Should owners of vacant second homes be heavily taxed? San Diego voters get to decide

Measure A, on the June ballot, seeks to tax second homes without a full-time resident up to $10,000 a year. Corporate-owned homes would face an even higher levy

For years, vacant homes in large U.S. cities have conjured up images of derelict, abandoned properties in need of loving attention and a full-time resident. In San Diego, a June ballot measure is taking aim at a very different kind of vacant dwelling by proposing to heavily tax second homes — from the coast to the suburbs — that all share the same feature: They're unoccupied for more than half the year.

Measure A, known formally as the non-primary homes tax, was placed on the ballot by San Diego's elected leaders as part of what they say is a broader effort to tame the stubborn rise in unaffordable housing by returning as many as 5,100 homes to the rental and for-sale markets. The largest concentration of such homes is in some of San Diego's priciest neighborhoods — downtown and La Jolla.

The highly contentious measure, placed on the ballot in March, quickly triggered a fierce war of words between supporters and foes in what has evolved into a costly campaign. The opposition has easily outspent supporters by a margin of nearly 5 to 1, raising more than $1.3 million, largely funded by both the California and national associations of Realtors. Supporters have contributions totaling over $282,000, with the bulk of their support coming from labor unions.

Flyers mailed by the opponents blast the tax as "Just Another Failed City Hall Scheme," while proponents, in their digital messaging, accuse corporations and wealthy investors of "hoarding 5,100 homes."

Measure A seeks to impose an initial annual tax of $8,000 on second homes that are deemed to be unoccupied for more than 182 days in a single year. In subsequent years, the tax would rise to $10,000. For corporate-owned housing, there would be an initial surcharge of $4,000 that would increase to $5,000 thereafter. If passed, the measure would go into effect next year, with the first tax bills mailed out in early 2028.

While the number of homes affected by the proposed tax represents only 1% of the city's housing inventory, San Diego City Council members argue that in a city where fewer and fewer residents can afford to buy a home — the median price countywide is $900,000 — and one-bedroom apartments rent on average for $2,200 a month, any effort to assist struggling residents is worthwhile.

Councilmember Sean Elo-Rivera, whose office authored the tax proposal, said the need for Measure A is irrefutable, and city leaders have an obligation to do whatever they can to address what is admittedly a longstanding and vexing problem.

"Housing being too expensive in San Diego is the most determinative factor in a person believing whether they have a future in this city," Elo-Rivera said. "And because of that, I think we have a responsibility to do everything we can to slow down increasing housing costs so that San Diegans see a future for themselves here, and it is a fact that relieving pressure on supply has a positive effect on cost.

"And there's a moral question baked into this as well, and that is, what is our willingness as a community to accept the idea of 5,000 homes sitting empty across the city, when so many people are struggling to keep a roof over their heads and to buy a home when directly below those homes that are sitting empty, people are sleeping on the sidewalks. I just think we're better than that."

Among those joining Elo-Rivera in supporting the measure are the San Diego County Democratic Party, the League of Women Voters, and more than 20 labor organizations.

Critics of the measure, chief among them real estate agents and scores of owners of second homes across the nation, counter that their constitutional property rights are being trampled upon by effectively forcing owners to sell or rent out their homes in the face of a costly tax they can ill afford to pay. Yet another failing, they say, is that the expected revenue generated by the tax — from $9.2 million to $21.4 million in the first year —  isn't even earmarked for affordable housing. Instead, it will go directly into the city's general fund.

"I've spoken to numerous people who have inherited their second homes. One of them is a lady from Japan, and she has a little condo here so she can come a couple of months a year to spend with her family, who live here because she's not leaving Japan. She's elderly," said Karen Van Ness, president of the San Diego Association of Realtors.

Realtors are the advocates for homeowners and homeownership and private property rights. And I can tell you that we're not going to sit by and watch the taking of private property or the grabbing of funds that our homeowners have generated by paying taxes, paying mortgages, paying interest, because the city can't manage their funds, and that's what this comes down to."

Will the tax bring more housing?

Should Measure A become law, it's likely that the number of homes subject to the tax would be far fewer than 5,100. That's the conclusion of the city's Office of the Independent Budget Analyst, which estimates that 1,541 to 2,826 empty second homes would end up being taxed. That calculation takes into consideration properties that would fall under several exemptions provided for in the measure, as well as those instances where owners opt to sell their properties or convert them to short- and long-term rentals.

San Diego is hardly alone in hatching a plan to tax unoccupied second homes as a way to address housing affordability while also raising revenue for local coffers. Municipalities and states across the country, from Oakland to Rhode Island, have devised various measures to effectively penalize owners of second homes for not having them occupied by full-time residents.

Elo-Rivera's office said Measure A was most closely modeled after Berkeley's tax, which was approved by voters in 2022 by a nearly 65% margin. Meanwhile, all jurisdictions, including San Diego, are closely watching San Francisco, which was set to begin collecting its voter-approved tax early last year. The city, however, paused the measure after a Superior Court judge struck it down, saying that it violated the U.S. and California constitutions and was preempted by California law.

Opponents of San Diego's Measure A have said they're likely to sue should it prevail. Councilmember Raul Campillo, who was the lone vote in opposing placing the tax on the ballot, says the measure is well-intentioned but believes that San Diego would not be on firm legal ground should it face a lawsuit, despite having had a robust legal team to help draft the measure.

"We are going to lose in court if the voters pass this, because at its very core is the Ellis Act, which is a state law that says municipalities essentially can't require that landlords rent out to people," he said. "A lot of these individuals right now who have an extra empty home are not landlords, and we're making them become landlords if they now have to rent their homes out to long-term tenants."

