Solution or just Speculation? Examining the Effect of Vacancy Taxes on Rental Housing Markets

• In Event: Housing and Land Use

Abstract

How do taxes on vacant homes affect rental housing markets? I analyze a 2017 tax implemented in British Columbia, Canada, levied on the assessed value of vacant homes and those used as short-term (vacation) rentals. I develop an integrated structural model of short- and long-term rental housing markets, incorporating both demand and supply decisions. The model captures property owners' choices between rental market participation, with short-term rental supply determined through a two-stage process involving daily variable profit calculations and annual entry decisions. I exploit geographic and temporal variation in tax rates to match model predictions to observed moments. I additionally use a difference-in-differences approach to obtain reduced form evidence. I estimate that the tax decreased AirBnB listings by 98 properties per neighborhood while increasing nightly prices by $6.67 CAD on average. These results in combination with my model provide crucial insights into rental market substitution patterns and the effectiveness of tax policy in addressing the housing affordability crisis.

Author

• Katherine Fairley, fairley@umich.edu