With organisations like Prosper Australia and UNSW’s City Futures Research Centre showing that a large number of homes are being left vacant across Australia’s major cities, there have been growing calls to implement a vacant homes tax, as is being considered in Vancouver.
However, Prosper Australia president, Catherine Cashmore, has warned that implementing such a tax would be difficult, and it would be far easier to enforce and cheaper to impose a broad-based land tax. From The AFR:
“The problem with that type of policy is that makes it very, very difficult to enforce,” Ms Cashmore said on Thursday…
Further, the necessary exceptions for properties such as holiday homes would also make administration of any such scheme difficult, Ms Cashmore said…
Ms Cashmore said a broad-based land tax that covered all properties was a better idea than a selective vacant home tax.
“Anything that isn’t done with a broad base does cause distortions in the market,” she said.
Ms Cashmore is spot on. A ‘vacancy tax’ is likely to suffer from significant implementation issues, the biggest of which is how to measure whether a home has been left vacant?
One option is to base it on water consumption, as Prosper Australia did in its Speculative Vacancies report. However, what’s to stop absentee home owners from setting sprinklers to run in a bid to mask that the home is vacant and avoid paying the tax?
The same applies for using electricity usage as the measuring stick. Again, the absentee home owner could set timers to turn on lights at night, again masking that the home is vacant.
A better solution that could not be avoided is to implement a broad-based (no exemptions) land tax in exchange for the reduction in other less efficient taxes.
Not only would this confer significant efficiency benefits on the economy, since land taxes are one of the most efficient sources of tax available and create positive welfare gains to the domestic population of $0.10 for each dollar raised (since non-resident home owners are also taxed):
But it would also encourage vacant landlords to put their properties to “work”, either by developing them or renting them out in order to cover the cost of the tax, thus boosting the effective supply of housing.
