San Diego Voters to Decide on Vacancy Tax for Second Homes in June Ballot

SAN DIEGO — Voters in San Diego will decide this June whether to impose a new tax on vacant homes, a significant policy question that could impact thousands of property owners and real estate investors. The ballot initiative, officially known as Measure A, proposes an annual tax of up to $10,000 on second homes that are not occupied on a full-time basis, with an even higher, unspecified levy slated for properties owned by corporations.

The measure aims to address the city's severe housing affordability crisis by encouraging owners of underutilized properties to either sell them or make them available on the long-term rental market. If passed, the tax would generate a new revenue stream purportedly earmarked for affordable housing projects and homelessness prevention services, placing San Diego among a growing number of North American cities turning to vacancy taxes as a tool to manage their housing markets.

This trend of vacancy taxes, seen in cities like Oakland and Vancouver, introduces significant complexity for property owners, particularly for businesses and individuals who hold real estate through LLCs or other corporate structures. What may seem like a straightforward tax on an empty home can quickly become a compliance nightmare. Our experience shows that these new local tax regimes often have intricate rules defining "vacancy," specific exemptions, and burdensome reporting requirements that can easily be missed, leading to steep penalties. Business owners who use residential properties for occasional corporate housing or as part of a diversified investment portfolio must now reassess their holding strategies and potential liabilities. Proactive planning is essential to navigate this evolving landscape. For guidance on how new local levies affect your overall obligations, the tax preparation and compliance team at C&S Finance Group LLC at csfinancegroup.com can help structure your assets to mitigate exposure and ensure you remain in full compliance.

At the heart of Measure A is the definition of a "vacant" property. Generally, such taxes apply to homes that are not a person's primary residence and are unoccupied for more than a certain number of days per year, often around 180 days. The specific details of San Diego's proposed measure, including precise vacancy definitions and a complete list of exemptions—which typically cover properties undergoing major renovation, those in probate, or owners undergoing medical care—will be critical for property owners to understand. The tiered nature of the tax, escalating for corporate-owned dwellings, signals a clear intent to scrutinize and penalize institutional or business investors holding empty residential units.

Supporters of the initiative, including various housing advocacy groups, argue that it is a necessary step to combat real estate speculation that has priced many local residents out of the market. They contend that thousands of homes sit empty for most of the year while the city's workforce struggles to find affordable places to live. By creating a financial disincentive to leave properties vacant, the measure could unlock a significant portion of the city's existing housing stock for renters or buyers, thereby easing pressure on the market.

Conversely, opponents, including real estate associations and groups representing second-home owners, have raised concerns about property rights and the measure's potential economic consequences. They argue that the tax unfairly penalizes individuals who have invested in the community, including part-time residents and "snowbirds" who contribute to the local economy through spending and property taxes. Critics also question the effectiveness of such a tax, suggesting it may not meaningfully increase the housing supply and could create a costly administrative burden for the city to track, verify, and enforce occupancy status.

San Diego is not the first major city to consider such a policy. In 2022, voters in San Francisco and Oakland passed similar vacancy tax measures. Vancouver, British Columbia, implemented its Empty Homes Tax in 2017. The results from these cities have been mixed. While Vancouver reported a decrease in the number of vacant properties after the tax was introduced, debates continue over the policy's direct impact on overall housing affordability. The experiences of these other municipalities provide a complex backdrop for San Diego voters, illustrating both the potential benefits and the practical challenges of implementation.

For small and mid-sized businesses, the stakes are particularly high. The provision for a higher tax on corporate-owned properties directly targets companies that hold residential real estate as part of their investment portfolio, developers with unsold inventory, or firms that maintain units for relocating or traveling employees. These businesses will face not only a direct financial hit from the tax itself but also increased administrative costs associated with tracking occupancy and ensuring compliance with the new regulations. The measure could also influence future real estate investment decisions in the region, potentially deterring corporate investment in residential property.

The outcome of the June vote will be closely monitored by other cities across California and the nation that are facing similar housing challenges. A 'yes' vote in a major city like San Diego could embolden other municipalities to pursue similar legislation, potentially signaling a broader shift in how local governments approach property taxation and housing policy.