Vacant Property Tax
A Special Parcel Tax on Vacant Properties
Taxes vacant lots and unoccupied condominiums to raise funds to combat homelessness and illegal dumping.
What the Measure Would Do
This proposed ordinance would establish an annual tax on vacant land and buildings. Vacant lots would be taxed at a maximum rate of $6,000 per parcel and unoccupied condominiums would be taxed at a maximum rate of $3,000 per parcel. Parcels that allow ground-floor commercial activity and have a vacant ground floor would also be taxed at $3,000 per parcel. The ordinance authorizes the Oakland City Council to set the tax rates at amounts lower than the maximum rate without having to go back to the voters.
Vacancy is defined as a parcel of land or a condominium that is in use less than 50 days during a calendar year. A vacant parcel that is in use 50 days a year for a farmer’s market or other weekly event would not be considered vacant.
City Council would need to pass implementing legislation to establish the method for identifying the use and vacancy status of each parcel. Owners of vacant properties would then be required to self-register their properties.
Parcel’s owned by the following types of owners would be exempt from the tax:
- non-profit organizations
- public agencies
- very low-income owners
- low-income senior owners
- disabled owners
- owners for whom paying the tax would constitute a financial hardship
- owners who are unable develop their parcel due to a demonstrable hardship that is not financial
- owners who can’t develop their property due to an exceptional circumstance, such as damage by a natural disaster or other physical condition
- owners who have submitted a project for planning approvals or who have a project under active construction; owners with entitlement approvals who need more time to complete their project can apply for a two-year exemption
The city finance director would establish the procedures for granting exemptions. The City Council would have the authority to establish other exemptions as needed.
The city administrator’s office estimates that the tax would generate between $6.5 million and $10.5 million annually,1 although the ultimate amount of funding that the tax would generate cannot be known until the registry is established and the exemptions are processed.
A maximum of 15 percent of funds in any given year may be used to administer the tax. However, the full cost to the city of creating and administering the program must be covered. The city administrator estimates that one-time costs (including the creation of web portal needed to establish and maintain the registry) would be $100,000. Ongoing administrative costs would be $450,000 annually for the three new employees needed to implement this measure.
At least 85 percent of the funds would be used to create affordable housing, provide services to assist homeless individuals and those at risk of becoming homeless, and address illegal dumping. Allowable uses related to addressing homelessness could include job training, housing assistance, sanitation and cleaning services for homeless encampments, navigation centers and displacement prevention. Funding could also be used for code enforcement, the remedying of illegal dumping and the clean-up of blighted properties.
A nine-member Commission on Homelessness would be established to advise on the expenditure of funds.
The tax expires after 20 years.
Vacant land and blight have been a challenge for Oakland for many years. In 2012, the City Council voted to create a registry for vacant and foreclosed residential properties, which was then expanded to include defaulted properties as well as investor-purchased (REO or real estate owned) properties.
In 2014, the council directed staff to prepare a plan to create a registry of vacant lots and vacant ground-floor commercial storefronts.2 The costs of developing such a registry were found to be prohibitively expensive given that state law limits the city’s ability to charge a fee to cover these costs. As a result, a registry has not yet been created.
Several months ago, a councilmember revived the discussion by putting forward a proposal to tax vacant properties and to use the funds to address homelessness and illegal dumping. Estimates suggest that the revenue from the tax would be sufficient to cover the expense of creating and maintaining the registry and provide resources to combat homelessness and illegal dumping.
The Oakland City Council placed Measure W on the ballot. A two-thirds vote in support is required to pass the measure.
- This measure provides funds to address two very important issues facing Oakland right now: homelessness and illegal dumping. As of last year, homelessness in Alameda County increased 39 percent and impacted 5,629 people, roughly half of whom live in Oakland.3 Funds are needed to address this crisis.
- This measure is the best opportunity to date to establish a registry of vacant parcels. Having a registry would help the City of Oakland understand where these parcels are and why they are vacant, increasing its ability to make good land use decisions in the future. Other legislative attempts over the years have been unsuccessful, largely due to the cost of establishing the registry. Only a tax will generate sufficient funds needed to establish and manage a registry.
- This measure has the potential to encourage property owners to develop their parcels and put them into active use. This is a policy goal that SPUR has supported in our report A Downtown for Everyone and elsewhere.
- Low-income and other vulnerable owners would not be unduly burdened by this tax because they would qualify for the exemptions outlined in the measure.
- This measure could be challenging to implement. The definition of vacancy as a parcel that is in use less than 50 days in during a calendar year begs the question of what “in use” means. It may be difficult for the city to monitor whether parcels are actually “in use” when owners claim they are.
- The exemptions called out in this measure are very broad and may be difficult for the city to apply fairly. Additionally, the exemptions are so broad that not many parcels may ultimately end up paying the tax.
- Because this is a flat tax for every parcel regardless of size or value, this measure would impact small property owners more than owners of larger properties. Small property owners may lack the expertise needed to navigate the development process, creating the unintended consequence of forcing small property owners to sell their properties.
- While this measure would generate funding for homelessness, it would not be nearly enough funding to effectively address the problem.
There is a lot to like about Measure W. SPUR supports the concept of a vacant parcel tax, a tool that has been used in cities both around the country (Washington, D.C., Harrisburg, Pennsylvania4) and around the world (Seoul, Korea, Marikina City, Philippines5) to help move vacant land into active use and eliminate blight. Vacant parcel taxes, particularly in hot market cities, can help propel land owners to develop their properties. Some cities, such as Hartford, Connecticut,6 have experimented with raising taxes on vacant land while lowering them for new development. It makes sense for cities to tax the behavior they want to discourage (allowing parcels to remain vacant), while rewarding behavior they want to promote (building new housing, adding businesses).
However, we remain concerned about the city’s ability to effectively implement this measure. The definition of what constitutes vacancy is very broad, and as such it may be difficult to determine when a parcel is “in use” or not. The exemptions are also very broadly defined, such as an owner being unable to develop a parcel due to a “demonstrable hardship that is not financial” or to an “exceptional circumstance.” This vague language would make it very difficult for staff to implement the tax fairly. Lastly, we have concerns that this measure may have disproportionate impacts on small property owners because it is a flat tax.
1 “Special Tax on Vacant Properties to Fund Affordable Housing and Support Programs for Homeless People,” Katano Kasaine, Director of Finance, May 2, 2018.
2 “Informational Report on Vacant Property Registry”, June 22, 2015. Heard in Community and Economic Development Committee on July 14, 2015.
3 https://www.eastbaytimes.com/2017/06/02/survey-confirms-oakland-homeless-crisis-growing-worse/ and https://www.kqed.org/news/11477036/alameda-countys-homeless-population-climbs-dramatically-over-two-years, accessed on May 21, 2018.
5 Ibid. This report notes that taxation of vacant land has also been used to deter land speculation.
6 “Can Extra Taxes on Vacant Land Cure City Blight? http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2017/03/07/can-extra-taxes-on-vacant-land-cure-city-blight; accessed on April 18, 2018