On a sunny Saturday in October, about 60 people crowded onto benches and stood around Shanty Shack Brewery’s courtyard listening to Santa Cruz City Councilman Justin Cummings talk about taxing empty houses to generate revenue for low-income housing.
Cummings was one of the speakers who took the stage to talk about the Empty Home Tax campaign that launched that day, Oct. 16. UCSC Professor Camilla Hawthorne, Santa Cruz City Councilwoman Sandy Brown and campaign volunteer Cyndi Dawson also spoke about the measure that will likely be on the ballot in 2022 for Santa Cruz voters.
A mixture of families, students and older Santa Cruz residents nodded along to the speeches, wiping sweat from their brows and sipping on their beers.
“Raise your hand if you know someone who has had to move because their rent was too high,” Cummings asked the crowd. Hands shot up around the courtyard.
Gillian Greensite, who has been living in Santa Cruz since the 1970s, was one of the people who raised her hand.
In the past decade, Greensite has seen multiple friends leave Santa Cruz because of high rents. As an activist in the community, she’s also seen who is disproportionately being impacted by the lack of affordable housing.
“It’s the service workers, it’s the Latinx and other minority community members,” Greensite says. “The people who are the foundation of our community are the ones who are relocating, and eventually we will see a deficit in the jobs that are the cornerstone of our society.”
In 1977, Greensite bought her home in Santa Cruz for $70,000. There’s no way she would be able to afford current market prices and have the chance at being a homeowner, or perhaps even a renter, if she was looking today.
“The only reason I am here is because I bought my home when I did,” Greensite says.
Greensite supports this measure because she thinks it targets people with sufficient income—the tax only applies to homeowners with a second property—and will fund housing for those who need it the most.
“I can’t see how anyone would oppose this measure on legitimate grounds,” Greensite says.
Indeed, the campaign offers what seems like an intuitive solution to Santa Cruz’s affordable housing crisis: tax second homes that are vacant for more than eight months out of the year, and use that money to fund housing projects for low-income families.
Proponents of the campaign think this approach kills two birds with one stone: it generates notoriously difficult-to-fund affordable housing projects, and incentivizes homeowners to rent out their second property. Fund affordable housing, create more supply for renters.
“Houses are supposed to be lived in, not used for storage,” Councilwoman Brown said to the crowd at Shanty Shack. Cheers rang out in response.
But the devil’s in the details, according to Santa Cruz Association of Realtors Director Victor Gomez, who says this tax unfairly penalizes homeowners, and has too many uncertainties to be implemented effectively.
“Who is going to track this? How are people actually going to be aware of these issues if this law comes into play? There’s just a lot of ambiguities, a lot of unknowns, and that’s concerning,” Gomez says.
The Details
The tax for a vacant residential property will be $6,000, and $3,000 for empty condominiums or townhomes. Properties that homeowners live on, or properties that are principal residences, will not be taxed. Properties that are occupied 120 days in a calendar year will be exempt.
There’s also an extensive list of exemptions that give landlords a break from the tax. Some exemptions include natural disasters (wildfire season anyone?), loss of job, hospitalization and construction.
Dawson says that after the campaign interviewed experts around the world and looked at cities with similar taxes in place, 120 days seemed like a fair chunk of time to expect homeowners to rent their properties.
“We compared similar taxes that are in place in other cities to create a specific version just for Santa Cruz,” Dawson says.
But Gomez argues that the tax rate and the expectations for homeowners are arbitrary, and don’t take into account that sometimes it’s difficult to find a renter, especially in the pandemic.
“Why will folks who are having a hard time finding a tenant be punished? Instead of punishing people that are trying to do their best, the city should approve affordable housing projects,” Victor Gomez says.
Perhaps the biggest question mark looming is how the tax will be enforced. The measure would require homeowners to self-report if their property is vacant or occupied, and the city will do a random audit of tax-eligible properties yearly. While the measure would reimburse the expenses the city incurs for the program up to a cap of 15% of the revenue, specific requirements for the audit are not included.
Would the audit require knocking on doors or speaking directly with property owners? Or would it instead be based on analysis of the revenues collected paired with other types of data? Santa Cruz City Communication Manager Elizabeth Smith wrote over email that it’s these details that need to be clarified, especially to estimate how much a program like this would cost the city.
Gomez agreed that the measure needs to define plans for the audits.
“Will the local government have the authority to check to see if anybody’s living in their own home? Because that is extreme,” Gomez says.
Case Studies
Taxing vacant homes is gaining traction in cities around the world, especially in cities that have a housing crunch and high housing costs. Los Angeles is bringing its voters a similar ballot initiative in 2022, and cities with vacant property taxes already in effect include Oakland, Washington D.C. and Vancouver.
