San Francisco and Berkeley’s Proposed “Empty Homes Tax” on Vacant Residential Units

Home agents are using a calculator to calculate the loan period each month for the customer.

This November, San Francisco and Berkeley voters will see the “Empty Homes Tax” initiatives (EHTs) on the ballot for consideration. If passed, the EHTs would impose a substantial tax on each person who maintains a “vacant” “residential unit” in San Francisco or Berkeley, as those terms are defined thereunder. San Francisco and Berkeley’s Empty Homes Tax is substantially similar, both in purpose and scope. San Francisco’s stated purpose underlying its proposed EHT is to “disincentivize” prolonged vacancies in San Francisco housing units, and to “raise funds for rent subsidies and affordable housing.” Berkeley’s stated purpose is also to “disincentivize” vacancies and to return vacant units to the housing market to ensure “long-term affordability.”

The Affect of the Empty Homes Tax

The reach of the EHTs would be broad. Most residential units in San Francisco and Berkeley would be subject to the EHTs, including houses, apartments, mobile homes, a group of rooms, or “a single room that is designed as separate living quarters.” Not included in the EHTs are certain types of short-term housing, such as those units intended for transient use (e.g., hotels), and residential care facilities. The EHTs also exclude certain owners of buildings with two or fewer residential units, and Berkeley’s EHT excludes properties of four or fewer units that are owner-occupied, if that occupying owner is age 65 or over and meets certain lower-income requirements.

If a property is subject to the EHTs, an owner must keep that property’s units occupied for at least 182 days a tax year (consecutive or non-consecutive) to avoid the tax under the EHT. However, not just any occupation will do. The owner may occupy the unit themselves as their primary residence during this period, provided it is the dwelling where they claim the homeowners’ property tax exemption. If they do not, then the unit is considered vacant during their occupancy for purposes of the EHTs. The owner may also lease the unit to a “bona fide” lessee to avoid the imposition of the tax under the EHTs. However, a “bona fide” lessee does not include anyone in the “owner’s group,” which is defined as current and prior owners, relatives, and “affiliates” of current or prior owners. In practice, this would mean that the owner may not avoid the EHTs by living in the unit as the owner’s second residence. An owner is also subject to the tax if the owner wants to lease to their child or parent, whether at a discount or market rent. Under both of these scenarios, the unit is considered “vacant” for purposes of the EHT. Finally, there are other narrow circumstances under which a unit may be vacant, and not subject to the EHT for instance: (1) when the unit is undergoing certain types of construction, (2) the vacancy is a result of the occupying property owner’s death, or (3) there’s some unforeseen event that requires vacancy, such as a natural disaster. Berkeley’s EHT also includes an exception for smaller owner-occupied properties, where that owner affirmatively indicates that a single unit at that property is being used by the owner or a relative for no consideration.

Upon the city’s determination that a unit is vacant for more than 182 days, the tax under the EHTs is imposed. The taxes under the EHTs are initially a fixed amount, based on the size of the unit, which scales up for consecutive vacancies. For instance, under San Francisco’s EHT, if a residential unit smaller than 1,000 sq. ft. is vacant during the 2024 tax year, the tax is $2,500. If that same unit is vacant in the 2025 tax year, the tax is $5,000. If it is vacant in the 2026 tax year and subsequent tax years, the tax is $10,000 (which would be inflation-adjusted thereafter).

San Francisco and Berkeley’s desired imposition of these onerous taxes may be well-meaning, but the EHTs appear to be fraught with legal infirmities, including potential infringement on an owner’s right to go out of the landlord business, the constitutional right to travel, and privacy rights. While voters will have the first word this fall as to whether San Francisco and Berkeley owners are subject to the EHTs, if the EHTs come under legal challenge thereafter, the courts will have the last.

Contact A Land Use Attorney Today

This information is provided by San Francisco real estate attorney Emily Brough. If you are curious or concerned about the application of the Empty Homes Tax or any other regulation on a property you own, you should contact the experienced attorneys of Zacks & Freedman, PC for guidance.