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SF keeps trying to tax away vacancies — but just can’t get it right

An empty homes tax was struck down by a judge, and an ordinance for storefronts has fallen flat.

The image shows two tall buildings with many windows. The building on the left is darker, and the one on the right is lighter. Overhead power lines crisscross the scene.
The city wants to put its massive amount of unused real estate to work, but keeps passing policies that fail to do the trick. | Source: Amanda Andrade-Rhoades/The Standard

For years, San Francisco has had one overarching solution to the problem of vacant storefronts and apartments. Tax them at a high enough rate, and the owners will be pressured to rent them out for less, the thinking goes. 

Voters agreed with this logic when they passed the retail vacancy tax in 2020 and the empty homes tax in 2022. But years later, the former appears to have made little impact, while the latter was struck down by a judge as unconstitutional.

The Board of Supervisors on Tuesday took the added step of burying the empty homes tax further, introducing an ordinance to suspend it for a calendar year while San Francisco appeals the ruling. 

The empty homes tax was slated to go into effect in April and would have applied to buildings that have three or more units vacant for more than six months within a year. Owners would be charged between $2,500 and $5,000 per unit, depending on size. 

A woman in a black robe sits beside a man in a suit at a wooden podium, with flags in the background. The scene appears formal and official.
One of the first orders of business of the new Board of Supervisors was to explore suspending an empty homes tax passed in 2022. | Source: Amanda Andrade-Rhoades/The Standard

A coalition of property owners quickly challenged the law and sued the city.

An initial court decision from Judge Ronald E. Quidachay found the tax invalid for multiple reasons, but primarily because it violated the Takings Clause of the U.S. Constitution, which prohibits governments from forcing a property owner against their will to share a property on which they reside.

That decision was appealed by the city attorney’s office, which is scheduled to present opening arguments to the appellate court next month. 

To avoid the headache of being legally forced to collect a tax that has an uncertain future, the city is recommending that the board suspend the tax. Should the Court of Appeals rule in the city’s favor, the tax would be reinstated and applied the year after. 

A person on a bike wearing earbuds rides past a closed store with "DJ Gear & Lighting" signage. In the background, a worker pushes a cart near an orange barrier.
A retail vacancy tax passed in 2020 has had mixed results. | Source: Justin Katigbak for The Standard
A blue sign attached to a building reads "Mosser Companies" with their web address, phone number, and "Lease Now." The perspective shows ornate structural details and part of a sign saying "Apartment."
The vacant homes tax would have applied to the 2024 tax year but was struck down in court. | Source: Morgan Ellis/The Standard

Meanwhile, the retail vacancy tax — which initially charged landlords $250 per foot of street frontage that was empty for more than six months — relies on both property and business owners to self-report before they pay.

If owners do not report, then they are not included in the data and are not subject to fines. Essentially, the law is asking people to snitch on themselves, but without any penalty for lying.

Even though the law was meant to juice occupancy, critics say it has a detrimental effect on businesses at large, since even during pre-pandemic times, it took at least a year to get occupants into retail space because of the complex process of lease negotiation, remodeling, permitting, and construction.

Proceeds collected for the commercial vacancy tax program go toward the Small Business Assistance Fund, which has brought in about $3 million, according to a report by Gazetteer SF, despite the ordinance’s authors saying it would generate as much as $5 million annually. 

Data from the city treasurer’s office support the notion that the tax has failed to solve the city’s empty storefront problem. 

In 2022, there were more than 3,100 submissions and 182 reported vacancies. A year later, the number of submissions went down by 26%, with only 2,350 commercial parcels reporting their vacancy status. Of those, 100 self-reported to be vacant. A brief walk around the city provides a counterpoint to that figure.