Vacancy Tax Is Back

San Francisco Supervisor Dean Preston proposes a vacancy tax after a "bombshell" report from the city shows 40,000 "vacant" homes.

Every news article last week was like: 40,000 homes just sitting empty in San Francisco!

We’ve already gone over how vacancies work. SF’s Legislative Analyst Office (LAO) published a report showing 40,000 vacant homes in San Francisco, citing the numbers from the Census Bureau’s American Community Survey (ACS) 1-year 2019 report. Coinciding with that report, a plan to tax these homes was unveiled by Supervisor Dean Preston. To be clear, the vacancy data is neither a bombshell nor new. It’s been publicly available since 2020, but most people aren’t savvy about data.

As for the validity of the report—it’s mostly fine. The census bureau conducts a series of estimates in which they sample a representative population. There’s two types of estimates: the 5-year survey, which is usually more accurate but less recent, and the single year survey which is more recent but more prone to inaccuracy for smaller geographies. I mapped out the vacant housing data of the 5-year survey, conducted from 2015-2019, if you’re curious.

Both the 5-year Census survey and the 2020 decennial Census count states that San Francisco’s vacancy rate is 8.5%, or roughly 35,000 homes. The 1-year 2019 survey states it’s 40,000 homes at 10%, which is the dataset the SF LAO decided to use. But whether it’s 35k units or 40k units; 8.5% or a 10% vacancy rate, these aren’t substantial differences. These are comparatively high numbers for a city with a housing shortage as severe and longstanding as San Francisco’s. A 10% vacancy rate is actually a pretty ideal vacancy rate, but the problem is that it doesn’t match up with SF’s extremely high housing costs. And that’s partially because of the 40,000 units reported vacant, only ~19,000 are actively on the market.

The east side census tract of SOMA is quite remarkable in that 14% of the 1,500 homes there are vacation or seasonal housing according to the 5-year ACS. And there’s many homes on the Westside and Inner Mission that are Sold, But Vacant, likely due to renovations. Undoubtedly there’s a lot of construction in the other categories as well. It’s hard to get a good sense of the specifics because the Census is vague, but thankfully the Census is already releasing much more detailed causes of vacancies beyond the 7 vague categories that I will cover in another article soon.

Anyways, vacancy taxes are good. If structured similarly like Vancouver’s where the tax kicks in at 6 months of vacancy. It will certainly push property owners to put their units back onto the market or pay a tax, especially in a state that caps property taxes. Land banking on derelict vacant homes while paying criminally low property taxes is a pervasive issue. Taxing those properties will force those owners to try to collect income as soon as possible and the wealthy ones with vacation homes will simply absorb the tax which is free money. So I’d certainly vote yes if it were on my ballot.

But I admittedly find the whole thing somewhat ironic. I support increasing the supply of housing on the market but Preston is among the loudest proponents of the belief that building more market housing raises rents and fuels gentrification, through rent gaps and induced high income residents. So it’s not logical to me to then push a tax that would throw many units of market housing back onto the market, espesially if they’re the non-rent controlled luxury units that the tax’s supporters allege are empty. Undoubtedly Preston and proponents are motivated more by their lens of the artificial scarcity I spoke on in my last article, than the fundamentals about housing economics, but the results are the same.

Now I’m not a reactionary so I evaluate proposals on its merits and not whether its from Team A or Team B of SF politics. The proposed vacancy tax seems good (full ballot language is not yet visible) and something I hope SF voters will support. We need to treat the housing crisis with the same level of urgency we treated housing during WW2. That means everyone who owns housing should be expected to contribute their housing if they have any, and inefficient uses such as pied-à-terres and vacant complexes should be taxed.

