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Taxing Empty Apartments Could Be the Solution to Affordable Housing in Expensive Cities, New Study Says

Rather than building new homes to help satisfy housing markets, this fascinating new study says that taxing empty homes in developed cities could increase housing affordability for local residents while simultaneously generating income for municipal governments.

Over the course of the last 20 years, housing affordability has decreased substantially in the UK due to a rapid increase in prices relative to earnings. This may be partially due to foreign investors buying out properties in cities such as London, or from British citizens in rural areas buying out second homes in the city, which reduces the availability of affordable housing for local residents.

This means that local citizens who actually live in the city are forced to pay more money for housing in neighborhoods that are filled with homes that are unoccupied for more than half of the year.

In a study that was published last week in the journal Palgrave Communications, researcher Jonathan Bourne at University College London investigated the relationship between the amount of properties which do not have permanent residents (low-use properties), and housing affordability in different parts of England and Wales.

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Upon researching the data, which represents about 40% of the population, the researcher was stunned to find that there were over 340,000 low-use properties across the regions.

Analysis revealed that low-use properties were worth £363,000 on average, which is 18.5% more expensive than the average home (£306,000). This was the case for the majority of properties included in the dataset.

“One of the goals of this research was to get an idea of the fraction of the population of England and Wales living in areas where low-use properties are more expensive than homes occupied by full-time residents, which suggests that the most desirable properties are being bought for purposes other than use as a home, for example as investment opportunities or holiday homes,” Bourne explained.

“Some of the most surprising findings were the sheer value and quantity of low-use properties in some areas, amounting to £21 billion in the London borough of Kensington and Chelsea alone, and £123 billion in the entire dataset. We estimate that in England and Wales, 39-47% of the population lives in areas where low-use properties are more expensive than permanently-occupied homes.”

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Though some municipalities are trying to meet housing demands by building more housing, Bourne suggests that local governments implement an empty homes tax of 1% instead.

“The data shows that low-use properties are very concentrated in small numbers of desirable areas. In such cases simply building more homes is not going to solve the problem, as the issue is intense competition for property, not a lack of places to live,” says Bourne.

“An empty homes tax may be more effective, with the potential to generate a not inconsiderable income for local authorities, whilst taxing people who are typically not eligible to vote in local elections, or encouraging them to rent out their properties.”

Based on these findings and the current council tax base, the author suggests that an empty homes tax of 1% would raise an additional £1.2 billion in taxes, which is equivalent to 11% of the council tax currently collected in the areas included in the dataset.

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Vancouver implemented a similar empty home tax in 2017, which was the first of its kind in North America. One year after it went into effect, the city reported a 15% decrease in unoccupied homes, which amounted to 163 properties being rented out to local tenants.

Furthermore, the tax raised more than $38 million in city revenue, all of which was spent on affordable housing programs.

Bourne cautions that the UK empty homes tax would not be evenly distributed due to varying concentrations of low-use properties, but his findings could help to make housing more affordable in cities around the world.

(WATCH the explanatory video below) – File photo by Beyond My Ken, CC

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