Beyond the legal question, though, is a much more crucial debate over whether a hefty tax will generate more housing that's affordable to struggling San Diegans.

Shane Phillips, housing initiative manager at UCLA's Lewis Center for Regional Policy Studies, says vacant second-home taxes like the one San Diego is proposing could lead to a change in behavior, which in turn could return more housing to the local market. But he adds that it's unlikely it will make much of a significant impact.

"I think my view on these kinds of taxes is it's not like a top-tier solution," Phillips said. "It's not going to, by itself, make a huge difference on the margins. One advantage, though, to this kind of tax, unlike other kinds of taxes, is that you're kind of happy whether or not people change their behavior.

"If people change their behavior by selling or renting out their units or homes, then that's good because you've got more long-term housing on the market. If they choose not to and they pay the tax, then you have money for whether it's the general fund or specific purposes that might be designated for affordable housing. So I think it's a good policy, but no one should imagine that it's going to be like a game changer."

Figuring out who owns an empty second home

For those cities and states that do have a valid empty home tax in place, the manner in which they determine who is subject to the tax varies widely.

San Diego's calculation was reached by looking at the number of residential properties whose owners sought a second home/vacation home exemption from paying what's known as the rental unit business tax because they do not use their properties as a primary residence or as a short- or long-term rental. Instead, they attest that they keep their non-primary homes uninhabited for more than 182 days out of the year.

When purchasing a residential property in the county, buyers can qualify for a homeowners' exemption by declaring that the property is their primary home, which entitles them to a $70 tax savings. County Assessor Jordan Marks explained that the San Diego City Treasurer's office, in turn, reviews the county's tax roll, and anyone who hasn't received that exemption is billed for the rental unit business tax.

It should be noted, though, that the text of the 27-page ballot measure is silent on the rental unit business tax, saying instead that "The City manager, or designee, shall enforce the provisions of this Division and may promulgate reasonable rules, regulations, interpretations, and guidelines to implement and enforce the provisions" of the measure.

However, both Elo-Rivera's office and the Independent Budget Analyst office told the Union-Tribune that the rental unit business tax exemption will be used for determining who should be taxed should the ballot measure be approved, although that could change in future years.

"I am not aware of any database or software/technology that would clearly allow the City Treasurer's Office to define the measure's threshold of vacancy besides the RUBT (rental unit business tax) exemption database," said Noah Fleischman, senior fiscal and policy analyst with the Budget Analyst's office. "However, that does not mean that one could become available at some point in the future."

"We're not wealthy"

The thousands of second homes that would be affected by Measure A, should it succeed, cover a wide swath of housing types, from bay view pieds-à-terre in downtown high-rises to oceanfront condos in Mission Beach and multimillion-dollar La Jolla homes with ocean views. But many others are far more modest dwellings, stretching from Rancho Peñasquitos and Mission Valley to Encanto and Otay Mesa.

Many of the dwellings identified by the city as vacant second homes are in condo high-rises like this one in downtown San Diego. (K.C. Alfred / The San Diego Union-Tribune)

Many of the non-primary homeowners who live in their San Diego dwellings part-time protest that they aren't well-to-do, contrary to the messaging by the Yes on A campaign. In many cases, the second homes have either been inherited or owned for decades by individuals who return to San Diego to be closer to children and grandchildren, want to access medical care, or simply enjoy the good weather and appealing attractions of a popular tourist destination.

That was the motivating factor for Randy and Nancy Garrett, who currently live in southeast Missouri but decided to buy a second home 17 years ago in Southern California. The couple, now in their 70s, was seduced by San Diego's weather, cultural offerings and the walkability of Little Italy, where they purchased a two-bedroom condo.

Randy, a retired insurance executive, and Nancy, who worked as a children's librarian, typically visit San Diego three to four times a year and stay for about a month, going to see plays, attending Padres games, dining out, and strolling through Little Italy's farmers' market on Saturdays.

Randy and Nancy Garrett relax in their Little Italy condo that serves as a second home. The Missouri couple, who come to San Diego four times a year for about a month during each stay, would be impacted by the Measure A tax. (Nelvin C. Cepeda / The San Diego Union-Tribune)

"We're not wealthy people, and we love having the second home but I think this tax is very unfair," Randy said. "I've talked to several of my friends about it throughout the country, and they can't even believe that San Diego is having something like that. We just want to have a second home in San Diego to enjoy, and now they're putting us in a position, if it passes, where we're just not going to be comfortable with that kind of expense, and we'll probably have to sell."

Ellen Shaw, whose primary home is in Henderson, Nev., continues to hold on to her second residence in Rancho Bernardo for a very different reason. She returns to San Diego about four times a year for medical care and, while there, stays in her small condo, which is in a 55+ community.

"I have savings because I've worked hard all my life. I've sacrificed, I've saved. And now, to have these people come and try to take my property away or fine me this insane amount of money, it's very disturbing," she said. "And yes, I am on a fixed income, and it's hard enough to keep up with inflation. Ten thousand dollars a year would be a tremendous burden.

"I'm so bummed about this terrible measure. I'm praying it doesn't pass."

Priced out of San Diego

Itzel Maganda Chavez, who has struggled for years to find affordable rental housing, let alone a home she and her husband could purchase, doesn't have a lot of sympathy for homeowners who rail against the Measure A tax. The San Diego couple currently rent a 500-square-foot accessory dwelling unit in Golden Hill while they fruitlessly search for a home to buy.

Itzel Maganda Chavez poses at Golden Hill Fountain Grotto near where she and her husband rent a granny flat. (Kristian Carreon / The San Diego Union-Tribune)