A new report from British Columbia’s Minister of Finance examines the effectiveness of the province’s speculation and vacancy tax (SVT).
And it turns out it’s working.
The first tax of its kind implemented in Canada, the Speculation and Vacancy Tax Act (SVTA) was announced as part of the provincial Budget 2018 to encourage property owners to turn empty homes into housing for British Columbians, and ensure foreign owners and those with primarily foreign income contribute fairly to the province’s tax system.
The tax structure is intended to apply to vacant properties being used as occasional homes or held as investments, as well as occupied by owners who do not pay income tax in the province but benefit from B.C.’s services and amenities. B.C. homeowners must complete a declaration each year as to whether they’ve lived in their home for at least six months, and the amount of income tax they’re paying in Canada.
Since 2019, the SVT rate has been 0.5% for Canadian citizens or permanent residents, and 2% for foreign owners and satellite families.
Point 1 of the 30-Point Housing Plan, the speculation and vacancy tax is intended to optimize the use of housing supply in specific regions — known as SVT designated areas — where demand pressures have had a substantial impact on housing affordability.
The report examines the effectiveness of the SVT with regard to housing affordability, including vacancy rates, sale prices of residential property, rents for residential property, and other relevant factors.
Notably, the report found that for the 2018, 2019 and 2020 tax years, the Province collected approximately $230M in SVT revenues. Foreign owners and satellite families paid an average of five times more SVT than B.C. residents. Data from the SVT has shown that the tax has helped to add over 20,000 much-needed units to B.C.’s long-term rental market and encourage owners who were previously keeping their homes empty to either rent them out or to sell.
“[A]ffordability has improved somewhat more in the SVTA specified areas in British Columbia than elsewhere in BC or Canada, though these findings are especially sensitive to the pattern of emergency economic measures meant to address COVID-19, as measured by their effects on estimated 2020 median incomes, and household responses to these and changes in their preferences resulting from changes in workplace patterns,” reads the report.
According to the report, further analysis indicates that the SVT is indeed achieving its intended outcome and supporting the reintegration of existing, under-utilized housing stock into the housing market for rent or sale. Furthermore, SVT revenues are directed towards housing affordability initiatives in designated areas, helping the Province provide $1.7B in annual BC Housing funding for 2022/23 to develop safe, accessible, and affordable housing.
Other Canadian jurisdictions, including the federal government, have begun to implement their own speculation and empty homes measures and are following B.C.’s lead by increasing tax rates on foreign ownership. In March, Ontario increased its non-resident speculation tax to 20%.