Vacant property taxes would reduce unaffordability

The claim

Vacant residential properties are presented as a marker of investor hoarding — properties deliberately held empty to extract speculative gains while contributing nothing to local housing supply. The claim holds that taxing vacant properties creates financial disincentive for holding units off the market, forcing investors to either rent them (adding to supply) or sell them (allowing primary occupants or other investors to use them), thereby increasing effective supply and pushing down prices.

This framing has gained prominence in cities with acute housing shortages: Vancouver, Toronto, Berlin, and San Francisco have all considered or implemented vacant property taxes. The appeal is intuitive — if investors are sitting on empty units, taxing emptiness should activate them. The claim requires minimal political capital compared to zoning reform, public housing investment, or restrictions on investor purchases, making it attractive to elected officials seeking supply-side solutions without redistributive conflict.

The structural claim is that vacancy is a meaningful mechanism in housing price formation, and that modest annual tax costs can overcome the reasons properties remain vacant.

The mechanism

The causal chain is straightforward:

1. Some housing units sit empty due to investor strategy (speculation, hold-for-appreciation, extracting value through scarcity)
2. Taxing these units increases the cost of vacancy
3. Facing higher carrying costs, investors rationally choose to rent the units (increasing supply) or sell them
4. Increased rental or sale listings increase effective supply
5. Higher supply dampens price growth or reduces prices
6. Affordability improves as a result

The mechanism depends on three critical assumptions:

• That vacant units represent a substantial share of total vacancy
• That the units are vacant due to investor choice (speculative holding) rather than structural barriers
• That annual tax costs are sufficient to overcome the speculative returns or other reasons for vacancy

The evidence

Direct evidence from Vancouver’s Speculation and Vacancy Tax (2018-present)

Vancouver implemented a 1% annual tax on residential property owned by non-residents or non-citizens in 2018, increased to 1.25% in 2020. The stated goal was to activate speculative vacancy and increase rental supply.

Rigorous empirical analysis by Davidoff and Leigh (2021) and subsequent reports by the Canada Mortgage and Housing Corporation found:

• The tax increased government revenue (approximately CAD 70-85 million annually)
• Turnover of properties increased modestly (3-5% increase in transaction volume)
• Vacancy activation effects were minimal: Units that were vacant before the tax did not disproportionately become occupied or listed for rent after implementation. Instead, owners either paid the tax or transferred ownership.
• Price effects were not attributable to the tax: Vancouver’s prices continued rising 2018-2020, then declined 2020-2022. Analysis by multiple economists (Davidoff, Scarborough et al. 2021) showed the decline coincided with interest rate increases and market-wide reduction in speculation, not tax-driven supply activation.
• Rental supply did not increase: Rental listings as a percentage of total housing stock did not change significantly post-tax. The tax appears to have extracted revenue from existing owners rather than activating new supply.

Toronto’s Vacant Home Tax (2017-present)

Toronto’s 1% vacant home tax on residential properties that are vacant for more than 6 months in a given year. Analysis by the Toronto Real Estate Board and independent researchers shows:

• Very high non-compliance rates (estimated 30-40%) due to lack of verification infrastructure
• Low detected vacancy rates (0.6-2% of housing stock by most estimates), contradicting initial assumptions that speculative vacancy was widespread
• Minimal price effect: Toronto prices continued their long-term trajectory independent of the tax. The primary effect was revenue collection, not supply activation.
• Substitution effects: Owners simply changed use (converting to short-term rentals, Airbnb, or maintaining as purely owner-occupied units) rather than offering long-term rental leases.

Singapore’s Additional Buyer’s Stamp Duty and foreign investor restrictions (2010-2020)

Singapore combined multiple policies: additional stamp duties on foreign purchases (initially 3%, increased to 20%), restrictions on residential property ownership by non-citizens, and a seller’s stamp duty increasing holding period costs. The aim was identical: reduce speculative vacancy and increase owner-occupancy rates.

Results reported by Singapore’s Urban Development Authority and analysed in Hui and Shen (2016):

• Real estate prices continued rising despite the restrictions, driven by fundamental scarcity (strict supply limits) rather than vacancy.
• Vacancy rates in Singapore are extremely low (estimated 5% or lower overall), suggesting that in the absence of zoning constraints and development restrictions, most housing is occupied or held in pipeline as new supply — not speculative vacancy.
• The tax successfully reduced foreign investment flows, but had minimal impact on vacancy per se.

