San Francisco Considers Pausing Empty Homes Tax

The San Francisco Board of Supervisors on Tuesday is scheduled to consider pausing the collection of a tax on vacant homes amidst ongoing litigation.

Supporters of the tax often point to vacancy rates as a contributing factor to the city’s high home prices. And in 2022, voters approved the Empty Homes Tax to open vacant units for new renters and owners.

It would have levied stiff penalties for owners holding units vacant, ranging between $2,500 to $5,000 per unit, depending on its size. If the apartment was kept vacant for three or more consecutive years, an owner could pay up to the maximum penalty of $20,000 per unit.

The first filings were slated to be due at the end of April.

However, a few months after voters approved the tax, groups representing property owners sued the city, claiming it violated their constitutional rights. And, in November, a superior court judge agreed, ruling the Empty Homes Tax is unconstitutional and violates California’s Ellis Act, which bars any public entity, including a city, from forcing a property owner to offer accommodations for rent or lease.

“The right to exclude people from your property has long been considered one of the most fundamental aspects of property ownership,” said Jeremy Talcott, a property rights attorney with the Pacific Legal Foundation. “In essence, this forces people to open up their private property to a third party.”

The court ordered the city to stop enforcing or administering the tax. In a statement, Alex Barrett-Shorter, a spokesperson for City Attorney David Chiu, said the city was “disappointed by the trial court’s decision.” Last year, the city appealed and is scheduled to present opening arguments in April, even as opponents have vowed to keep fighting.

Last week, San Francisco’s Board of Supervisors was scheduled to consider pausing the tax until a year after a final decision is made on the tax’s legality, but Supervisor Jackie Fielder asked to continue the item until this week’s meeting.

Her staff told KQED she wanted to understand whether the city could start collecting the tax if a lower court ruled in the city’s favor but ultimately decided against it.

Former San Francisco Supervisor Dean Preston, a vocal proponent of the tax, said it was meant to target large corporate landlords and real estate spectators who might purchase homes but hold them off the market.

“The concern of all the advocates behind [the tax] was these properties where the homes just aren’t being used as homes for people,” he said. “They’re being used like shares of stock in the stock market for real estate investors to buy them and hold them for years and then resell them at higher values for profit.”

According to an October 2022 city report, which used data from the U.S. Census Bureau’s American Community Survey, there were more than 60,000 San Francisco housing units considered vacant in 2021, though that statistic includes homes that are temporarily vacant because a tenant hasn’t moved in yet, the home is undergoing repairs or the property is caught in legal proceedings, among other reasons.

The tax would have applied to buildings with three or more units if the unit was kept vacant for more than 182 days in a calendar year. Single-family homes, duplexes and units occupied by travelers or vacationers would be exempt. And it allowed for vacancies during periods of construction, repairs, disasters or if the owner died.

In an earlier report from January 2022 (PDF), the city assumed fewer than a fifth of San Francisco’s vacant homes would be subject to the tax, and it could collect a little more than $61 million per year in net revenue.

Opponents argued the tax would ultimately apply to fewer units than the city predicted and wouldn’t address barriers to constructing new housing.

Steven Huang, president of the San Francisco Association of Realtors, said the tax was an “unfair punishment on homeowners disallowed by the courts.” The organization was one of the plaintiffs in the lawsuit against the city.

“The solution at hand is not the right one because the courts said so,” he said. “The right move should be to go back to the drawing board and craft something that actually solves the problem rather than going down a path that they’ve been told is not the right one.”

Out of the homes that were considered vacant in 2021, the city found that more than 16% were occupied seasonally or recreationally.

“Those are truly pied-à-terres,” said Sarah Karlinsky, research director with the Terner Center for Housing Innovation at UC Berkeley. She authored a study on vacancy rates (PDF) almost a decade before San Francisco voted on the Empty Homes Tax.

In it, she found that there were nearly 900 homes that were sold but unoccupied in 2012. By 2021, that number had grown to more than 10,270, representing about 2.5% of the city’s total housing stock at the time, according to the city’s report.

“It’s not a ton of units, but it’s also not insignificant during a period where we’re having a housing crisis,” she said.

San Francisco’s tax was modeled after one Vancouver voters passed in 2016, which reduced the vacancy rate by more than 20% and generated more than $20 million for affordable housing in its first year, according to an analysis by the urban planning think tank, SPUR. The following year, SPUR researchers found that the percentage of vacant homes in Vancouver continued to decrease, albeit at a much lower rate.

However, when it came to the tax’s impact on housing affordability, Vancouver officials found that there were fewer vacant units than they had initially expected, and it didn’t have an impact on housing costs.

Other Bay Area cities, including Berkeley and Oakland, have passed similar taxes. Berkeley’s tax, which voters approved the same year as San Francisco’s, has not been billed to property owners yet, though the city estimated (PDF) it could generate up to $5.9 million annually. Oakland’s tax, which voters approved in 2018 and covers all properties, levies an annual tax of up to $3,000 per vacant home and $6,000 per parcel.

As of June 2024, Oakland had collected an average of $5.53 million per year in revenue, but it has not resulted in a decrease in vacant properties since 2019, when the city began collecting the tax.

Because of the legal proceedings, San Francisco hasn’t been able to test whether the tax could impact home prices.

But even if a lower court allows the city to start collecting the tax, Amanda Fried, a spokesperson for San Francisco’s Office of the Treasurer and Tax Collector, said the process would still be complicated because many property owners would have to file paperwork for the tax, even if their property isn’t vacant.

“Similar to your income taxes with the IRS, you’re required to file every year, even if you don’t owe anything,” she said. “It would have been difficult to implement this tax without a lawsuit, but if there’s still uncertainty, trying to convince 80,000 property owners that they need to go online and file a piece of paper that their property isn’t vacant is a lot. It’s hard.”