In the Canadian city of Vancouver, which imposed a 1% yearly vacancy tax on properties that had been vacant for six months of the year, the tax generated nearly $29 million in 2018 for affordable housing. Vacancies also went down 22%. But what the tax didn’t do was make rents more affordable.
That’s partly what generates criticism for these types of measures: a vacancy tax won’t solve the larger issues of race and class inequality within housing economics. Proponents of the Empty Home Tax agree: this isn’t a comprehensive solution. But creating a revenue source for affordable housing is one of the most important first steps, Dawson says.
Calculations using Census numbers estimate that the revenue from the tax could bring in millions annually. There are 2,000 units in the city that might be eligible for the tax, and if only 500 eligible homeowners paid the tax, the city would receive $3 million in funding for low-income housing projects.
Tax money will go to a designated fund that will only finance housing projects that provide housing at the lowest income brackets. An Oversight Committee made up of renters, low-income individuals, people with financial expertise and UCSC students will make recommendations to the city council on how to spend these funds.
But funding is only part of the issue when it comes to building low-income housing. Finding the land to build these projects, in a city that is largely built out, and making sure the money doesn’t sit in a fund are other issues, wrote Smith.
These are issues that the measure will plan for in the coming year, Dawson said.
“We know this is not a silver bullet. We know this is not going to fix affordable housing in Santa Cruz, but it is going to make a difference,” Dawson says.
The Empty Home Tax Initiative provides strong guidance on enforcement while leaving flexibility for the City to craft a robust program that integrates with existing processes and procedures. Random audits are exactly that, all properties that declare an “in use” status (i.e. they are being used at least 120 days per calendar year) will be subject to a random selection for an audit. Property owners randomly selected for an audit are required to support their declaration status with documents that will be selected by the City. For instance, in other jurisdictions things like a tax bill, drivers or car registration renewal or similar documents are used to substantiate a declaration status. There is no onsite visitation envisioned in this program and the City will establish the final procedures. People rarely have those types of documents not being mailed to their primary residence where they spend most of their time and this has worked well in other places while not being overly burdensome to property owners.
The City will establish the final procedures for auditing and would likely include some specific language linking the number of audits to the revenue generated to ensure the City only preforms audits at a level that it can be compensated for ensuring they are not redirecting resources from other programs.
This (perhaps) well-intentioned proposal isn’t fair, or reasonable, or a solution. The EHT will do nothing to improve either the availability or the affordability of housing in our community.
The estimate of the number of affected homes and the revenue generated therefrom are completely unsupportable. In addition, the incompetent crafting of the measure ensures that rather than addressing any actual problem, it will reduce the number of homes available for rent and create yet one more layer of bureaucracy, one that will require each and every homeowner to prove that their homes are occupied, even when they live in them. Every year.
At a more basic level, the idea that the subject homes are “empty” is completely specious. Picking an arbitrary number of days that defines whether a home is “empty” is just one more example of feckless public policy derived from bumper-sticker-level sloganeering.
One of the signatories to the measure is a City Councilperson who has voted against more affordable housing than our community has created in several decades, and the other has already put up a web page where neighbors can turn each other in for having (gasp!) an “empty home,” with absolutely no evidence, in an apparent attempt to ensure they are audited. So much for those audits, which are explicitly authorized under the measure text, being in any way “random.”
The measure creates a new kangaroo court, whose members are to be chosen from a very narrow and biased demographic, and given broad discretion to enforce the measure with little to no oversight. In addition, while the measure flies a fig leaf of fiduciary concern in the form of a stated “maximum” of 15% of the revenue being available for administrative expenses, it goes on to specifically exempt a panoply of other certain-to -be-necessary costs from that limit. In fact, the potential revenue from the measure is many times less than could be generated for affordable housing if those same homes were allowed to be let as short-term rentals (STRs) instead. Of course, the aforementioned Councilperson/Signatory has voted to limit STRs as well.
Please help our community avoid another “solution” in search of a problem. Don’t sign the petitions.
Empty houses are a side effect of just cause evictions. One can understand that in the past an owner could do a short term rental, AKA a lease for part of the year with the assurances that the renter will or can be removed when the house is needed. This is no longer the case. Uncertainly and the plethora of free legal assistance for renters makes any effort involving a sort term rental fraught with uncertainties. If they want these properties rented they should instead pass a law that penalizes renters and prohibits them from accessing litigious methods to remain in a rental past the end of a short term lease. And thus restoring the age old practice of using short term leases in a dual beneficial way.
Take a look at the Oversight Committee … why does it not include owners who may CHOOSE to pay the proposed tax ?