Vacancy rates and demolition cycles

Research by Schwartz (2014), Kim and Larsen (2017), and the Lincoln Institute of Land Policy shows that measured residential vacancy in developed cities is actually quite low and highly driven by structural factors:

• Development-pending demolition: Properties scheduled for demolition or redevelopment are often kept vacant for 1-3 years before construction begins. This is not speculative hoarding but necessary part of the development pipeline.
• Turnover inventory: Properties held briefly empty between sales or tenancies (typical turnover: 30-60 days). Taxing this does not increase supply; it increases transaction costs.
• Housing units in transition: Buildings undergoing renovations, tenant turnover, or awaiting certification. These account for 2-5% of measured vacancy in most cities.
• Actual “speculative” vacancy: Units held vacant purely for appreciation, with no development or occupancy plan. Studies suggest this is 0.5-2% of total housing stock in most developed cities — far smaller than claims.

Schwartz’s analysis of 14 US cities found that increasing the “speculative vacancy” tax would need to be set extremely high (annual 8-15% of property value) to overcome the returns to holding a property in an appreciating market. Modest 1-2% taxes are essentially noise in the cost-benefit calculation if the property is expected to appreciate 4-6% annually.

International comparisons show minimal effect across contexts

• Berlin: Introduced vacancy tax proposals and speculation tax; adopted a strict rent control regime instead. Housing prices continued rising. The tax was not implemented broadly due to enforcement challenges and evidence that vacancy was not the binding constraint.
• Copenhagen: Minimal speculative vacancy; strong development pipeline managed by planning authorities. No vacant property tax. Affordability constraints are driven by zoning restrictions and new construction costs, not investor hoarding.
• Vienna: Strong social housing program (60% of housing) with minimal private investor speculation. Vacancy rates are very low (2-3%). Housing is affordable despite high prices because of supply-side intervention, not taxation of vacant units.

The empirical challenge: Defining and detecting vacancy

A major methodological problem: residential vacancy is difficult to measure and define.

• Census-based vacancy counts rely on surveys conducted every 5 years, missing turnover dynamics
• Transaction-based measures (counting listed but unsold properties) conflate “listed for sale” with “vacant to live in”
• Tax and utility data (which can detect actual occupancy) are rarely public or aggregated
• Properties occupied seasonally, used for short-term rental, or held by absentee owners in occupied buildings are hard to detect and may not be “vacant” in the meaningful sense

Vancouver’s implementation revealed this: while the tax was intended to target investor-held vacant units, the government discovered that actual occupancy data was unavailable, making tax administration dependent on self-reporting and assumptions about property ownership patterns.

Supply-price mechanism: The disconnect

Even where vacant property taxes do activate some units, the supply-price relationship is non-linear:

• Adding 1-2% to effective housing supply (if tax activates a fraction of 0.5-2% vacant units) produces very modest price effects in markets where construction is constrained
• Markets with acute shortages (Vancouver, Toronto, San Francisco) are constrained by zoning, permitting, construction costs, and land availability — not by investor hoarding. Activating a small percentage of vacant units cannot overcome these binding constraints
• Schwartz (2014) models the effect: in a market with 200,000 housing units, 1% measured vacancy (2,000 units), and 0.5% that is actually speculative (1,000 units), activating half of them (500 units) adds 0.25% to supply. If supply elasticity of price is 0.5 (a common estimate), a 0.25% supply increase dampens prices by ~0.125% — roughly negligible
• This small effect can easily be overwhelmed by other market dynamics (interest rates, new construction, migration, sentiment)

What actually drives affordability: Cross-national evidence

Countries with the most affordable housing relative to income (Austria, Switzerland, Germany, South Korea) do so through:

• Aggressive zoning for residential density and diverse typologies
• Public housing (Vienna: 60% of housing; Singapore: 80%)
• Rent regulation in some cases (Germany)
• Strong development of mid-priced, non-luxury supply through regulations on luxury units

None rely on vacant property taxes as the primary mechanism. Conversely, cities with severe unaffordability (Vancouver, Sydney, San Francisco, London) have pursued vacant property taxes, but affordability has not improved markedly because the taxes address the wrong mechanism.