Of course yimbys have been bellyaching all over Twitter because Dean Preston decided to add a silly exemption to single-family homes and duplexes from the vacancy tax. For reference, that’s about 24% of all vacant housing units in the ACS 1-year 2019 survey and the bulk of long-term vacancies in the city according to the 2020 experimental data. Preston’s defense is that private equity speculators didn’t target single family homes in San Francisco like they did in other cities. Which is not meaningfully true nor is it relevant (Federal Reserve report finds foreclosure corporate buyers did target single-family heavy southeast SF).

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Obviously, the real reason is that the tax’s proponents believe exempting homeowners and very small landlords will increase its likelihood of passing.

I don’t agree but I’d just be honest about it. Homeowners actually hate living beside vacant housing or housing being used for seasonal purposes and would happily vote to tax them. Preston has opted for this political strategy before by exempting his real estate transaction tax increase to transactions below $10 million, thereby exempting homebuyers and small multi-families. I guess in a city of high income people who think they’re middle class it makes political sense to pitch to homeowners that they've got more in common with tenants than say a big developers and landlords via these exemptions. But Oakland and Vancouver, B.C. made no such exemptions and their vacancy taxes passed with overwhelming approval despite a far greater share of working class single-family and duplex homeowners in Oakland.

Twitter YIMBY suspicions that this is a tactic to somehow monkey wrench San Francisco’s upcoming 80,000 unit housing requirements make no sense, either. The housing allocations are based on unit counts and not occupancy status. If this tax activates the 5,000 units back onto the market Preston estimated it would, then that’ll be 5,000 on top of the 80,000 new homes requirement handed down by the state. Win-win for everyone.

Some people will oppose the vacancy tax purely because they don’t like Dean Preston, and Preston’s coalition of progressives are heavily anti-YIMBY. I wouldn’t be surprised — based on some people’s online rhetoric — if they wanted yimbys to oppose the tax because it fuels the culture war and political organizing. Similarly, there’s little political incentive for SF YIMBYs to support the tax because their support will be ignored at best and specifically for moderate YIMBYs there’s plenty opportunity in opposing Preston and the progressives.

San Francisco is a political cesspit that feeds off itself — news at 11. (Except Matt Haney, interestingly enough). But outside of San Francisco, it’s not really a partisan issue. For example, South San Francisco activists drafting their vacancy tax had no such partisan issues and its leaders included left YIMBYs too.

My honest take is that if you’re swayed by rhetoric and who’s backing what as opposed to the real world results of a proposal, then you’re just as reactionary as the side you oppose. I don’t care about anti-supply rhetoric from Preston, or the DSA, or who says what on Twitter or 48 Hills when it comes to the vacancy tax. My interests are purely about making housing affordable, abundant and accessible however I can. Even if that means voting for an idea that came from someone I don’t agree with. That’s not remotely hard when you care about outcomes, not debates.

In my view, the vacancy tax is good. There’s been no studies suggesting harm caused by vacancy taxes that I’m aware of. A study on Taiwan suggests it decreased home price appreciation through added supply and analysis from Vancouver suggests it helped reduce thousands of long term vacancies. If you believe that increasing the supply of available housing lowers the price of housing and puts people who otherwise would not have had a home into a home, then what argument is there against taxing housing that is both empty and unavailable?

San Francisco needs more “vacant housing” but the kinds of vacancies needed are on the market, short term and under construction vacancies, not secondary homes and derelict properties. If organizing for this tax is not something you want to invest time into then that’s perfectly fine, but I think it’s an easy yes vote.

If 14% of homes in that SOMA southeast tract are secondary homes, they ought to pay a tax. So should the millionaire homeowners converting their duplex units into leisure rooms around Guerrero Street and Noe Valley who are needlessly exempt. If we’re going to get mad at SF supervisors for voting down 500 homes at 469 Stevenson Street on the basis that more housing is the solution to our housing crisis, then we have to encourage each and every home as a primary residency for people. Or fine them.

Lastly, a vacancy tax means we can stop talking about vacancies.

1. https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/economic-insights/2018/q3/eiq318.pdf (Page 12).