Pressuring San Francisco Investors with a “Vacancy Tax”

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San Francisco voters will be faced with a ballot measure next month on whether to impose a “vacancy tax” on multi-family units that sit empty for too long. Proposition M is targeting real estate investors who park their money in properties that remain unoccupied.

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Proponents of Prop M claim that the city’s housing shortage is at least partially due to investor-owned properties that sit vacant for long periods of time. And that by imposing a progressive tax on the vacant units, investors will be motivated to rent them out or sell them to someone who wants to live in them.

Proposition M Exemptions

Owners of vacant single-family homes and duplexes would be exempt. Although some proponents feel the rule should be applied across the board, it would only apply to units that have sat empty for 182 days or more in buildings with three or more units. There would be other exemptions for non-profit organizations, government agencies, vacancies due to natural disasters, an owner’s death, or for one year after the construction of a new building. (1)

The measure is based on a review by the city’s Budget and Legislative Analyst’s Office several months ago. It states that the city had more than 40,000 vacant housing units in 2019. That’s just under 10% of the 406,000 units that exist in the city. An article in the San Francisco Public Press says that Census Data indicates that 15% of San Francisco’s apartments, condos and homes are currently unoccupied. (2)

The issue has become a hot-button topic among housing advocates. According to Executive Director of the Housing Rights Committee, Fred Sherburn-Zimmers: “A home is a home, and we are going to tax the shit out of it until you rent it out to San Franciscans.”

San Francisco’s Vacancy Rate

It’s not clear how many units this proposition will impact because the tax will only be imposed if the unit sits vacant for at least six months. And, an economic impact report by San Francisco’s Chief Economist, Ted Egan, shows that the city’s residential vacancy rate is not any higher than other Bay Area city for units that are vacant that long. That would indicate that San Francisco does not have a unique problem within the Bay Area cities. It also means that the bulk of the units would likely not trigger a “vacancy tax.”

So it seems that long-term vacancies are not unusually high in San Francisco, and the measure would not have an impact on changing the number of shorter-term vacancies. What it would impact are units that are kept off the market for more than six months allegedly by investors who plan to flip them once they increase in value.

Tax Based on Unit Size & Length of Vacancy

Taxes would range from $2,500 to $5,000 a year, if it passes. The amount of the tax would correspond to the size of the unit and could go as high as $20,000 if the unit continues to sit empty.

According to Bisnow, a similar tax was adopted in Vancouver, Canada which returned 18,000 units to the housing inventory in 2019, and generated $21 million. The Real Deal reports that Oakland, California, also approved a vacancy tax in 2018 which raised around $7 million in 2020. And San Francisco already has a similar tax for some commercial buildings.

The SF Budget and Analyst’s study suggests that a vacancy tax would restore about 4,500 residential units to the inventory and raise about $38 million. The money would go toward affordable housing and rent subsidies, but supporters say the primary goal is to get investors to return the units to the market.

Opposed to the measure is the San Francisco Apartment Association which says the city should be building more homes instead of pressuring investors. The Housing Action Coalition is also in favor of prioritizing the construction of new homes.

If voters approve the measure, it would go into effect in 2024.

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Thank you! And thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.bisnow.com/san-francisco/news/multifamily/residential-vacancy-tax-prop-m-115798

2 -https://www.sfpublicpress.org/would-tax-on-vacant-homes-push-owners-to-lease-empty-sf-units/