Nearly every city council candidate and their mother is talking about a vacancy tax this cycle. Alex Hudson, Efrain Hudnell, Ron Davis, and even tax-adverse Olga Sagan all support such a tax, inspired by those imposed in Canada and California. 

Despite the tax’s trendiness, even its proponents warn of its limited ability to chip away at the two issues the vacancy tax aims to address; an understocked housing market and the projected $200 million budget shortfall the City will face in 2025. On top of that, the City might struggle to write a vacancy tax that passes state constitutional muster. 

With only so many hours in a day, a housing crisis threatening to push more Seattleites into homelessness, and a looming budget hole that could cost the City vital programs, the next council will need to decide if the juice is worth the squeeze when it comes to the vacancy tax. 

What Is a Vacancy Tax?

A vacancy tax charges property owners a fee on unused or underused properties. Vancouver set the trend in 2017, passing a 1% annual tax on properties that remain vacant for more than six months at a time. That tax increased to 3% for 2022, and they use it to pay for affordable housing. Several cities in California followed suit, including Oakland, California, which charges property owners a flat fee of either $3,000 or $6,000 on properties that stay empty for more than 50 days a year.

Some proponents argue that the financial penalties will incentivize landlords to more aggressively seek out tenants, which could mean lowering rents. If landlords do not try to fill the taxed units, at least the City gets some additional revenue, they argue. 

But even council candidates in favor of such a tax acknowledge it would not perform either of those functions very well.

Chipping Away at the Housing Crisis

Counter to a point many NIMBYs make, Seattle does not have enough vacant units to solve the housing crisis. 

According to an analysis of the American Community Survey, about 33,000 units in Seattle were vacant for some amount of time in 2021. About 8,000 of those units were vacant for less than a month, and another 14,000 were vacant for six months or less. If Seattle had adopted Vancouver’s six-month rule in 2021, the City would have up to 11,000 units to tax, not including any carve-outs for nonprofits, landlords who only rent out a few places, or whichever other property owners tug hardest at the council’s heartstrings. Vancouver exempted about 70% of “vacant” units in 2020.

But even if the tax encouraged landlords to fill every single empty unit, the city needs 112,000 units by 2044. And that’s on the low end of the spectrum. Other estimates call for 120,000 units to meet the need right now and then about 82,000 more every year to keep up with Seattle’s growth. 

Moreover, the new tax will not fill every vacant home–or at least it has not worked that way in other places. Of the 1,755 eligible vacant properties in 2020, Vancouver officials reported that half were occupied in 2021, though the City did not know how much the tax contributed to that number. Oakland, which allows for 10 categories of exemptions, filled 400 of its 1,700 vacant units over two years.

But, hey! The housing crisis leaves the City in no position to turn down any number of unoccupied units. Hudson, who is running in Seattle’s District 3, told The Stranger that the City needs to use every tool in the toolbox to put people into new and existing housing. 

Besides, other strategies that progressives support, such as the Housing Levy, also do not solve the housing crisis on their own. The 2023 Housing Levy will only produce about 3,100 new units of affordable housing over seven years. 

Bleed Those Landlords Dry! Sort of! 

Aside from putting more people in housing, supporters also tout the money a vacancy tax could bring in. Would that money fix the budget shortfall, though? Absolutely not. Plus, ultimately the City would want the tax to generate no money at all, so it is not really that sustainable when it comes to filling budget holes.

The amount of revenue the City could raise is unclear, but other jurisdictions projected or collected revenue in the tens of millions. In San Francisco, which has twice as many empty units as Seattle, the vacancy tax is projected to raise about $20 million a year, which would not even pay for 20 affordable homes, according to the San Francisco Chronicle. It costs about $400,000 to build one unit of affordable housing, according to Seattle developer Ben Maritz. So, very roughly speaking, if the City brought in the same amount of money as San Francisco, despite having lower property value and less vacancies, it could fund 50 units of affordable housing. 

Other taxes raise a lot more money. By comparison, the “JumpStart” payroll tax in Seattle brought in more than $230 million in 2021.

Supporting a tax that raises little revenue seems like a cowardly way to show a little ankle on progressive revenue without pissing anyone off. But most vacancy tax supporters would also champion other progressive revenue streams. Davis, who is running in District 4, said a vacancy tax is not his number one favorite tax (though it does crack his top four) because it probably would not produce that much revenue. Hudson supports adding a local capital gains tax on top of the state one, and Hudnell likes a land tax.

But, Like, How?

In Seattle, a vacancy tax would present a number of hurdles. 

Some worry it would create an administrative nightmare. The City only tracks vacancies within projects funded by the Office of Housing (OH), so it would need to kick more money into OH or into the Seattle Department of Construction and Inspection (SDCI) to pay for the added task. 

Council Member Alex Pedersen proposed an ordinance last year that would have required landlords to submit data to the City about their unit sizes, prices, and vacancy rates. OH, SDCI, and the Office of Planning and Community Development sent a concerned statement to the council, arguing the program would require a similar setup to the Rental Registration and Inspection Ordinance program, which cost the City about $5 million. The council narrowly passed the proposal, but the Mayor used his first veto to block it.

Critics and proponents alike also note the difficulty of enforcing such a tax. Vancouver performed almost 9,000 audits to keep landlords of about 1,300 units honest in 2021. 

Probably more importantly, the tax may not be legal. 

To be clear, nothing is ever truly illegal until the council tries it, someone challenges it, and a court strikes it down. Big business and real estate lobby groups challenge stuff all the time, and the threat of a challenge should not always kill every bill. But legal experts told The Stranger that writing a vacancy tax that could stand up to a challenge may be very complicated or even impossible without the help of the state.

The courts would likely interpret a vacancy tax as a property tax since the City would be, you know, taxing property that is vacant. Property taxes must apply to all properties equally in Washington, so some legal experts said a court might knock down a tax that hits only specific properties. To make it legal, the council would need the Legislature to pass a constitutional amendment to change the uniformity clause of 1889, which would require a two-thirds majority in both the State Senate and the House and then approval from voters on a general election ballot.

The City has an easier time passing more straightforward property taxes and excise taxes (i.e. taxes on transactions). However, the experts The Stranger spoke with had a hard time thinking of the vacancy tax as an excise tax because it would hit landlords for not making a transaction.  

That said, the City can collect revenue without instituting a tax. Seattle already fines owners of vacant buildings for City services that combat “neighborhood blight.” If the City proves that a vacancy in and of itself constitutes a burden that costs them money, then they may have a creative argument to impose a fine. However, legal experts thought my argument of “contributing to the housing crisis” as a burden would not stand up to much scrutiny because property owners are not legally obligated to rent out their property for housing. 

Luckily for the next city council, the Progressive Revenue Stabilization Workgroup may be working out these very kinks right now, or ruling out the tax entirely because they came up with an idea that raises more money. The chair of the workgroup expects to unveil a long-awaited report in the first week of August, which should shape the tax conversation in City Hall and among candidates trying to break in.