San Francisco Vacant Residential Unit Tax Proposition Passes

Proposition M, a ballot measure in San Francisco that adds a vacancy tax on multifamily units, reached the threshold to pass on Monday.

Introduced earlier this year by the Democratic Socialists of America and Faith in Action Bay Area, Proposition M, also known as the Empty Homes Tax, will tax property owners who have at least three units that have been vacant for more than six months. The tax amount is dependent on unit size but will be between $2,500 and $5,000 per empty unit for the first two years of vacancy, with up to $10,000 for any at three or more years. The tax will begin starting in January 2024, with the City Controller estimating that 4,000 units would apply to the vacancy tax when started, generating around $9 million in its first year and $15.4 million by 2026 due to many landlords being unwilling to let them out.

The tax money will then go to a housing activation fund to help pay subsidies for elderly and needy residents, as well as buy more buildings in the city for housing. Proponents stressed, however, that tax revenues was not the aim of the Proposition, but to reduce the vacancy rate in the city.

Slow counting delayed the results last week. But with most votes counted on Monday, the tally for Prop. M stood at 137,429, or 54%, to 117,788, or 46%, enough for it to pass.

Proponents celebrated Prop. M’s passage, including backer Supervisor Dean Preston. Preston said on Monday that “With most of the ballots now counted, the Empty Homes Tax has passed with a decisive mandate from San Francisco voters, despite being outspent by a margin of 3 to 1.

“It’s clear that people are fed up with tens of thousands of homes sitting vacant while thousands of people are sleeping on the streets. I’m proud that San Francisco will soon become the third city in the nation to seriously address vacant units through this progressive tax measure, and that the millions of dollars of revenue will go to rental subsidies for low-income seniors and more affordable housing. The folks behind this tax will be 100% happy if what happens is the city doesn’t collect a dime, because what it does instead is activates tens of thousands of homes for people who need homes.”

However, opponents of the new Proposition warned that the overall affected number of units was very low, and will actually affect very little of the current housing stock in San Francisco. And even those affected may even find loopholes around it as many other cities have found out.

“4,000 units if they’re lucky,” said John Thant, a housing researcher who focuses on the Bay area, to the Globe on Monday. “What a lot of these people will do is just slowly slide down the rental price until someone nabs it before the end of 2023. Those that aren’t taken will get ‘transitory renters.’ You know how people living in motels need to leave once a month in some areas to get around 30 day resident address laws? Kind of the opposite here. Someone will be in for a month and then reset the clock on the vacancy times. And that is just one way to get around it.

“A lot of cities with similar laws also  slightly changed zoning, had it commercially rented out, made it a vacation rental, and sometimes even had startups move in as an incubator for their new companies. This Proposition will ultimately not do much, since they aren’t incentivizing landlords to rent out at cheaper prices. There is some language that says that the Board there can raise those taxes, but again, that doesn’t mean anything when there are loopholes everywhere. Overall, there isn’t anything to really celebrate here.”

Prop. M is to go into effect on January 1, 2024.