People who have purchased multi-family rental properties received a bit of good news recently – the proposed vacancy tax will not be placed on the November 2020 ballot, and will be up for a vote in November 2022 at the earliest. Last summer, LA City Councilmember Mike Bonin requested that the city study an “empty homes penalty” ballot measure; this was a direct effort to combat the affordable housing crisis. The argument was essentially that landlords would offer lower cost rental units if the alternative was being taxed for having empty units.
Naturally, landlords vehemently opposed this would-be vacancy tax on the grounds that it would further destabilize their already unstable financial situation in the wake of COVID-19. Specifically, demand for rental units has decreased – which would cause unfixable vacancies. Moreover, the tenants these landlords do have are unable to pay their rent because of the havoc the virus has wrought on the economy. As such, the vacancy tax would only serve to penalize them for something they have no control over.
In opposition, those in favor of the vacancy tax argue, as noted above, that this tax would force landlords to lower prices on high end units that haven’t been rented yet. According to recent studies, hundreds of thousands of people in Los Angeles are “rent burdened” while tens of thousands don’t have a permanent domicile. This tax, they argue, would go a long way to solving those problems; either landlords reduce prices to something affordable, or they pay taxes which will be used to assist them.
The city has reported a vacancy rate of between 6% and 7%, which translates to roughly 85k to 100k empty units. The vacancy tax would generate approximately $150M per year. This year, Councilmember Bonin noted that the measure, as written, would not fix the affordable housing crisis. Specifically, Bonin used Oakland’s vacancy tax as a model for his proposal, but it had a loophole that essentially destroyed the intent of the tax in the first instance. As such, landlords can breathe a sigh of relief for now.
At the Chernov Team we understand that knowledge is power, and knowledge of proposed taxes that would cut into profits for those purchasing investment properties is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most. Wear a mask!
