Navigating Vacancy Taxes for Property Investors

Vacancy taxes have emerged as a critical tool for cities grappling with housing shortages, urban blight, and commercial district revitalization. These policies, implemented in major U.S. cities such as San Francisco, Washington, D.C., and Portland, aim to penalize property owners who leave residential or commercial spaces vacant for extended periods. By incentivizing occupancy, municipalities seek to boost housing availability, stimulate local economies, and reduce neighborhood decay. For investors and receivers of distressed properties, understanding these ordinances is essential to avoiding steep penalties and aligning with urban development goals. This guide examines vacancy tax frameworks in key cities, their enforcement mechanisms, and actionable strategies for compliance.

The Rise of Vacancy Taxes in Urban Policy

Vacancy taxes reflect a growing recognition that empty properties exacerbate housing crises and undermine community vitality. Municipal governments increasingly view these levies as mechanisms to counteract speculative holding of real estate and address systemic inequities in housing access. While approaches vary by jurisdiction, common objectives include:

• Discouraging long-term vacancies by imposing escalating annual fees based on vacancy duration.
• Funding affordable housing initiatives through revenue generated from tax penalties.
• Mitigating blight by ensuring properties are maintained to code standards.

Cities like San Francisco and Washington, D.C., have pioneered vacancy tax policies, while others, including Detroit and Honolulu, experiment with land value adjustments and tiered tax rates. Property managers should understand these regulations to avoid financial liabilities.

NOTE: The information provided in this article is for general informational purposes only and does not constitute legal or insurance advice. While DAWGS specializes in securing and maintaining vacant properties in compliance with local regulations and insurance requirements, we do not offer legal counsel or interpret public policy. Property owners and managers should consult with qualified legal, insurance, or regulatory professionals to ensure full compliance with applicable laws and coverage terms.

San Francisco: Dual Frameworks for Commercial and Residential Vacancies

San Francisco employs two distinct vacancy taxes: the Commercial Vacancy Tax (CVT) and the Empty Homes Tax, each targeting different property types.

Commercial Vacancy Tax (CVT)

Enacted under Article 29 of the San Francisco Business and Tax Regulations Code, the CVT applies to ground-floor commercial spaces in neighborhood corridors vacant for more than 182 days annually (1). Key provisions include:

• Tax Rate: $250 per linear foot of street frontage, escalating annually by 25% for consecutive vacancies (2).
• Exemptions: Properties under active renovation, those with leases signed within 182 days, and spaces owned by 501(c)(3) nonprofits (3).
• Revenue Allocation: Funds are directed to the Small Business Assistance Fund, supporting grants for local enterprises (3)

Empty Homes Tax (EHT)

Approved by voters in November 2022 as Proposition M (4), the EHT aimed to address residential vacancies in buildings with three or more units. Key provisions included:

• Tax Applicability: Applied to residential units vacant for more than 182 days in a calendar year, effective January 1, 2024 (1).
• Rate Structure: Initial rates ranged from $2,500 to $5,000 per vacant unit, depending on square footage, with planned increases up to $20,000 over subsequent years (2).
• Exemptions: Included owner-occupied units with a valid Homeowners’ Exemption, buildings with two or fewer units, units occupied by travelers or vacationers, and properties owned by nonprofit organizations.(3)
• Legal Status: In October 2024, a San Francisco Superior Court judge ruled the EHT unconstitutional and preempted by state law, halting its enforcement. The city has appealed the decision, and as of now, the tax is not being collected pending the outcome of the appeal (5).

Washington, D.C.: Tiered Taxation to Incentivize Reuse

A property may be classified as vacant if it remains unoccupied and exhibits signs of neglect, such as broken windows or overgrown vegetation.

Property Tax Classifications and Rates

Washington, D.C. employs a tiered property tax system to discourage prolonged vacancies and blight:

• Class 3 (Vacant Properties): Properties deemed vacant are taxed at $5.00 per $100 of assessed value, significantly higher than the standard residential rate (6).
• Class 4 (Blighted Properties): Properties classified as blighted face an even steeper tax rate of $10.00 per $100 of assessed value (6).

Homestead Deduction Implications

Vacant or blighted properties lose eligibility for the Homestead Deduction, which provides a reduction in assessed value for owner-occupied residences (7).

