Is it time to tax the thousands of vacant houses in Ireland?

Analysis: Canada’s experience may give some pointers as how to deal with the huge stock of unoccupied dwellings here

By Gerard Turley and Stephen McNena, NUI Galway

Many countries and cities around the world are experiencing a housing crisis. Ireland is no different, with the problem most acute in Dublin. Nationwide, the demand for accommodation exceeds supply. Although new residential property construction has recovered since the 2008/09 Great Recession, the current rate of about 20,000 units per annum is well below the required annual 33,000 newly constructed homes as stated in the Government’s Housing for All plan.

Property prices and rents have increased strongly, and continue to rise with no slowdown imminent. Property prices are up 60% over the seven years since 2015, and up nearly 120% since their trough in early 2013. Nationwide average rents in new tenancies were about €800 per month during 2009-2014, but have increased by over 75% to reach over €1,400 at the end of 2021. In Dublin, average rents in new tenancies are close to €2,000 per month.

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From RTÉ One’s Nine News, President Michael D Higgins criticises Irish housing as ‘our great failure’

One possible solution is a renewed focus on vacant or derelict properties, and especially in our urban centres. Given the massive shortage of housing, and the high level of property prices and rents, it is somewhat surprising to see so many empty or derelict premises in our towns and cities. What role might a tax on vacant properties play in helping to discourage a wasteful use of a scarce resource?

Census 2016 provided some limited data on the scale of the problem. It recorded over 245,000 vacant dwellings, or 12.3% of the housing stock. Of that number, about 62,000 were identified as holiday homes, leaving over 183,000 vacant dwellings.

The census enumerators attempted to establish the reasons for vacancy, and this data is available for over 57,000 properties. The most common reasons were for sale, vacant long-term, rental property or owner deceased. Census 2022 promises to produce improved data on vacant properties, and will be used in conjunction with 2021 Local Property Tax data. More recently, architect Mel Reynolds estimated that there could be up to 137,000 vacant dwellings in the country.

From RTÉ Radio 1’s News At One, Green Party TD and Oireachtas committee on housing chair, Steven Matthews, on a new report by the committee on derelict and vacant homes

Although difficult to define and measure accurately (with the need for more reliable and up-to-date data, as always), tackling vacant properties is only part of a multi-dimensional approach that can help urban development and address the affordability crisis. The Oireachtas Joint Committee on Housing, Local Government and Heritage recently launched its report on urban regeneration, with 39 recommendations. One of the recommendations is for the Government to consider a Vacant Homes Tax. In response, the Minister for Housing, Darragh O’Brien, stated his intention to introduce the tax in Budget 2023, and related measures like grants to renovate derelict properties.

As one of us is currently based at the University of Toronto, we decided to investigate the Canadian experience with vacant property taxes. Affordable housing is also a big issue here because of rapidly rising property prices and rents.

Vancouver was the first city in North America to introduce a vacant homes tax, and its Empty Homes Tax in 2017 aimed to return vacant properties to the rental market. Owners must make an annual declaration, and a property not being used as a principal residence or not rented for more than six months of the year is subject to the tax, unless an exemption applies (such as property transfer, death of owner, redevelopment or owner in care).

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From City Of Vancouver, how the Empty Homes Tax works

The tax rate was 1% of the assessed taxable value, then increased to 1.25% in 2020 and is 3% since 2021. Net revenues are reinvested into affordable housing initiatives across the city. City officials claim that the tax is working, with vacancy dropping by 26% and properties occupied by tenants growing nearly 20% over the three years. In April 2022, the city council voted unanimously to increase the tax rate to 5% from 2023.

The province of British Columbia applies a Speculation and Vacancy Tax in major urban areas (including the City of Vancouver) at a rate that varies depending on the use of the property, the owner’s residency status and where they earn and report their income. From 2019, the rates are 2% for foreign owners, and 0.5% for Canadian citizens or permanent residents. Exemptions apply, including major renovations and life events but the main one is the owner’s principle residence. Again, provincial officials claim the policy goal of adding more units for sale and rent is being achieved.

In the City of Toronto, the design of the Vacant Home Tax was completed in 2021, introduced in 2022, and first payable in 2023. Its aim is “to change the behaviours of homeowners who leave their homes unoccupied – compelling them to sell or rent them out to increase the housing supply”. Again, a property is considered vacant if it has been unoccupied for more than six months during the previous calendar year, and the unit is not the principal residence of the owner. Similar exemptions apply as elsewhere. Property owners are required to declare the status of their property each year, and if vacant, the rate is 1% of their property’s Current Assessed Value.

From RTÉ Radio 1’s This Week, Carole Coleman finds out if vacant or derelict premises in the north-west and border regions can be used to solve the housing shortage

Other cities in the province of Ontario, including Ottawa and Hamilton, are following suit and will soon implement similar vacant home taxes. In addition, in 2022 the Canadian federal government legislated for an annual 1% federal tax on underused or vacant properties (the Underused Housing Tax) owned by non-resident, non-Canadians, and as with all the others is a housing supply measure rather than a revenue generator.

Although they seem to have political and public support, experts remain divided on the impact of these taxes. It is difficult to disentangle their effects from all the other factors affecting property markets. Earlier evidence from elsewhere, including lower numbers of vacant properties than originally estimated and their concentration at the higher end of the market, raises some doubts about the effectiveness of such taxes as a tool to tackle the affordability crisis for younger, low and middle-income earners.

Clearly, we need to gather more evidence so that our policymakers are well informed and make the right interventions about one of the defining issues of our time. Given the current state of the Irish property market and housing supply, a vacant property tax seems like a good idea in principle but, as with all good taxes, the devil is in the detail.

Dr Gerard Turley and Stephen McNena are lecturers at the J.E. Cairnes School of Business and Economics at NUI Galway. Dr Turley is currently a Visiting Scholar at the Institute on Municipal Finance and Governance at the University of Toronto.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ

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