Commentary End the Vacant Unit Tax Rebate The purported benefit of vacancy tax breaks for businesses is a mirage, but the harms to residents, homeowners, and legitimate businesses are very real. By John Neary

Published May 11, 2017

The City of Hamilton is considering potential changes to the Vacant Unit Tax Rebate Program and the Vacant/Excess Land Discount Rate, as described in this consultation document [PDF]. I note that the City has solicited feedback from business owners but not from residents or homeowners, although the latter groups are impacted by this tax rebate program in important ways.

As a resident and homeowner in the Beasley neighbourhood in Ward 2, I respectfully submit that continuing these rebates and discounts will be injurious to Hamilton residents, homeowners, and operators of legitimate businesses. The only interest group that benefits from these rebates is property speculators. There is no legitimate interest in continuing these harmful programs.

By definition, if a building is empty, then it houses no business; if a piece of land is vacant, then no business operates upon it. It is therefore a logical fallacy to hold that a vacancy rebate could be "good for business".

The only business that can benefit from a vacancy rebate is one that does not actually use land or buildings, but simply purchases them and keeps them vacant in the hope of a return on capital down the road. While citizens and businesses have every right to purchase property, the City does not owe them a discounted tax rate as a reward for property speculation.

The City requires a certain amount of property tax revenue each year, along with other revenue streams, in order to cover the cost of the services it provides. Discounts on property taxes for one set of landowners must necessarily be balanced by higher property taxes for other landowners.

This phenomenon is hidden, but it is nevertheless real. The $5-6 million dollars discounted to owners of vacant buildings and empty land represents a hidden $5-6 million surtax on other property owners in our community. This differential taxation is profoundly unjust.

Vacancy Tax Breaks Encourage Vacancy

Many others have made the point that vacant buildings have a negative impact on the neighbourhoods around them. Having lived across from the empty Cannon Knitting Mills building for the past eight years, I entirely agree.

What is often overlooked is that vacancy tax breaks do not just reward owners of vacant buildings and empty land, they actively encourage vacancy.

The owner of an underused property, in deciding whether to redevelop it, lease it to a tenant, or keep it vacant, will compare the costs of vacancy (maintenance and taxes) to the opportunity costs of redeveloping or leasing the space. By lowering the carrying cost of vacant properties, tax breaks for vacancy provide a direct incentive for landowners to keep their properties unused.

The most stark example of this, as I have argued before, is that when North Carolina offered Siemens a tax discount to move their operation from Hamilton, we implicitly held out a tax discount for Siemens to vacate their property in our city. The same argument holds for the unused Stelco lands.

Many will argue that increasing property taxes on empty properties is unfair, because these properties are empty as a result of poor market conditions. This argument would have been superficially plausible in the late 20th century, when land values were falling and businesses were closing across the lower city. Even then, a closer analysis would reveal that the tax rebates simply acted to further encourage vacancy.

Business Property Owners Do Not Need Subsidies

Moreover, when discussing the owners of vacant commercial and industrial properties, we should be clear that we are not talking about a group of people who are economically marginal.

Anyone who is affluent enough to not only own commercial or industrial property but to keep it empty as a form of land speculation is not a person who needs a bailout from the municipal government.

Finally, with land prices rising rapidly across the City of Hamilton, the owners of vacant properties have already seen substantial growth in the value of their assets. They do not need a further handout from the City in the form of an unjustifiable tax break.

Landowners who genuinely cannot see a way to develop their properties can simply sell them to other people who do want to develop them, and the sellers will reap substantial capital gains by so doing.

The purported benefit of vacancy tax breaks for businesses is a mirage, but the harms to residents, homeowners, and legitimate businesses are very real. There is no argument for continuing these tax breaks as they are, or for tweaking them as described in the consultation document. These tax breaks should simply be eliminated.

John Neary lives in Beasley Neighbourhood and practices general internal medicine at St. Joseph's Healthcare Hamilton. He would like Hamilton to develop an urban environment that creates less gainful employment for his profession.

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