Can a vacancy tax "fix" mountain town housing problems?

South Lake Tahoe will vote on a new ballot measure this year that would impose a vacancy tax on homes left unoccupied for more than half the year. The proposed tax, now called Measure N, aims to address the local housing shortage by incentivizing homeowners to rent their properties and generating revenue to fund affordable housing, road maintenance, and public transportation. The supporters (Yes on N), remain in a pitched debate with the opposition (Stop Measure N). It’s a microcosm of the challenging policy, economic, and social forces at play in mountain towns when it comes to livability, affordable housing, and community.

The problem at hand

Median home prices in Tahoe have tripled since 2012, while the median income of $67,686 lags behind California's statewide average of $91,905. The 2022 Tahoe Prosperity Center report noted that a large number of vacant vacation homes have worsened the housing crisis, leading to a shrinking year-round population and fewer young workers.

As of recent reports, South Lake Tahoe has a 44% vacancy rate – comparatively, it’s on the lower side when compared to other mountain towns like Winter Park (77%), Tahoe City (70%), or Vail (67%). But, it’s up 33% since 2000 and continues to follow the trend of other towns. Out of the 16,275 total housing units, around 7,150 are typically unoccupied, largely due to the prevalence of second homes and vacation properties (Politico). It’s a problem that residents of most mountain towns are intimately familiar with. Measure N seeks to address these issues by taxing vacant homes, in the hope that it will cause market pressure to either increase available rentals, or return housing stock to local residents. Here’s what the measure does.

1. If you’re not occupying your home for more than 182 days in a calendar year, you will be assessed a $3000 tax penalty in the first year and $6000 in the second. The rate is a flat fee because it is unlawful under California’s Prop 13 to structure it as a percentage of property value (Prop 13 plays it's own major part of the housing shortage, but I'm not going to focus on that here).
2. There are several exemptions “for properties under renovation, elderly residents in care facilities, wildland firefighters, and active-duty military, among others.” The city can also add new exemptions with a ⅔ vote.
3. It will be self-reported, and the City has identified several ways to enforce and identify fraudulent reporting (like spot checks and utility use). The city estimates that enforcement costs would take approximately 3% of revenue generated.
4. Revenues “can be used ONLY for local housing, road infrastructure, and transit, as well as enforcement and administration of the tax.”

I asked Amelia Richmond, South Lake Tahoe resident and co-founder of Locals for Affordable Housing, why there’s a focus on a vacancy tax, versus other potential approaches like deed-restricted housing. She said, “I think they have to go hand-in-hand, but I think the biggest thing is, does the solution include a substantial local funding source?”. A city analysis of Measure N is projected to bring in up to $20 million dollars per year, dedicated exclusively for affordable housing, road repair, and public transit. They also project the tax to recover 540 to 1,543 rental units that currently sit empty (Election Code 9212 Report Residential Vacancy Tax Initiative, June 2024).

The opposition campaign is heavily funded

Stop Measure N is funded by major political groups, including the National Association of Realtors and the California Association of Realtors, who have contributed nearly $1M to oppose Measure N. They’re highly organized and extremely active. One of the key opposition talking points appears to be a pretty deliberate misrepresentation of how funds from the proposed tax will be allocated. Op eds, flyers, and other methods all focus on “no guarantee that any revenues will be used for affordable housing”. It dovetails nicely with opinions about bureaucracy and governmental mismanagement, but it feels slightly disingenuous. As outlined in the measure, “Allowed uses include development of affordable housing, rental and home-buyer assistance, incentives for property owners to rent to residents, and addressing the $500 million backlog of deferred road repairs, and stormwater and infrastructure needs.”

So, while it may technically be true that there is no guarantee it is used specifically for affordable housing, to frame the revenues as having no guidelines whatsoever feels intentionally misleading.

It would be incorrect to frame this as “outside interests vs locals”

While heavily funded by real estate interests, the measure isn’t universally supported by Tahoe locals (of either party). Voters are strongly divided on the subject of Measure N. While many supporters of the measure acknowledge that the measure isn’t perfect, they believe that it is a step in the right direction. Others view it as an unfair burden on second-home owners and distinguish between “new” (aka bad) second-home owners and owners who may have had a property in the family for many years. They argue that these homeowners already contribute to the local economy through property taxes and tourism spending, and that penalizing them with additional fees could have unintended consequences. But, second home-owners don’t vote in South Lake. Or, at least they shouldn’t be – there’s an ongoing investigation centered around owners changing their “primary” address in order to vote on this issue.

Richmond encourages homeowners to think beyond the immediate tax implications. “The hospital can't staff, they can't fill enough positions. We’re losing families, our school enrollment is down 36% since 2000…I don't think second homeowners know how bad it's become for locals, for families, for businesses, for our community.”
Detractors also raise concerns about the practical impact of the tax, questioning whether it will truly result in more affordable housing or if the funds will be misallocated. They often suggest that issues like limited land availability and restrictive zoning regulations are more problematic in the housing crisis, not vacant homes. There is also concern that additional taxes may discourage future investment in the area and erode property values, potentially making the situation worse rather than improving it.

Vacancy taxes are a bit of an unproven approach

I think it is fair to say that this is not a settled economic strategy – there are a lot of unknowns. While the South Lake measure is based on similar ones passed in Berkeley, Oakland, and San Francisco, those have only been in place for a short time and the outcomes there are less than clear. The San Francisco tax is currently under litigation to determine whether local governments even have legal standing to adopt residential vacancy taxes in California. On the success side, Vancouver, while of a significantly different market, introduced an Empty Homes Tax in 2017 and “the number of vacant properties [from 2017-2021] decreased by 36% based on data collected by the City” (Empty Homes Tax Annual Report).

Mountain towns are getting desperate

The proposed vacancy tax in South Lake Tahoe is emblematic of the broader housing challenges facing mountain towns like Breckenridge, Steamboat Springs, Vail, and others across the West. As property prices soar and the demand for second homes surges, these communities are left grappling with dwindling affordable housing options for local workers and full-time residents. While South Lake Tahoe is the first to take this to the ballot, other mountain towns are watching closely. The Colorado Association of Ski Towns recently added vacancy taxes to their legislative agenda. I think the story here is that most towns are desperate to find something that will work. Vacancy taxes might be more of a "hammer" than a "scalpel" approach, but these problems aren’t new, they aren’t going away, and the pace of most legislation, new builds, and grassroots programs (like Leasing Locals) simply aren't working.

This isn’t an op-ed. I’m not here to tell you to vote one way or the other if you happen to live there. On one side, I think we have concerned locals who see a vacancy rate that’s only going to increase, an eroding community, and shrinking school enrollment, and are desperately trying to do something...anything about it.  Both sides recognize the housing shortage as a pressing issue, but they remain divided on the right approach. While some see a vacancy tax as a step toward resolving the crisis, others believe alternative solutions, such as zoning reform and incentivizing construction, are more appropriate and effective – or are fundamentally opposed to local government stepping in to try and solve this with regulation.

I think Richmond summed it up well with this: “I will never say it is a silver bullet solution. We also need to be looking at zoning reforms. We also need to be looking at how to incentivize the types of development that we need as a community. But even if we build more housing, what stops those from becoming second-homes?”

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