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Cities Like Vacancy Taxes, Despite Mixed Results

Voters in San Francisco and Berkeley, Calif., approved new taxes on vacant dwellings. Meant to tame speculation and increase supply for renters, the measures have raised revenue in other cities but the impact on housing markets remains unclear.

An empty room.
The trend line on housing prices in San Francisco looks a lot like one of the city’s famous hills: It only seems to climb higher and higher until it disappears into the fog. With the average price of a home now hovering at unattainable heights — $1.42 million last month, a small decrease from last year — it’s increasingly impossible for typical wage earners to find anywhere to live.

So it’s a galling experience, says Shanti Singh, the communications and legislative director for the advocacy group Tenants Together, to observe the same darkened windows in the same high-end condos night after night, and know that someone is making money from a San Francisco housing unit without even having to rent it out.

That’s why Singh thinks she had such an unexpectedly easy time gathering signatures for Proposition M, a ballot measure to create a tax on vacant housing units in San Francisco. The tax is intended to discourage speculators from letting apartments go empty, and to raise money for housing programs from those that continue to do so.

“It was an idea that was intuitive and popular to people that we were speaking to on the street,” Singh says. “If we build housing, we should fill it with people.”

Prop M was approved earlier this month with 54 percent of the San Francisco vote, paving the way for the tax to take effect in 2024. Voters in Berkeley also approved Measure M, creating a similar tax on vacant properties, by a 63 percent majority. While there are some taxes on vacant land and property in parts of the U.S., including a measure in Oakland that was approved four years ago, the San Francisco and Berkeley measures are a new breed, aimed explicitly at investors who profit from housing without adding to supply.

Prop M is “about tackling the large, corporate landlords keeping units vacant, and those wealthy individuals who purchase units but don’t use them,” according to an official argument co-signed by the San Francisco Democratic Party and a number of advocacy groups. Berkeley’s Measure M was designed to “bring needed housing back online and ensure speculators pay for the impacts of long-term vacancies,” a group of city officials said.

Unclear Impacts in Other Cities

The San Francisco measure was modeled on Vancouver’s Empty Homes Tax, which was created at a rate of 1 percent in 2016 and will be increased to 5 percent next year. That tax raised more than $86 million for affordable housing programs between 2017 and 2020, according to official figures. It also coincided with (but didn’t necessarily cause, the city acknowledges) a re-occupation of 36 percent of homes that were declared vacant in 2019.

A study by the British Columbia Ministry of Finance suggests that the tax is successfully pressuring property owners to lease empty units, and that it is collecting revenue primarily from foreign investors. But it has had little noticeable impact on rent prices.

The San Francisco tax will start as low as $2,500 per unit per year in 2024, and increase to as much as $20,000 per unit in later years. The City Controller’s office estimates that Prop M could raise more than $20 million a year. The proceeds would support rental subsidies for low-income tenants and the acquisition of apartment buildings for affordable housing. Singh and other supporters hope it will force apartment owners to rent their units, potentially at lower costs to tenants.

“If you’re holding a unit vacant and you’re holding out for an insanely high rent, maybe that will go down because you have to actually rent it out to somebody,” Singh says.

San Francisco’s Prop M was backed by a diverse coalition of housing groups, and opposed by a smaller group of property owners and taxpayers’ associations. The San Francisco Apartment Association, a landlord group, declined an interview request, but sent an emailed statement about the passage of Prop M.

“It’s unfortunate that the voters continue to view property owners as the ATM to fund all of the city’s policies,” Charley Goss, the group’s government and community affairs manager, said in the statement. “We should be doing more to make it affordable to be a homeowner in San Francisco, rather than continuing to make our city the most expensive place to live and do business in America.”
The skyline of Vancouver during the daytime.
Vancouver’s Empty Homes Tax has tax raised more than $86 million for affordable housing programs between 2017 and 2020. It also coincided with a re-occupation of 36 percent of homes that were declared vacant in 2019.
(Dan Breckwoldt/Shutterstock)

Broad (but Maybe Shallow) Appeal

While opposition from some property owners was predictable, Prop M was also supported by local YIMBY groups, which support more development of all types of housing, and which often find themselves on the opposite side of battles with left-wing advocacy groups like Tenants Together. That could make it a popular policy to export to other cities facing pressure to do something about their housing crises.

But don’t expect a durable alliance between all the factions of the housing world. Matt Lewis, the director of communications for California YIMBY, described vacant property taxes as a “meh” policy. YIMBY groups generally aren’t opposed to them because they won’t do much harm, but he doesn’t think they’ll have much impact either.

Proponents of policies like Prop M and Measure M aren’t being honest about the nature of the housing problem, in Lewis’ view. If the taxes successfully convince property owners to occupy some vacant units, that would be a good thing, but it wouldn’t go far in addressing San Francisco’s housing shortage. According to the latest Regional Housing Needs Assessment, San Francisco needs more than 46,000 new units of below-market-rate housing to serve low-income people over the next eight years.

Progressive groups overemphasize the significance of vacancy as a tactic in their broader opposition to new market-rate housing in certain neighborhoods, Lewis says. If policies like Prop M have a limited impact, they could actually end up undercutting those groups’ position on housing issues.

“If in two years the vacancy tax has not yielded more than a handful of homes, are these people going to update their beliefs?” Lewis says.

Singh acknowledges that a vacancy tax is only a partial solution to the housing crisis. Raising $20 million a year is a drop in the bucket compared to the untold billions it would take to construct all the reduced-rate housing that San Francisco acknowledges it needs. Singh recently returned from a trip to Vienna, to visit the city’s famous network of social housing, apartment buildings which are built and operated publicly and available to people of all social classes.

“I firmly believe the thing we need the most is for the government to enter the housing business again,” Singh says.

The revenue raised by Prop M may not approach the scale of the funding needed to provide low-income housing: $20 million wouldn’t even build 20 affordable units, at the current cost of construction. But it will support rental assistance for low-income tenants, and that has an immediate impact on vulnerable people, Singh says. Cities are prone to borrowing policies from each other, and Singh expects the vacant property tax to keep spreading.

“I hope more people adopt it,” she says.

Note: This article was updated to more accurately reflect policy divisions among housing advocates.

Jared Brey is a senior staff writer for Governing. He can be found on Twitter at @jaredbrey.
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