San Francisco's attempt to tax empty apartments just hit a wall. A California appeals court unanimously ruled the Empty Homes Tax illegal, finding it conflicts with the Ellis Act — a state law that protects property owners' right to exit the rental business.
As Rob Luecke Jr wrote on r/bayarea (302 upvotes, 54K views, 114 comments): "SF voters passed the Empty Homes Tax in 2022, targeting apartments left vacant for more than 182 days. The tax would have started around $2,500–$5,000 per vacant unit and could eventually climb as high as $20,000 per year. But a California appeals court just unanimously ruled that the tax conflicts with the Ellis Act, which protects a property owner's right to leave the rental business. The tax was blocked before SF ever collected it."
What the Court Decided
The key issue: the Ellis Act gives property owners an unconditional right to withdraw their units from the rental market. The court found that taxing owners for keeping units vacant effectively penalizes them for exercising that right — which state law doesn't allow cities to do.
This ruling doesn't just affect San Francisco. Any California city considering a similar vacancy tax will need to reckon with this precedent. The decision was unanimous, making it harder to overturn on appeal.
What This Means for SF Property Owners
For property owners who were worried about vacancy penalties:
- No vacancy tax — the tax never took effect and now it's been struck down
- Ellis Act rights preserved — your right to withdraw units from the rental market remains protected
- Property values may stabilize — removing the threat of a $20K/year tax on vacant units eliminates a significant financial overhang
For buyers considering SF investment properties, this is relevant context. The risk of punitive vacancy taxes just dropped significantly.
The Bigger Question
As many in the Reddit comments noted: should owners be allowed to leave apartments empty indefinitely, or should they be taxed for not utilizing them? The court says the Ellis Act settles this — owners can exit the rental market without penalty. But the housing supply debate in San Francisco isn't going away.
Whether you're buying, selling, or holding property in San Francisco, understanding these regulatory dynamics is critical to making informed decisions.
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Source: SF Chronicle. As featured in NPR, USA Today, New York Post, and Brookings Institution.