Cities are taxing vacant homes to create more homes — Quartz

San Francisco could soon become the last city to tell landlords to put vacant homes on the market or pay. On February 8, City Supervisor Dean Preston and his supporters submitted a proposal to voters to decide in November whether the city should create a new vacancy tax, a measure now being adopted around the world to encourage potential homeowners to put more homes on the market.

If passed, the measure will impose a $2,000 to $5,000 tax on units that have been unoccupied for more than six months, ostensibly freeing up more rental units in a city where they are in short supply. The San Francisco City Legislature estimates the new tax could bring 4,500 new units to market over two years. The proposed new tax would exclude single-family homes and duplexes and only apply to vacant units in multi-unit buildings.

San Francisco faces a shortage of 82,000 units, according to the Local Governments Report (pdf) on the region’s housing needs. As one of the most expensive housing markets in the United States, the median monthly rent increased 10% to $1,959 between 2015 and 2019.

Other major cities, including Oakland, Paris and Vancouver, impose financial penalties on empty homes. These can be vacant apartments in a multi-family building, second homes and seasonal properties or, in some cases, speculative real estate purchased by foreign investors. More recently, Spain introduced a national vacancy tax as part of its new “right to housing” law.

Yet there is little evidence on the effectiveness of vacancy taxes in increasing the supply of available housing in competitive markets. Where vacancy taxes have been introduced, according to housing policy analysts, new homes are coming onto the market and new tax revenues are being generated for local governments. But even if successful, vacancy taxes have not been enough to bring prices down significantly in one city. To keep up with demand, cities need more new construction.

Do vacancy taxes fill empty units?

A vacancy tax attempts to increase the supply of housing in two ways. First, it incentivizes the owners of these vacant homes to put them on the market, either for rent or for sale, which adds to the overall supply of active homes and ultimately helps bring prices down. Second, it generates tax revenue to fund more affordable housing. If landlords choose to leave the units vacant and pay the tax, those revenues go to the city and are invested in other affordable housing initiatives.

In its first year, the Oakland Levy raised $7 million which was dedicated to a homelessness commission, a mobile outreach team for homeless residents, and housing subsidies. In the Canadian province of British Columbia, home to Vancouver, one of Canada’s most expensive housing markets, a vacancy tax has raised $231 million for three-year regional housing plans .

Lessons from Vancouver’s vacancy tax

In 2017, Vancouver introduced a vacancy tax alongside the BC regional government. The city’s “empty house tax” levied 1% of property value (since increased to 3%) for residential properties unoccupied for at least six months of the year, with some exemptions. The regional government tax is 0.5% for Canadian citizens and 2% for foreign owners.

Three years later, it appears that the tax appears to have had a positive, albeit moderate, impact on housing supply. A city report found that the number of existing vacancies (pdf) in Vancouver increased from 2,200 to 1,600 between 2017 and 2020 after the tax was implemented. An estimated 800 homes were sold or rented as a result. An analysis (pdf) of the British Columbia tax by the Ministry of Finance found that it “helped” add 18,000 rental units to market in the Greater Vancouver area between 2019 and 2020.

Shane Phillips, a housing expert at UCLA’s Lewis Center for Regional Policy Studies, and other observers largely agree that the policy has had a positive impact, but hasn’t changed housing market fundamentals. “That tax has raised millions of dollars a year, which is great,” says Phillips, “but in terms of making lots of homes available for long-term rental, it hasn’t done much. .”

What is needed, he says, is new construction. And the vacancy tax is at best a tool available to city leaders to increase overall housing supply. “It’s helpful on the margins and can generate more revenue,” says Phillips. “But it’s not a substitute for building more housing.”

In cities like San Francisco, where new housing construction has been insufficient for decades, a vacancy tax will not stimulate new supply enough to reduce prices significantly. But Bay Area cities are picking up the pace of new construction. Oakland and San Francisco now plan to build thousands of new homes over several years. But they will face high construction costs and land-use restrictions, and without more dramatic changes new housing is unlikely to arrive fast enough to bring prices down for those struggling to afford it. pay for housing.