment process may require action to be taken where previously none was needed. This declaration, then, could be seen as an inconvenience, but property owners should also keep in mind that not having this declaration would undermine the VUT, and would therefore contribute to another inconvenience: more upward pressure on other tax rates.
The declaration is absolutely necessary for this to work. City staff researched whether a voluntary disclosure method was a viable option and concluded that it was not. It should not be a surprise that the property owners that we most want to impact with this tax are not the most likely to voluntarily pay more in taxes through voluntary disclosure.
Given that the research demonstrates an honour system is not feasible for tax collection, every effort is being made by the city to ensure that all property owners are aware of how and when to declare, and to ensure the declaration itself is as easy and accessible as possible:
- An extensive campaign will be introduced prior to the implementation of VUT to advise residents of the new proposed tax and ensure all residents are aware of deadlines and how to fill out the form. The tax declaration will be online, however accessible options will be available for those who need it. Residents will also be able to contact City of Ottawa for assistance.
- Once the VUT is approved, the city will begin an extensive communications campaign to inform residents that declarations will be required. Inserts will be included with the Final Tax Bill in 2022, a letter will be sent to all eligible homeowners in November 2022, and again in January 2023. Inserts will be included with Interim Tax Bills 2023 as a final reminder. The city will also use social media, and paid boosts to maximize reach.
Although this new taxation measure may take a few additional moments out of one’s day, combatting the housing crisis in Ottawa through a more progressive targeting of the tax burden is nevertheless worth it. We just need property owners’ help to make it work.
Of course, if there are practical ways to make this process easier for property owners, our office will advocate for them, and the city should adopt them. Lessons will likely be learned after the first year of having a VUT, and we can learn from these in order to improve the process moving forward.