Vacancy taxes: California’s latest crazy idea

This column has frequently recounted how ideas coming from California’s progressive politicians are not just destructive, but also how most result in outcomes diametrically opposite of what the left actually thinks they will have. Examples of this phenomenon are legion.

Take high speed rail (please). It was sold as a “climate change” project because, in theory,  it would reduce greenhouse gas emissions by getting cars off the road. But it turns out that the construction of the project — a massive endeavor requiring thousands of trucks, destruction of farmland and millions of tons of concrete — has been spewing massive amounts of CO2 into the air.

Even the independent Legislative Analyst has concluded that the project will be a net GHG producer for the foreseeable future. If, as predicted, the project is never completed, think of the environmental harm that will have been inflicted — all in the name of saving the planet.

Another example of counterproductive policies is the “recording tax” enacted a couple of years ago. In 2017, the Legislature passed a new $75 tax on real estate documents filed with each county’s clerk recorder. The revenue generated by the tax — over $250 million annually — is supposed to be dedicated to low-income housing programs. But the biggest irony of the tax is that it ignores basic economics. A tax imposed on real estate transactions to pay for programs to make housing more affordable is like prescribing leeches as a treatment for anemia.

The latest example of a progressive policy that will do more harm than good involves the levying of “vacancy taxes.” The idea here is to somehow punish, er, “incentivize” property owners who, for whatever reason, are unable to rent their properties. The economic theory is that a tax will spur the owners into lowering rents so their properties do not remain vacant.

Not surprisingly, San Francisco jumped on the vacancy tax bandwagon early on. You see, the city has a huge problem with ground-level retail shops being vacant. We’re not sure, but we strongly suspect that the human feces and hypodermic needles which litter the sidewalk might have something to do with the fact that retail shopping in the city has become somewhat less than pleasant.

Another bastion of economic foolishness, the city of Oakland, has already passed a $6,000 annual tax per “unused” parcel, whether residential, commercial or even empty lots. Because securing a development permit in Oakland is next to impossible, an owner is now damned if they do, damned if they don’t.

In all fairness to California, it’s not just our state that has embraced “vacancy taxes.” Bill de Blasio, mayor of the ever-declining city of New York, has said, “Let’s pass a smart, targeted tax to stop landlords from leaving their properties empty.”

Let’s be blunt. Vacancy taxes are, more often than not, counterproductive to economic growth. Do progressives who push this idea think that property owners really want their properties to be vacant? Do they even understand that investors generally hate “non-performing assets?” Apparently not.

A recent article quotes Joan Youngman, a senior fellow with the Lincoln Institute of Land Policy who states, “In a hot market, the landlord might wait for a high-end renter. If the market is soft, the vacant land might force the landowner to allow it to fall into disrepair.” That is right. But there is also a broader economic force at play here.

Are investors more apt to invest in jurisdictions that impose vacancy taxes or those that do not? Real estate investment is risky enough, and investors will certainly take into account potential tax liability in their decisions of where to put their money.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.