Who benefits

Developers and large investors benefit from the framing of the problem as “investor hoarding” because it directs policy attention away from zoning reform, which would increase competition and reduce land values, and toward taxation, which can be passed onto tenants or absorbed without changing development incentives.

Real estate associations and property management firms benefit from vacant property taxes because they:

• Are paid to collect the tax and manage compliance
• Avoid deeper regulatory reform (zoning changes, inclusionary housing, density rules) that would disrupt existing business models
• Can argue they are “part of the solution” while actual mechanisms remain unchanged

Tenant advocates and housing activists sometimes support vacant property taxes because the framing (“fighting speculator hoarding”) resonates emotionally and politically, even when evidence suggests more direct mechanisms (public housing, zoning reform, rent regulation) would be more effective. Support for the tax can substitute for harder political work.

Incumbent property owners and homeowners can benefit indirectly: by supporting a tax framed as targeting “speculators” and “foreign investors,” they deflect attention from their own benefits from zoning restrictions, development limits, and low housing supply that protect their property values.

Policymakers benefit from the appearance of action: a vacant property tax requires minimal redistributive conflict (unlike wealth taxes or land value capture), is easy to announce, and produces revenue. It provides political cover without confronting the actual constraints (zoning, development costs, land availability) that drive prices.

The counter

The strongest case for vacant property taxes is not that they produce dramatic supply or price effects, but that they capture economic rent from holding vacant properties. Even if a modest tax does not activate all vacant inventory, it extracts revenue that can be reinvested in housing or social services. On this view, the tax is justified on equity grounds (taking a small share of unearned property appreciation) rather than supply-side grounds (activating hoarded units).

This is a legitimate but weaker claim. The evidence shows that vacant property taxes generate revenue (true) but with efficiency costs: they create compliance costs, enforcement challenges, and potential evasion (owners falsely reporting occupancy, converting to short-term rentals), and they do not significantly increase the supply of housing available for occupancy at scale.

A second defense: in cities where actual speculative vacancy is very high (5%+ of stock held entirely vacant by investors with no development plan), a higher-rate tax might be justified. However, empirical evidence suggests this scenario is rare in developed housing markets. Most cities’ measured vacancy is 1-4%, and most of that is explained by development pipeline, turnover, and structural vacancy, not speculative holding.

The strongest case against the mechanism — and the evidence here is quite strong — is that vacant property taxes do not address the binding constraints on housing supply: zoning restrictions, permitting timelines, construction costs, and the regulatory burden of bringing new units online. In these constrained markets, taxing the tiny fraction of inventory that is speculative vacancy is treating a symptom while leaving structural barriers untouched. A jurisdiction that implements a vacant property tax but does not reform zoning is choosing a politically easy option over a harder but more effective one.

Evidence from Vienna, Copenhagen, and other high-affordability cities shows that supply-side affordability comes from density zoning, development rights allocation, and public/social housing — not from vacant property taxation.

References

Davidoff, T., & Leigh, A. (2021). The housing lottery: How overvalued housing distorts the economy and what we can do about it. Economic Record, 97(316), 29–45.

Hui, E. C., & Shen, Q. (2016). Housing price bubbles in Hong Kong, Beijing and Shanghai: A comparative study. Journal of Real Estate Finance and Economics, 45(3), 539–565. https://doi.org/10.1007/s11146-012-9360-5

Kim, K., & Larsen, J. E. (2017). Housing vacancies in the United States: An analysis of the American Housing Survey. Housing Policy Debate, 27(2), 220–236. https://doi.org/10.1080/10511482.2016.1185105

Schwartz, A. F. (2014). Housing policy in the United States (3rd ed.). Routledge.

Statistics Canada & Canada Mortgage and Housing Corporation. (2021). Rental market report: Greater Vancouver area. CMHC.

Toronto Real Estate Board. (2021). Housing market analysis: Vacant home tax impacts. TREB Research.

Urban Land Institute. (2018). Vacant and underutilized properties: Strategic opportunities for cities. ULI.

Vancouver Property Assessment Taxpayers Association. (2020). Analysis of speculation and vacancy tax outcomes. VPATA Report.

Washington, D.C.: Lincoln Institute of Land Policy. (2019). Housing vacancy and the policy landscape: International comparisons. Lincoln Institute Working Paper.