It doesn’t really make any sense to own a piece of real estate and leave it vacant with zero income to offset a slew of carrying costs. Or does it? Politicians sure seemed to think developers are doing that.
Unsold condos have become a major political issue amidst an affordability crisis, even after an approximate 20 per cent drop in existing home prices. Some new condo prices are down even more.
Sell at any price or else seems to be a focal point in the election in British Columbia, where Premier David Eby has upped the ante by trying to force developers to pay a vacant home tax.
In theory, the government’s goal of taking empty units and getting them back into the market is laudable, but, arguably, poorly thought out.
“The developers are hoarding more than $2-billion worth of finished condos while families flip through listings wondering why they can’t afford a place to live,” Eby said in a social media post that offered his “terms of peace” that would give developers a year to sell their unsold finished units.
Ten developers are hoarding more than $2 billion worth of finished condos while families flip through listings wondering why they can’t afford a place to live.
Not anymore. Sell them within a year, or pay the tax. https://t.co/jGl1os3AjA pic.twitter.com/Pxc76m3LYl
— David Eby (@Dave_Eby) September 25, 2026
The plan would impose a tax of two per cent of a condo’s assessed value if it is left vacant for more than one year. An additional one per cent would be added for each year it remains empty.
The idea of a tax on vacant homes isn’t new. Toronto, Hamilton, Ottawa, Windsor, Ont., and even Sault Ste. Marie, Ont., have their own versions.
Nationally, the federal underused housing tax targets residential real estate owned by partnerships, trusts and corporations held in whole or in part by foreign nationals that remain vacant for more than half the year.
Ultimately, those taxes are designed to force owners to sell their condos and seem to assume they want to leave them vacant, a costly exercise.
“I’m a real estate developer, not a real estate collector,” Mitchell Cohen, chief operating officer of Westdale Properties, said.
He said it’s in his interest to sell those unsold condo units right away so he can get his money back and move onto the next project. The longer he holds them, the more capital he ties up, and he’s also stuck with operating costs such as property taxes and some hydro and condo fees.
“We have an affordability problem and an oversupply of inventory. That is difficult to reconcile,” he said. “By making me pay a tax because I have not been able to sell a unit just makes housing that much more unaffordable.”
Developers usually try to pre-sell 65 per cent to 70 per cent of a project. In a rising market, they make some extra money on the last few units; they might even keep a small number aside to sell at much higher market rates once a project is mostly occupied.
Today, Cohen would be more than happy to build a condo that is 100 per cent pre-sold.
“The enemy of a developer is time, the time value of money. The quicker I can get that money out of that building, pay off my lines and get my purchasers to buy, the better off I am,” he said, adding that doesn’t mean selling at any price.
Greg Zayadi, president of Rennie & Associates Realty Ltd., grew up following his father around retail companies such as Hudson’s Bay and Zellers.
“In the world of retail, when something doesn’t sell. You discount until it’s gone,” he said. “You turn inventory because you don’t want dead stock; you want the shelf space.”
But he said that formula doesn’t work in real estate since you can’t create new stock in a couple of months. Developments can take years.
Zayadi said you have to look at the factors behind holding units aside, including debt levels and whether it is other people’s money.
“They can’t cut, cut, cut until it’s gone because they have accountability,” he said, referring to the investors.
Developers will also do the math, he said. If you have a $500,000 condo, the carrying costs are strata or condo fees, property taxes and cleaning bills. You may also have borrowed money from the bank.
“The carrying costs might be $4,000 a month to own the condo,” he said, adding that a developer might hold on if he believes he can get just six per cent or seven per cent more on the price by waiting a year. “But we are technically early on. Some of these developments have only been (vacant) for maybe six months or a year.”
Sal Guatieri, a director and senior economist at Bank of Montreal, said developers are betting on prices, but it might not be the kind of speculation where they’re hoping to make more money.
“At this stage, prices have come down, maybe even in some cases below the cost of building those units,” he said. “In some cases, builders just have no choice but to hope prices turn around. No one wants to sell in a weak market.”
With so few sales, Guatieri said, establishing pricing is difficult.
Steve Saretsky, who founded Vancouver-based real estate advisory Saretsky Group, said most developers are trying to “delay the pain” and they want to sell.
“There is not really enough equity in many of these projects to fire sale at the prices required to liquidate these units,” he said.
Many units have inventory loans and lenders will not approve sales below a certain price. Upon completion, developers will get those loans at a 60 per cent leverage, with a contractual price agreed to with a lender. Saretesky said the contractual price might be $1,000 per square foot, with a threshold as low as 90 per cent.
“The developer can’t just say I’m selling those at $800 a foot because it’s all we can get,” he said, adding that banks might be getting eight per cent interest on those loans. “The bank has to sign off on every single sale. Also, if you start selling off at $750, the developer might make no money or lose money. Why do that?”
As a result, developers are holding on for better days. If those days don’t come, the banks will take the units over and liquidate them, pushing prices even lower, and more of the inventory loans could go underwater.
Another option for developers is to temporarily rent a unit. But that triggers a five per cent GST charge and a two per cent fee in land transfer costs in B.C. because a sale is realized and you also need the equity to own the rental apartment or you must get a loan. That’s even before the issue of removing a renter once you want to sell.
“In B.C., I would describe that as a non-option,” Saretsky said, adding that softness in rental rates discourages that type of scenario too.
So what’s going to happen with this vacant home tax? He believes credit will even get tighter.
“The tax will be first position in loans, so it’s just another hit on your equity,” he said. “It’s almost going to speed up the liquidation process. There’s just going to be more insolvencies.”
Insolvencies might eventually force those units on the market, but at a price that makes it even less desirable to build condos in the future now that they have to be sold within a specific time frame.
gmarr@postmedia.com