Should SF and Berkeley Tax Empty Homes, Following Oakland's Lead?

Housing remains a central issue on Bay Area ballots this year as local governments continue to grapple with the ongoing affordability crisis. In San Francisco and Berkeley, voters will get the chance to weigh in on measures that would tax vacant homes. They’re pitched as tools to help alleviate the housing shortage by incentivizing landlords to rent unoccupied units while raising money for housing programs and other city services. Opponents question whether they’ll have their intended effect and argue they could hurt small landlords.

San Francisco and Berkeley are following on the heels of other cities, including Washington, D.C.; Vancouver, British Columbia, Canada; and, locally, Oakland, which adopted the strategy in 2018 and is starting to see some of the results.

San Francisco's Proposition M

San Francisco’s Proposition M, called the Empty Homes Tax Ordinance, would apply to residential buildings of at least three units with vacancies of more than about six months. Revenue would fund rental subsidies and affordable housing.

“The phenomenon of empty homes has got to be part of our discussion of our city’s housing crisis,” said Supervisor Dean Preston at a recent Board of Supervisors meeting. The primary goal of the measure is to prioritize housing people over investment income. “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,” he said.

Preston points to a report he commissioned from the Budget and Legislative Analyst that found the number of vacancies in the city shot up 52% percent since 2019, to over 60,000 empty units. At 15% percent, San Francisco’s vacancy rate was the highest of any major city in the analysts’ comparison.

“The dramatic increase in two years shows really the dire need for policy intervention to do whatever we can to turn these empty units into places where people can live,” Preston said.

The BLA made clear that many of those 60,000 vacant units are not immediately available for rental. They might be uninhabitable, for instance, under renovation, or rented before tenants have moved in.

Opponents say that, for that reason, the numbers in the report can mislead voters about the impact of the tax. They point to another analysis from the city controller (PDF) just last month that estimates only about 4,000 vacant units would actually be subject to the tax.

The San Francisco Apartment Association opposes the measure, arguing it would disproportionately hurt small landlords. Charley Goss, the association’s government and community affairs manager, said half of SFAA’s members own between one and four units. “People aren’t intentionally leaving their units vacant,” he said. “There are real market conditions due to COVID and other reasons why a unit might be vacant for a period of time.”

Goss argues landlords will pass on the burden of the tax to renters. “We have a fear that this will increase living costs in San Francisco in a time where everything’s really expensive already,” he said.

Supporters like tenant organizer Shanti Singh hope the tax will curb real estate speculation, and what she calls “speculative evictions,” referring to the displacement of tenants through the Ellis Act.

“Housing is being flipped and it’s sitting vacant in the meantime, which is really just adding insult to injury,” said Singh, a member of the San Francisco chapter of the Democratic Socialists of America, which championed the legislation. “That was a huge driving concern for a lot of the tenant organizations who have mobilized around this measure.”

The tax would go into effect in 2024 and range from $2,500 to $5,000 per unit, depending on size. Over time, the maximum tax would reach $20,000 annually for owners who keep the same unit vacant for a third consecutive year. The city controller’s best estimate finds that by 2026 the tax would bring in around $15 million annually (PDF).

The measure would create a Housing Activation Fund, which would provide rental subsidies for lower-income renters and people over 60 and fund the acquisition, rehabilitation and operation of multiunit buildings for affordable housing.

The ordinance exempts vacant single-family homes and duplexes, a decision that could increase support from homeowners but has also drawn criticism.

Local urban planning think tank SPUR is encouraging a vote against the measure in part because of its exemptions. Senior policy adviser Sarah Karlinsky said leaving out single-family homes and duplexes weakens the policy. “There are going to be one- and two-unit owners that hold their units off the market,” she said. “From my perspective, there’s no difference between that and larger buildings.”

Karlinsky also questions why the measure would fund rental subsidies for all people over 60, regardless of income.

Berkeley Measure M (PDF)

Like San Francisco’s measure, Berkeley’s Empty Homes Tax Ordinance would tax property owners who keep a residential unit vacant more than about six months in a year.

The 10-year tax put forward by Vice Mayor Kate Harrison is designed to incentivize landlords to rent empty units and is projected to raise between $4 million and $6 million a year.

“We do not have enough housing, and housing prices are unbelievably high and yet we have these units that are perpetually vacant,” Harrison said. “Our No. 1 goal here is to get units back on the market.”

Harrison estimates about 700 vacant units in the city will be subject to the tax. She’s particularly worried about whole buildings that are sitting empty, which can become derelict and require city-funded maintenance.

Krista Gulbransen, executive director of the Berkeley Property Owners Association, which opposes the measure, agrees owners who keep entire large buildings empty should be pressured to bring them to market. “If you have a multiunit building and all the units are vacant, something’s wrong there,” she said.

Gulbransen opposes the tax because she fears it could hurt small landlords, though the measure includes exemptions designed to protect them. The measure does not apply to owner-occupied properties that are four units or fewer. It would be suspended as long as the COVID moratorium is in place and make exemptions during certain periods, like when permit applications are pending.

Still, Gulbransen sees the measure as “a solution looking for a problem.” She said it’s coming at a time of great frustration for property owners, given they’re still bound by the eviction moratorium. “We’re seeing this shift of people just getting really fed up with the increased regulations,” she said. “The sentiment against government officials is pretty bad in housing right now.”

Gulbransen said BPOA surveyed its members and 75% of respondents indicated they would take their unit off the rental market if the measure passed.

The tax starts at $3,000 a year if an owner has a single vacant property, and $6,000 for any additional vacant units they own. If the property stays vacant for two or more years, the rates double.

As in San Francisco, opponents argue landlords will pass the increased costs on to tenants.

They also take issue with the fact that, unlike San Francisco’s proposed tax, revenue from Berkeley’s would not be set aside in a special fund for housing. Instead it would go to the city’s general fund, because Harrison wants it to be available to mitigate any costs associated with vacant properties, like blight.

Oakland's experience

In 2018, Oakland created a similar policy. “We were the first city in California to contemplate such a thing,” said Oakland City Councilmember Rebecca Kaplan, who brought forward the plan. “The goal of the vacant property tax is to address homelessness from both ends,” she said, referring to the dual aim of opening up more housing while raising money for homelessness services.

When all funds are collected, the city expects to bring in a total of nearly $6.5 million the first year of the tax and a little over $8 million the following year.

Kaplan says so far the city has used the money to buy dorms and hotels to house unhoused residents, as well as to build some tiny-home villages and fund staff and support services.

Implementing the tax hasn’t always gone smoothly. After property owners flooded city council meetings to air grievances, the council temporarily slashed the tax in half for most owners and added a slate of new exemptions.

Unlike the San Francisco and Berkeley policies, Oakland’s tax applies to both residential and commercial properties and empty lots. It ranges from $3,000 to $6,000.

The number of units taxed dropped from about 1,700 in 2019 to about 1,300 in 2021. Rogers Agaba, Oakland’s revenue and tax administrator, attributes that to a number of factors, including owners putting properties into use, becoming newly eligible for exemptions, or selling or donating their land to the city.

Kaplan sees the downward trend as a sign the tax is having its intended effect. “That means those properties are in use serving the community,” she said.