Would A Vacancy Tax Reduce State’s Housing Shortage? History Says No.

FreeCities pexels photo 61109

Some policymakers believe that forcing the owners to put tenants in their properties will help solve an unaffordability problem that has priced so many out of the market. Sounds simple. Of course it’s not.

While it might seem impossible given the state’s perpetual housing shortage, there are empty homes in California. Some policymakers believe that forcing the owners to put tenants in their properties will help solve an unaffordability problem that has priced so many out of the market.

Sounds simple. Of course it’s not.

Several California cities, including San Francisco, Berkeley, Santa Cruz, and Napa, have measures on Tuesday’s ballot that, if passed, would levy taxes on vacant homes. The idea is to put owners in a position in which they have to decide between a new tax and renting their unoccupied units. For instance, ​​San Francisco’s Proposition M, the Empty Homes Tax Ordinance, would tax the owners “of vacant residential units in buildings with three or more units, if those owners have kept those units vacant for more than 182 days in a calendar year.” The rate would be between $2,500 and $5,000 per open unit in 2024, then increase “up to $20,000 in later years with adjustments for inflation.” Estimated annual revenue is expected to be at least $20 million and maybe as high as $37 million. Funds generated would be applied to “rent subsidies and affordable housing.”

“​​The phenomenon of empty homes has got to be part of our discussion of our city’s housing crisis,” San Francisco Supervisor Dean Preston said at a recent Board of Supervisors meeting, according to KQED radio. “It is a moral issue to have people living unhoused on the streets of our city and then have tens of thousands of units sitting empty.”

Is it not a moral issue for elected officials and voters to resort to coercion to pursue a policy agenda they favor? Is protecting rather than violating property rights not a moral issue?

Preston, by the way, brags that he is “the first Democratic Socialist elected” to the San Francisco Board of Supervisors in more than 40 years. So respect for property rights is not going to be high on his list of priorities if it is there at all.

The same can be said for the many supporters of Proposition M. The Coalition on Homelessness bemoans “the hoarding of vacant units,” which it believes is making the city’s housing “issue worse.”

“If we ever want to stop this crisis, we need to do everything in our power to fill these homes, including the taxation of empty units.”

In Berkeley, a report from the city says, “the extraordinary gap between the housing needs of residents and the availability of housing” can be bridged only “through the use of numerous policy interventions, including a vacancy tax intended to incentivize owners of housing property to bring units back on the market and discourage speculation.” As if all agree without question that compelling owners to use their property in ways they hadn’t intended to is a legitimate role for government.

Let’s forget for the moment the property rights question and look at the experiences in other cities.

Vancouver, British Columbia, enacted a vacancy tax in 2017, and while “revenue has exceeded expectations,” Bloomberg reported last year, the “rental inventory hasn’t budged.” In Melbourne, Australia, “the take has been tiny” after the tax was implemented in 2018.

“In neither city is there compelling evidence that homes have gotten any more affordable.”

Brendan Coates, economic policy program director at the Grattan Institute in Melbourne, told Bloomberg that “vacant property taxes fall into the bucket of something that sounds good but won’t make that big a difference in practice.” It is merely “a distraction from the main game.”

Or in other words, a shakedown, a path to additional revenue, which is not the stated objective of a vacancy tax.

Oakland established a vacancy tax in 2018 and its supporters in city government naturally defend it. Yet homelessness in the city has almost doubled over the past five years, while rental rates are increasing. A one-bedroom apartment costs 16% more this year than last, while the cost of a three-bedroom has jumped by 34%. Rental of a three-bedroom is higher today than it was when the tax was passed.

This failure is why a recent East Bay Times editorial could say with confidence that a “​​vacancy tax is a solution in search of a problem.”

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Subscribe to our newsletter:

This field is for validation purposes and should be left unchanged.
Scroll to Top