Let's Talk Property Tax - Proposed Canadian Vacant Land Tax Rate

With Canada facing a significant housing shortage, the government has recently proposed a new vacant land tax included in the Federal Government’s 2024 Budget, as part of is broader housing action plan. This measure is intended to motivate landowners to develop underutilized properties, particularly in urban areas where housing demand is high.

But what exactly is the vacant land tax, and how might it affect property owners, developers, and the housing market as a whole?

Let’s break this down.

What is the Vacant Land Tax?

The vacant land tax would be a levy on underdeveloped properties that are not being actively used or developed. Seems simple, right? The goal is to reduce the idea of speculative landholding, where owners sit on underdeveloped parcels, waiting for values to rise, by encouraging them to either build (housing) or sell the land to someone who will.

This idea isn’t entirely new either, some Canadian cities, including Vancouver and Toronto, have already introduced similar measures focused on vacant homes. The new tax, however, would extend this concept to land that remains untouched, aiming to ensure that every parcel serves a purpose in addressing housing needs.

Why now?

Canadas housing supply shortage has reached critical levels. High demand, coupled with limited supply, has driven up home prices and rents, leaving many Canadian struggling to find affordable housing. With immigration numbers growing and urbanization on the rise, the pressure on housing stock has never been higher.

Policymakers see the vacant land tax as one way to incentivize land use in cities where every available square foot is valuable. By discouraging speculation and making holding vacant land costly, they hope to see more properties put to use sooner, which in turn could help alleviate some of the pressure on the housing market.

Potential Impact of Property Owners

For owners of vacant land, this proposed tax could be a significant financial consideration. Those holding land for future development, or simply as an investment, would need to evaluate whether it’s worth maintaining these assets or if they should expedite development plans.

Optimistically thinking, the policy could be a game changer for property developers. Land that was previously “waiting for the right time” might suddenly be pushed into development, creating new opportunities. However, there is also the risk and likelihood that landowners might pass these additional costs onto eventual buyers, potentially impacting affordability.

Challenges Developers Face in Brining Land to Market

While the intent of the vacant land tax is to reduce speculative landholding, not all underdeveloped land is simply “waiting” without a purpose. Developers across Canada face significant challenges in advancing their projects due to delays in obtaining zoning changes, building permits, and various environmental or municipal approvals. In some regions, the approval process can take years, involving multiple rounds of consultation, environmental assessments, and bureaucratic hurdles that add both time and cost to projects.

These delays mean that developers often hold onto land not only by choice but because they are caught in the permitting process. The vacant land tax may unintentionally impact these developers, effectively penalizing them for a lack of progress that is beyond their control. A thoughtful implementation of the policy would recognize these realities and provide accommodations or exemptions for developers who can demonstrate active efforts toward obtaining necessary approvals.

Key Considerations and Challenges

1. Determining “vacant” status: Defining which properties are subject to the tax is critical. Some parcels may be vacant due to zoning restrictions, land use polices, or environmental constraints. Creating exemptions or flexibility within the policy could help ensure that only speculative holders are targeted and not developers caught in bureaucratic delays.
2. Encouraging the right kind of development: Taxing vacant land isn’t enough, supporting affordable and sustainable housing development is equally essential. The government may need to pair the tax with incentives for projects that align with affordable housing goals, especially for those developers actively working to navigate approval processes.
3. Market reaction: Will this new tax drive up housing prices in the short term as costs are passed down the line, or will it ultimately help moderate prices by increasing supply? Policymakers and industry experts will need to closely monitor market responses to adjust the policy if unintended consequences begin to appear.

Looking Ahead: An Opportunity for Positive Change

The vacant land tax proposal is an ambitious policy that reflects Canada’s pressing need to address its housing crisis in creative ways. While it’s likely to be met with both support and resistance, it represents an acknowledgement that the status quo isn’t working for everyone.

For property owners and developers, this is an opportunity to align with national housing goals and contribute to a solution for a more sustainable, inclusive real estate market. Those holding vacant land may need to start re-evaluating their strategies, weighing the cost of holding property against the potential benefits of developing sooner rather than later.

Final Thoughts

The vacant land tax could be a pivotal moment for the Canadian housing market. If implemented thoughtfully, it might encourage much needed development, helping to ease some of the housing challenges that Canadians face. However, like any policy, its success will depend on execution, oversight, and responsiveness to the complex needs of both the housing market and broader economy.

Developers are a crucial part of this equation, and if their unique challenges are recognized within the policy, particularly the time intensive nature of the permitting process, then the tax could achieve its aim without unintended setbacks or consequences. As the proposal unfolds, two things are clear: inaction on vacant land is no longer an option, and we all have a role to play in creating a housing landscape that meets the needs of our communities, but is another tax policy the right step toward that vision, or is it simply a reflection of the excessive tax culture that our nation so heavily relies on.

-EP