There are some who believe that a useful distinction can be made between housing “speculation” and housing “investment.”1 In free market economies, either represents a way in which a basic human need, whether recognized as a human right or not, can yield a profit through ownership.
The vast majority of home buyers generally think of housing as shelter. But they at least aspire to maintaining the value of shelter, if not profitably increasing its value, whether for themselves or possibly for their heirs.
As to a useful distinction between the terms “speculation” and “investment?” It’s currently on display in the city of Toronto, with an improbably hot market in a time of COVID-19 for speculators who wish to buy and sell (flip) individual houses for profit without necessarily intending to ever live in them. Read more at Toronto Storeys: The Toronto Housing Market is on Fire, Except Where it’s Not
Toronto’s housing investment market, on the other hand, is languishing. There are growing fears of a collapse2 in the condominium rental market, in which some 50% of the units are owned by small or large investors seeking to profit as landlords, reaping smaller profits but over longer periods of time.
In spite of the havoc and heartbreak both kinds of profiteering create for a city or a region’s residents (who must live somewhere), city councils tend to have an affection for either or both housing investment and speculation. These free market practices help drive the homebuilding industry, considered to be an important job source and economic foundation, to say nothing of an ever-increasing property tax resource for swelling the city’s coffers.
Resistant as many suffering cities may be to the woes of their citizens, there would seem to be one means of profiteering that is “beyond the pale” even for speculator-friendly administrations: buying homes and leaving them empty while waiting to sell them again. This reduces the housing stock available to the local market. In a hot market, the profits are such that inhabiting or renting out a home between buying and selling can be a complicated and largely unprofitable nuisance.
That, as far as the notoriously expensive City of Vancouver is concerned, is a profit-making step (or lack of one) too far. The result has been the creation — a British Columbia provincial creation ultimately — of an “empty homes” tax. By and large it is proving successful, if this year’s decision to increase the tax is any indication. Read more in the Daily Hive: Vancouver Empty Homes Tax to increase to 3% for 2021
How can “empty homes” taxes impact housing affordability? At some point, if the Vancouver tax continues to grow, it might dampen enthusiasm for home-flipping and drive investors away, cooling the market. As to supporting the rental market, current “empty house” tax rates may push some units onto the rental market, but speculators may continue to find enough in their pockets to pay the tax rather than endure the nuisance of renting out homes mid-flip.
British Columbia, however, has ensured that there will be a direct impact on truly affordable housing construction by funnelling the proceeds of the empty homes tax in that direction. Read more at CTV: Vancouver’s empty homes tax revenue being used for more than 250 affordable homes
Some evidence of the success of Vancouver’s program may be assumed from the fact that Toronto is eyeing the benefits of adopting a similar program. Read more at the CBC: New city report recommends vacant home tax in Toronto
Alas, one of North America’s largest city regions, Toronto, is not in control of its taxation powers. And it cannot go hat-in-hand to a left-leaning New Democratic provincial government, as Vancouver currently can in British Columbia. Ontario’s provincial government, which can make or break Toronto’s tax ambitions, has a business-loving, hands-off, neoliberal Progressive Conservative government, which may well oppose any brake upon freewheeling investment or speculation.
Earlier posts on this topic:
- Increasing Housing Affordability: Unlocking The ‘Empty Homes’ Puzzle
- Empty? British Columbia Translates Housing Speculation Into Social Housing
- City Of Vancouver Successfully Puts Idle Homes To Work
Footnotes
- See at Huffington Post:Are You A Property Investor Or Speculator? A Quick Quiz To Find Out.
- See The Motley Fool: Toronto Condo Listings up 215%: Housing Crash Coming?
