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Challenge to San Francisco’s ’empty homes tax’ moves forward

City Attorney David Chiu speaking in front of a California flag.
City Attorney David Chiu’s office will have to defend Prop. M, the Empty Homes Tax, in court this year after a judge ruled against his request to dismiss a recent lawsuit against the measure. | Camille Cohen/The Standard

The San Francisco City Attorney’s Office will have to go to court this year to defend a voter-approved tax on vacant homes, a judge recently ruled.

Prop. M, also known as the Empty Homes Tax, was approved by 54.5% of San Francisco voters in 2022, but it immediately faced a legal challenge from a group of property owners who argue that the measure violates their constitutional rights to keep properties vacant.

The opponents of the new tax, who include the San Francisco Apartment Association and the San Francisco Association of Realtors have since been engaged in a yearlong back-and-forth with the City Attorney’s Office.

In the city’s latest move, City Attorney David Chiu argued that the lawsuit should be dismissed since the tax has yet to be collected, saying the courts have normally upheld a “pay first, litigate later” precedent when it comes to tax disputes. Superior Court Judge Charles Haines disagreed with that assessment. In a Dec. 20 ruling, Haines allowed the suit to proceed and ordered Chiu’s office to continue responding to the plaintiffs’ legal arguments by Jan. 12.

As things stand, the tax is slated to go into effect in April 2025 and would only apply to buildings with three or more units that have been vacant for longer than 182 days within a year.

The idea behind the proposal was to give landlords an incentive to rent empty properties and ultimately help push housing prices down by bolstering San Francisco’s sparse housing supply. Revenue from the tax was meant to go to subsidize rents for seniors and low-income households and the development of affordable housing projects.

The tax measure, championed by Supervisor Dean Preston, charges property owners between $2,500 and $5,000 per vacant unit, depending on its size, during the first year. The tax rises to $20,000 by the third year for every unit that has been standing empty for longer than six months. It does not apply to single-family homes, leased properties or homes intended for short-term rental to tourists and other visitors.

A report conducted by the Budget and Legislative Analyst’s Office estimated that some 40,000 units sit empty in San Francisco, which has for years been grappling with a dire housing shortage. But a 2022 report by the Controller’s Office estimated that there are only about 4,000 units out of 7,000 longer-term vacancies potentially affected by the new tax, since not all of those units are for-rent. 

The office estimated that the tax would generate $9 million in its first year and $15.4 million by 2026.

The Empty Home Tax was broadly modeled on the commercial vacancy tax passed by voters in 2020.