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Property owners sue San Francisco over voter-backed vacancy tax

San Francisco's new vacancy tax violates homeowner rights regarding how they manage their vacant properties, property owners claim.

SAN FRANCISCO (CN) — San Francisco property owners claim a new voter-approved law to tax people owning homes that remain vacant throughout the city violates their constitutional property and privacy rights.

A coalition of property owners sued San Francisco and elected treasurer Jose Cisneros claiming the law is an “illegal special tax.” They say the takings clause of the U.S. Constitution and state law bar the implementation of the vacancy tax, approved by voters in the November 2022 election.

Proposition M created a tax on property owners with vacant homes, with the goal to relieve unprecedented pressure on the housing market. It’s a new concept being explored by multiple cities around the state, many of which are among the most expensive when it comes to home affordability. 

The California Association of Realtors estimated around 1.2 million units, apartments and single-family homes may sit vacant around California. In San Francisco, vacancies are disproportionately in multifamily apartment complexes and in areas with older housing stock and higher rates of new construction. A Budget and Legislative Analyst report showed that 40,000 units sit empty in the city, although a report by the Controller’s Office estimated only about 4,000 units are potentially affected by the tax.

The tax takes effect in 2024 and will apply to owners of buildings with three or more units vacant for more than 182 days per year, taxing them between $2,500 to $5,000. The strategy could bring 4,500 units back on the market and generate as much as $38 million annually for affordable housing, according to city staff. Endorsed by local newspapers and organizations including San Francisco Labor Council and Faith in Action Bay Area, the tax is unique from other cities’ similar ordinances because it exempts vacant single family homes and duplexes. 

"Property owners cannot be compelled to rent a property they choose to keep vacant," the property owners say In their complaint filed in San Francisco Superior Court. They note the city has increased restrictive constraints on owners of residential rental properties for decades, including rent control, just cause eviction laws, relocation payment requirements and severe restrictions on an owner being able to live or house an immediate family member to live in a home they own if it is occupied by a tenant.

Plaintiffs also complain the pandemic and local eviction moratoriums prevented property owners from collecting rent in some situations. They say there are several reasons why property owners might keep a home vacant. Some want to hold a home open for a close relative, or they may have left the neighborhood due to crime rates or need to perform repairs on the home. 

“Despite property owners’ constitutional and statutory rights to keep their units vacant if they so choose, and despite the legal, administrative, practical and economic impediments to renting that many property owners face, beginning Jan. 1, 2024, Proposition M would seek to achieve indirectly the very result that the Constitution and state law prohibit the city from doing directly,” the plaintiffs say.

They claim Proposition M violates their right to privacy and landlords’ fundamental liberty interests and equal protection "insofar as it exempts units that are leased to strangers, but not units leased to the property-owners’ family members, from taxation."

The U.S. Supreme Court has held that property owners’ “power to exclude" has traditionally been considered one of the most treasured strands in an owner’s bundle of property rights under the takings clause of the U.S. Constitution. California’s First Appellate District has held that property owners cannot be compelled to continue renting property that they no longer wish to rent.

The plaintiffs also cite state's Ellis Act, which describes how no public entity can implement an ordinance or regulation that compels a residential real property owner to offer accommodations for rent or lease except for "guest rooms or efficiency units within a residential hotel.”

Nonprofit plaintiffs San Francisco Apartment Association — made up of more than 2,800 rental property owners who own more than 65,000 homes in San Francisco — and Small Property Owners of San Francisco Institute are also driving the lawsuit in addition to individual property owners. The San Francisco Association of Realtors, composed of more than 4,300 real estate brokers and agents, has also joined the litigation.

The plaintiffs want a judge to declare that the vacancy tax measure is unenforceable, and to issue a writ of mandate and temporary and permanent injunctions directing the city to refrain from enforcing it. They also request refunds of any money collected since the measure was approved.

San Francisco's mayor and county tax collector’s offices did not respond to requests for comment before deadline. In an email, city attorney spokesperson Jen Kwart said, “Once we are served with the lawsuit, we will review the complaint and respond appropriately.”

Categories: Consumers Financial Government Regional

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