January 15, 2023
Can a family afford to buy a house in Ottawa? The average family income in Ottawa is $80,000. If they had the money for a 20% down payment for an average Ottawa home costing $620,000, the monthly mortgage cost would be over $2,000. In addition, they would have to pay for utilities, food, and other living costs. The other option, next to buying, would be to rent a house or an apartment, and the family with two children would pay a $2,500 monthly rental cost (a house or a 3-bedroom apartment).
I think there is an affordability gap in Ottawa, or, there is a shortage of housing. Same thing. Economics teaches us that if we increase the supply of a product, it may decrease its price. Home builders built ten thousand dwellings in Ottawa in 2022, a record, but not enough to satisfy demand. Are there other options to increase the supply of housing?
The City of Ottawa thought of another way to increase the supply of housing and introduced a “vacant unit tax” (VUT) on January 1, 2023. There are 20,000 vacant units in Ottawa, five percent of the housing stock. Carrying the higher cost of an investment property may motivate owners and investors to rent or sell their vacant units, increasing the housing supply, and reducing its cost.
The tax is one percent of the assessed value of the property if it is vacant for over six months of the year. Although some people with deep pockets may pay the tax, others would sell or rent it out, perhaps to family members to avoid paying the tax.
How will the City of Ottawa identify vacant units? Following examples in Toronto and Vancouver, with similar taxes for vacant investment properties, Ottawa issued a form letter to all property owners asking them to declare whether their property is their prime residence, rented or vacant. We must submit the declaration by the middle of March. Failing that, the tax is added to the property tax the following year.
What happens if owners claim they rent the property, but it is vacant? How will Ottawa follow up and audit, and enforce the VUT? Would the City check water, gas, and electrical consumption for the dwellings? The City has not disclosed how they intend to audit and enforce its new tax; it could be an arduous process.
The City projects to raise seven million dollars a year from the VUT, which translates into over 1,100 dwellings subject to the new tax ($7 million is one percent of the assessed value of the vacant homes averaging $620,000).
It appears the City is inconveniencing 100 percent of property owners by requiring a declaration to increase the supply of housing by 0.3 percent (1100 units added to the existing 380,000 occupied units). Is it worth inconveniencing the people of Ottawa for such a small gain? Is this just a tax grab, impacting middle-class people?
What I find more objectionable is the creeping regulations limiting our freedom; why could I not have two homes and have one empty without being taxed for it? For example, I could use one as my primary residence and the other as an office or a studio or the guesthouse for visiting family. Or I could live downtown, for the winter, to enjoy the cultural facilities there and move to an ex-urban area for the summer, where I could have a large lot with my vegetable garden. Would this tax encourage families to put one house in the husband’s name and the other in the wife’s name? And both could claim their houses as primary residences while living in one? What is wrong with a two-primary-home existence?
And creeping regulations could go further: following up on the logic of the VUT, Ottawa may prescribe additional living standards. For example, you may be eligible for five hundred square feet of living space per person or one bedroom per person. And come up with the LUT (large-home unit tax). If they can regulate that my dwelling must be occupied, what is stopping them from deciding how much space I am entitled to?
Reflecting on the increasing regulatory power of the City, I thought of the large house we and my neighbors occupy. Yes, my street has large homes with four or more bedrooms and multiple bathrooms occupied by two people; the children are gone but the owners are comfortable in their long-term homes, with no intention of moving or downsizing.
I was in my large basement office filling out the VUT form, thinking that the VUT may not be the efficient answer to the housing affordability gap. Mortgage rates, lack of skilled labor to build houses, and low wages may be more crucial factors to tackle before trying to convert a few vacant homes into occupied ones. Just my opinion.
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