Vacant to Vibrant DC Program

The Vacant to Vibrant DC initiative aims to transform vacant properties into affordable housing (8):

• Objective: Convert vacant lots into affordable and workforce housing.
• Progress: As of December 2023, the city auctioned off 58 lots; however, reports indicate that half remain vacant, highlighting challenges in the program’s implementation (9).

Portland: Code Enforcement and Security Standards

Title 29 Property Maintenance Regulations

Portland’s Title 29 (10) mandates strict maintenance protocols for vacant properties to ensure safety and neighborhood integrity:

• Security Requirements: All open or broken exterior doors, windows, or apertures must be boarded over or otherwise secured to prevent unauthorized entry.
• Maintenance of Exterior Areas: Owners must maintain outdoor areas, including the removal of overgrown vegetation and debris, to prevent nuisances and hazards.

Penalties for Non-Compliance

Failure to adhere to maintenance and security standards can result in:

• Fines: Property owners may face fines for violations, with amounts varying based on the severity and duration of the infraction.
• Abatement Actions: The city may take corrective actions to address violations, with associated costs billed to the property owner.

Impact of Enforcement

Enhanced enforcement of property maintenance regulations has led to improvements in neighborhood safety and property conditions. While specific statistics on fire incident reductions are not readily available, proactive measures contribute to overall community well-being.

Strategies for Property Managers

Vacancy taxes significantly alter the financial calculus for property investors. Key considerations include:

1. Cost-Benefit Analysis of Holding Periods: Short-Term Holdings: Rapid renovation and leasing avoid escalating penalties. In San Francisco, leasing within six months exempts owners from the CVT (3).
2. Leveraging Exemptions and Incentives

• Nonprofit Partnerships: Transferring properties to 501(c)(3) entities can lead to property tax exemptions, but eligibility depends on both ownership and use criteria, which vary by jurisdiction (3).
• Affordable Housing Conversions: Cities like Detroit offer tax incentives, such as PILOT approvals and requirements under its Inclusionary Housing Ordinance, to developers who dedicate a portion of their units to low-income households (11).

3. Proactive Maintenance and Security: DAWGS’ Steel Security Solutions: Installing code-compliant window guards reduces blight violations and accelerates occupancy.

Balancing Compliance and Investment Goals

Vacancy taxes are reshaping urban landscapes, compelling property owners to prioritize occupancy over speculation. Investors who adapt by securing properties, pursuing exemptions, and engaging with community revitalization programs will mitigate risks and contribute to solving housing shortages. As cities refine these policies, staying informed is crucial, and partnering with vacant property security experts like DAWGS ensures alignment with evolving regulations.

Stay compliant, stay secure, and help keep neighborhoods strong. Call the DAWGS!

 

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal advice. DAWGS specializes in securing and maintaining vacant properties in compliance with local ordinances, but we do not offer legal counsel or regulatory interpretation. Property owners and managers are encouraged to consult with legal professionals or local authorities to ensure full compliance with applicable vacancy tax regulations.

Sources:

1. City & County of San Francisco. Treasure & Tax Collector. Commercial Vacancy Tax (CVT).  
2. San Francisco Business & Tax Regulations Code. Article 29: Vacancy Tax Ordinance. Section 2904: Imposition of Tax.
3. San Francisco Business & Tax Regulations Code. Article 29: Vacancy Tax Ordinance. Section 2905: Exceptions & Exclusions.
4. 38-EN-N22-CP241. Legal Text – Proposition M & L.
5. Aldo Toledo. “San Francisco delays suspending empty homes tax at behest of city supervisor.” San Francisco Chronicle, March 11, 2025.
6. DC.gov–Office of Tax and Revenue: Vacant Real Property.
7. DC.gov–Office of Tax and Revenue: Homestead/Senior Citizen Deduction.
8. DC.gov–Department of Housing and Community Development: Vacant to Vibrant DC.
9. Diana Ionescu. “DC ‘Vacant to Vibrant’ Properties Remain Vacant.” Planetizen, December 14, 2023.
10. Portland’s City Code. Title 29 Property Maintenance Regulations.
11. Patrick Dunn. “What city, state, and federal policies are needed to solve Detroit’s housing affordability crisis?” Model D, March 17, 2025.