Residential Vacancy Tax Preempted by State Law
On September 11, 2026, a California Court of Appeal struck down San Francisco’s Empty Homes Tax (“Prop M”). That court held that the Ellis Act—a state law guaranteeing property owners the right to exit the rental housing business—preempted Prop M because owners also cannot be coerced to enter the rental market. The decision, Debbane v. City and County of San Francisco, creates questions about the legality of similar residential vacancy taxes that other California municipalities have enacted or are considering in their efforts to increase local housing supply.
Background on San Francisco’s Empty Homes Tax
San Francisco’s efforts to establish the “empty homes tax” developed from a 2022 report initiated by the San Francisco’s Budget and Legislative Analyst’s Office, which found that approximately 40,458 units (or 10 percent) of the city’s housing stock was left vacant in 2019.
With the goal of alleviating the City’s constrained housing supply, Prop M was submitted to the voters in November 2022, proposing a tax on owners of residential units in buildings with more than two units, who kept any unit vacant for more than 182 days (consecutive or nonconsecutive) of the tax year. The tax would be based on square footage, escalating over successive years of vacancy ($2,500–$5,000 in the first year and up to $10,000–$15,000 by the third year). Prop M’s purpose was to “disincentivize prolonged vacancies, thereby increasing the number of housing units available for occupancy.” San Francisco voters approved Prop M by a 54.5 percent majority.
Claims Against the Tax
Owner-occupants of multi-unit building in San Francisco, along with the San Francisco Apartment Association, Small Property Owners of San Francisco Institute, and San Francisco Association of Realtors (Plaintiffs) sued San Francisco in February 2023, claiming the tax was (1) an unconstitutional taking, (2) preempted by Ellis Act, (3/4) a violation of due process and equal protection, and (5) a violation of constitutional right to privacy. Plaintiffs’ declarations described how they kept their units vacant for personal use, health-related reasons, and desire for part-time living arrangements. On cross summary judgment, the trial court granted Plaintiff’s motion (on all five counts) and denied San Francisco’s motion. San Francisco appealed.
Decision: The Ellis Act Preempts a Vacancy Tax
The Court of Appeal affirmed the lower court’s holding that the Ellis Act preempts Prop M and declined to decide the constitutional claims because it was unnecessary to do so. According to the court, under the Ellis Act, San Francisco cannot “compel the owner of residential real property to offer, or to continue to offer, accommodations in the property for rent or lease[.]” (Gov. Code § 7060(a).)
Under existing case law, an ordinance cannot place “a prohibitive price on the ability of landlords to exercise their rights under the Ellis Act.” The court reasoned that making owners choose between renting out their property and paying a tax is a “prohibitive price” regardless of the specific amount.
Even though San Francisco is a charter city with “home rule powers” to enact a “tax for local purposes,” such a tax can still be preempted when it presents an “actual conflict” with a state law, like the Ellis Act, that is (1) a matter of statewide concern, is (2) reasonably related to that concern, and (3) narrowly tailored. The court concluded that Prop M and the Ellis Act are in “actual conflict” because ordinances conditioning an owner's right not to rent on requirements not found in the Ellis Act are preempted. Because the court rested its holding on the Ellis Act, the holding does not implicate commercial vacancy taxes.
Significance of Debbane v. City and County of San Francisco
The holding in Debbane effectively undermines the legality of vacancy taxes as a tool for California municipalities. The Ellis Act protects not only the right to exit the rental market, but also the right to never enter it. An owner who has never rented their residential property cannot be coerced to enter the rental market since such a vacancy tax—regardless of amount—imposes a “prohibitive price” on the exercise of Ellis Act rights on owners. Cities such as Berkeley, which have enacted comparable residential vacancy taxes, may face legal challenges as a result of San Francisco’s defeat.
