London Vacancy Tax to Unlock Rental Housing
## CONTEXT
London faces a chronic housing crisis. The city’s population has grown by over 1 million since 2000, yet annual housing completions have consistently fallen short of the 66,000 homes needed (according to the London Plan). Rents have risen by 20% in the last five years, and the average home costs over 14 times median earnings. Meanwhile, an estimated 40,000 residential properties in London are classified as long-term vacant (empty for six months or more), according to the Ministry of Housing, Communities and Local Government. Many of these are held as investment assets, awaiting planning permission, or simply left unused. The situation is complicated: a vacancy tax alone cannot solve the supply deficit, but it can target a specific inefficiency. New York City recently introduced a pied-à-terre tax on high-value second homes, and Vancouver’s Empty Homes Tax has been in place since 2017. The question is whether London could adopt a similar tool to nudge owners of empty homes into the rental market, while simultaneously accelerating new construction through planning reform. The core tension is between immediate supply activation and long-term structural change.
## PROBLEM
The core problem is twofold: insufficient housing supply and a significant number of properties deliberately left vacant. In London, the vacancy rate for residential properties is around 1.5%, but in high-demand areas like Westminster and Kensington & Chelsea, it can exceed 5%. These empty homes represent a wasted resource in a market where families struggle to find affordable rentals. The cost of inaction is measurable: each vacant home that could be rented reduces upward pressure on rents by a small but meaningful amount. A 2019 study by the London Assembly estimated that bringing 10,000 empty homes back into use could reduce average rents by 2-3% in the most pressured wards. Beyond economics, vacant properties attract crime, vandalism, and vermin, lowering neighbourhood quality of life. The current system relies on council tax discounts for empty homes (up to 100% for some), which actually incentivises vacancy. Without intervention, the number of empty homes is likely to remain stable or grow as overseas investors treat London property as a safe asset. The fundamental issue remains that too few homes are built, but a vacancy tax addresses the symptom of underutilisation without waiting for new construction to catch up.
## PROPOSED SOLUTION
Implement a London-wide Vacant Property Tax (VPT) on residential properties that have been unoccupied for more than six consecutive months, with a rate set at 1% of the property’s market value per year. The tax would be collected by the Greater London Authority (GLA) and ring-fenced for affordable housing programmes. Exemptions would be granted for properties undergoing major renovations (with a permit), probate (up to 12 months), owners in long-term hospital care, and properties actively marketed for sale or rent at market rates. The tax would be self-declared with random audits and penalties for false declarations. Administrative costs would be covered by a small surcharge on the tax itself. Rejected alternatives include a flat-rate surcharge on council tax (too blunt) and a ban on short-term lets (difficult to enforce). The design draws heavily on Vancouver’s Empty Homes Tax, which achieved a 25% reduction in vacant properties in its first three years. To address the root cause, the proposal also includes a companion reform: automatic approval of planning applications for residential development on brownfield sites within 12 months, unless explicitly rejected by the local authority. This dual approach—taxing vacancy while easing supply constraints—mirrors the economic consensus that both demand-side and supply-side measures are needed.
## EXPECTED IMPACT
If implemented, the VPT is expected to bring 5,000–8,000 long-term vacant homes back into the rental market within two years, based on Vancouver’s experience (where 2,000 of 8,000 vacant properties were returned to use). This would increase London’s rental stock by approximately 0.5–0.8%, reducing rent growth by an estimated 1–2% in the most affected boroughs. The tax revenue, estimated at £200–300 million annually (assuming 40,000 vacant homes at average value £500,000), would be used to fund 2,000 new affordable homes per year. Neighbourhoods with high vacancy rates (e.g., parts of Westminster, City of London) would see reduced blight and improved community cohesion. However, the impact on overall house prices will be negligible—a 0.5% supply increase cannot offset a structural deficit of 66,000 homes per year. The primary benefit is efficiency: making the existing housing stock work harder. The planning reform component is expected to accelerate delivery of 10,000 additional homes annually within five years, addressing the root cause. Without the tax, vacancy rates will persist, and the housing crisis will deepen as demand continues to outstrip supply.
## DECISION LENS
| | If this passes | If this doesn't pass |
|---|---|---|
| What will happen | 5,000–8,000 empty homes return to rental market; £200–300M/year raised for affordable housing; planning reform speeds up construction; modest rent relief in high-vacancy areas. | Vacancy rates remain high; no new revenue for affordable housing; planning reform stalls; rents continue rising; neighbourhood blight persists. |
| What won't happen | House prices will not drop significantly; the fundamental supply shortage remains; some owners will find loopholes; administrative costs will be real. | The opportunity to test a proven policy is lost; London misses a chance to align with Vancouver and New York; political momentum for housing reform fades. |
## PRECEDENTS
EXAMPLE: Vancouver, Canada — What: Implemented a 1% tax on properties vacant for more than six months in 2017, with exemptions for renovations, probate, and owner-occupancy. — Outcome: Vacant properties dropped from 8,000 to 6,000 in three years; 2,000 homes returned to rental market; tax revenue of $40M CAD/year used for affordable housing. — Outcome: Vacant properties dropped from 8,000 to 6,000 in three years; 2,000 homes returned to rental market; tax revenue of $40M CAD/year used for affordable housing.
EXAMPLE: Paris, France — What: Introduced a progressive tax on vacant homes (taxe sur les logements vacants) in 1999, with rates increasing after two years of vacancy. — Outcome: Reduced long-term vacancies by 15% in high-demand arrondissements; revenue funds social housing; but administrative challenges remain in proving vacancy. — Outcome: Reduced long-term vacancies by 15% in high-demand arrondissements; revenue funds social housing; but administrative challenges remain in proving vacancy.
EXAMPLE: New York City, USA — What: Proposed a pied-à-terre tax on residential properties valued over $5 million that are not primary residences, with a sliding scale up to 10% of value. — Outcome: Not yet enacted; estimated to affect 3,000 units and raise $200M/year; debate highlights concerns about wealthy owners selling rather than paying. — Outcome: Not yet enacted; estimated to affect 3,000 units and raise $200M/year; debate highlights concerns about wealthy owners selling rather than paying.
July 13, 2026
