No on Proposition M
New property tax on unoccupied housing
What is it?
Proposition M is a citizen signature initiative ordinance which will impose a new tax on apartments which are vacant for longer than 6 months.
Fiscal impacts
This tax has the possibility of raising $20 million in tax revenue, but that is only if the tax is ineffective at changing the behavior of large landlords. If the tax does what the proponents want it to do, then the actual tax revenue will be much smaller because landlords will either exit the market, find alternative uses for long-term vacant units, or find someone to rent the unit. If this happens, the tax will generate no revenue.
The penalties for keeping a unit vacant are steep — climbing to $20,000 per unit by 2026.
Why is this on the ballot?
The San Francisco Democratic Socialists and Supervisor Dean Preston collected the requisite number of signatures to place this new tax on the ballot.
- Sponsor: Maya Chupkov and Shanti Singh
- Placed on ballot by: Signature collection
Why vote No?
There are many reasons to vote No on Prop M.
In short: our vacancy rate is already too low, and this tax will not just drive up rents, but will also make it harder to build new housing.
Based on bad economics
Proponents of Prop M believe that San Francisco should have a 0% vacancy rate. This might sound good (all homes occupied! nobody is homeless!), but it means that no one can ever move because all of the homes are taken. Low vacancy rates drive up the cost of rent because renters are competing against fewer units.
Here's a simple thought experiment: Say there are ten people who want to move to San Francisco and there are 20 empty homes available for them. This means that for every one renter there are two good choices, and they don't need to outbid anyone in order to find a place to live.
Now imagine if there were just 10 empty homes for those ten people — some people will want the same units and will be willing to pay more for a particular unit. Every person ends up housed, but they all end up paying more because they're competing with each other.
Now imagine there are only 5 empty homes for those 10 people. Not only will five people fail to find a place to live, but the five who succeed will have to pay dramatically more for their home. 10 people bidding on five homes always drives prices up and results in some people not having a place to live.
The only way to get everyone a good home at a good price is to have a lot of homes, which means accepting that some will sit vacant.
Economists estimate that a healthy vacancy rate for a well-functioning city is between 5% and 8% (and some estimate as much as 10%!). At our current vacancy rate of around 3%, we should, instead, be trying to drive vacancy rates UP, not down.
Campaign based on a lie about the number of vacant homes
The Democratic Socialists have been repeating the debunked lie that there are over 40,000 vacant homes in San Francisco. In reality, the US Census shows that the vast majority of these homes are vacant temporarily because:
- Someone just moved out and it's actively listed for rent
- Undergoing maintenance or renovation
- Listed for sale
- Sold, but not yet occupied
- Held by families for seasonal use, and never intended to be rented either as an apartment or AirBnB
If you trust the US Census (which you should), that leaves about 11,000 homes held vacant for longer than six months.
| Vacancy reason | # of homes |
|---|---|
| For rent | 9040 |
| Rented, not occupied | 2123 |
| For sale only | 1072 |
| Sold, not occupied | 5589 |
| For seasonal, recreational, or occasional use | 7188 |
| For migrant workers | 13 |
| Other vacant | 11447 |
Data source: US Census ACS 5-year 2020
So while the 40,000 vacant unit number is a deliberate misrepresentation of the US Census data, there are still some homes that stay vacant for a relatively long time.
But this tax won't apply to the vast majority of these vacant homes, because most units held vacant are single-family homes which this tax exempts! Large apartment owners simply do not intentionally hold rentable units off the market — that costs them a lot of money!
Ineffective tax
This tax will be ineffective at achieving its stated goals: bringing long-time vacant apartments onto the market.
Land owners who are already holding vacant homes off the market presumably have a reason to do so. They lose money every month by not offering a unit for rent. A new tax on their vacant unit doesn't change these economics — they're still losing money on the unit (albeit, slightly more money).
If landlords can't be taxed into offering their vacant unit for rent, then this new tax will raise some revenue until those owners figure out how to either offload their asset (sell their home) or restructure it into a different legal fiction that insulates them from the tax.
So this tax won't raise considerable funds, nor will it incentivize landlords to rent vacant units. But it will introduce new, costly bureaucracy and a new surveillance tool for City Hall.
America is at a historically low vacancy rate
The US Census bureau reported earlier this year that America is at a historically low vacancy rate — just 5.8% nationwide. San Francisco's vacancy rate is lower, still, at around 3%.
Attempting to shrink an already historically low vacancy rate will only result in higher prices as slack is removed from the rental market.
Marginal disincentive to building housing
Finally, this tax not only doesn't bring existing vacant units onto the market, it also makes it less likely for new homes to be built!
In economics, this is called a marginal disincentive — the tax presents new risk and a new cost on home builders that need to finance their project. The added uncertainty and cost will be passed on to the bank, which will demand higher interest rates to account for the risk, which may make an entire new apartment building impossible to finance.
Proposition M will cause homes to not get built. Vote No on Prop M.