San Francisco Chronicle
San Francisco’s vacancy tax facing challenge in court
A consortium of San Francisco landlords and property owners filed a lawsuit last week challenging the city’s new tax on vacant residences as unconstitutional and a violation of state law.
Proposition M, “The Empty Homes Tax,” passed by 54.5% of voters in November, imposes a tax on property owners for each unit left vacant for more than 182 days in a given year, starting in 2024. It applies to buildings with three or more units, not to single-family homes or duplexes.
The taxes start at $2,500 for units smaller than 1,000 square feet and go up to $5,000 for units over 2,000 square feet. They escalate over each subsequent year a unit is vacant, and later are adjusted according to the Consumer Price Index.
The measure’s goal was to help alleviate the city’s punishing housing crisis by motivating property owners to rent their units, according to proponents.
But the lawsuit said that was misguided.
“The government cannot compel a property owner to rent his or her property to third parties without violating” the Takings Clause of the U.S. Constitution, the lawsuit said.
Supervisor Dean Preston, who championed Prop. M, dismissed the case as a frivolous lawsuit filed by “real estate lobbyists” displaying “a great sense of entitlement when it comes to broadly popular and essential reforms.”
“San Francisco voters delivered a clear mandate that it is completely unacceptable to have tens of thousands of vacant homes as more than 4,000 people are living on our streets,” Preston said in a statement. City data shows 61,473 empty homes in San Francisco as of October, although that includes units that are on the market but have not yet secured tenants, as well as ones for sale.
The lawsuit was filed in San Francisco Superior Court by several small landlords, along with the San Francisco Apartment Association, a trade group which represents about 2,800 landlords who own more than 65,000 residential units in the city; the Small Property Owners of San Francisco Institute, a nonprofit that advocates for property owner rights; and the San Francisco Association of Realtors.
California law also would prohibit enforcement of Prop. M, the lawsuit said.
“The right not to offer residential units for rent is also enshrined in preemptive state law, specifically the Ellis Act,” it said.
The lawsuit said some San Francisco property owners choose to keep their rental units vacant because they wish to avoid the “burdens” imposed by the city on landlords, such as rent control, eviction laws, registration and notice requirements, relocation payment mandates and “severe restrictions on an owner being able to live in, or allow an immediate family member to live in, a unit they own if it is occupied by a tenant.”
In other cases, the suit says, landlords may wish to rent out their units but haven’t been able to find tenants in a changing market without slashing rents, which would lock them in to those lower rents “indefinitely” because of rent-control laws.
Although Prop. M offers a one-year exemption from the vacancy tax while property owners await building permits, the lawsuit noted that the city often takes far longer than a year to approve such permits.
Preston said the same groups made a similar argument when they sued to challenge a law he wrote to ban evictions during the pandemic. A San Francisco Superior Court judge rejected their arguments in August 2020 and upheld the anti-eviction law as “a permissible exercise” of the city’s power to regulate evictions “to promote public welfare.”