Real Estate Upsizing December 3, 2021

Campaign launches for Santa Cruz empty homes tax – Overview

Community members in Santa Cruz are working to introduce an empty homes tax to voters in 2022. The tax aims to create a way to increase the amount of affordable housing available in Santa Cruz. It will do so by using tax revenue to build a fund dedicated to the development of affordable housing within the city.

On Oct. 7, the group known as the “Yes On Empty Home Tax Santa Cruz” committee filed a notice of intent to launch a ballot measure to tax vacant properties in the city of Santa Cruz. It’s a tactic that’s been approved by voters and established recently in other high-priced West Coast cities, such as Oakland and Vancouver, British Columbia.

If you live on your property, you won’t be subject to the tax. Publicly owned parcels and undeveloped parcels won’t be subject to the tax. If your property has 6 or less dwelling units and one of them is occupied for 120 days a year you won’t be subject to the tax.  If your property has 7 or more units each unit will be treated separately and will need to be occupied for 120 days a calendar to avoid paying the tax.  Property owners can live on their property, rent it or if it is only lived in occasionally the owner would pay the tax to support community needs associated with affordable housing for the lowest income levels.  A condominium or townhome under separate ownership would need to be occupied for 120 days a calendar year to avoid paying the tax. The funds raised will be sequestered in a dedicated fund used to create permanently deed restricted low, very low and extremely low-income housing units. The tax rate is set at $6,000 for empty Residential and $3,000 for empty Condominium or Townhomes and $3000 for empty units on parcels with 7 or more residential units.

Santa Cruz has a vacancy rate of 9.5%, according to the U.S. Census Bureau, which totals about 2,283 homes. If just 500 homes paid the empty home tax, it would raise around $3 million for the city. Additionally, if between 1,500 and 2,000 homes paid the tax, it would raise $6 million to $8 million.

The proposed tax defines an empty home as a place of residence that is not occupied for a minimum of 120 days a year. The home can be occupied by the owner or rented out to others. Homeowners with in-law units on their property won’t have to worry if the unit is designated for out-of-town guests. The new tax does not apply to accessory dwelling units as long as the main house is occupied for more than 120 days.

The tax will be enforced through city audits. Each year, property owners will have to produce documents that prove the unit is occupied. They then can be randomly audited, which will search records up to three years. If the audit finds the unit is in fact unoccupied, then the owner will be subject to a fine, including the cost of the audit. They will also be audited for the next two years.

You can live in your property for at least 120 days a year, you can rent it out for that time, or you can choose to hold your property empty — which is obviously a choice for that property owner — they can contribute to funding that critical need of affordable housing that we have in Santa Cruz.

The state of housing in Santa Cruz drove community members to action. In order for a home to be affordable, the residents need to be paying no more than 30% of their income on rent or mortgage, which would classify them as rent burdened. Roughly 70% of Santa Cruz residents are considered rent burdened, according to a study conducted by UC Santa Cruz Chair of Sociology Miriam Greenberg. The housing crisis is partially caused by a disparity in growing home prices and stunted rises in wages within the city, the study found. The average cost of rent rose 40% between 2013 and 2017. In that same four-year timespan, wages only rose .8%.  From those findings and discussions, some of the research led to a report by UC Santa Cruz professors Miriam Greenberg and Steven McKay, called “No Place Like Home,” which found Santa Cruz to be the least affordable small city in the country.

If the Yes on the Empty Homes Tax group receives the necessary signatures, then it will make the regular election ballot in November of 2022 alongside the choices for open City Council and county supervisor seats, pending ballot approval from the City Council. However, the council must approve the measure if the necessary signatures are presented.

Oakland voters approved Measure W, the city’s vacant property tax, in November 2018, which established an annual tax of $3,000-$6,000 on properties vacant for more than 50 days per year. Vancouver implemented its vacancy tax at the start of this year, with properties vacant for more than six months annually subject to a tax of 1.25% of the property’s 2020 assessed taxable value.

As policymakers struggle to control an affordable housing crunch, officials in some of the world’s biggest cities have their sights set on a tactic: taxing the empty homes of the rich.  Los Angeles is planning to put a vacant homes tax on the ballot for 2022, in the face of a mounting homelessness crisis. Hong Kong officials are considering taxing condo developers to deter them from hoarding new units. Ireland is exploring its options. Barcelona has gone as far as threatening to seize landlords’ empty apartments — paying half of market value — and convert the units into affordable rentals. Paris tripled its tax on second homes in 2017.

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.  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.

The Santa Cruz Association of Realtors Director Victor Gomez, who says this tax unfairly penalizes homeowners, and has too many uncertainties to be implemented effectively, we are working with the National Association of Realtors who will fund a research group to petition the new law.  This is another law where community members are expected to turn in their neighbors.

As a member of the Santa Cruz Association of Realtors Local Government Relations Committee (LGR) we are discussing ways to make this fair to property owners that is not a violation of private property rights.  Taxing someone for not making their land or real estate available for use seems unfair and contradictory.  No owner should be taxed into selling their property or occupying it.  An option for the housing solution could be to incentivize homeowners to build small ADU’s to potentially supply additional housing.

Please feel free to contact me for additional details and information for Santa Cruz Real Estate.  Paul Burrowes  831-295-5130.