Why California Won’t Pass a Pied-à-Terre Tax: Explained

HOST

From DailyListen, I'm Alex. You probably saw the headline this morning: Why California couldn't pull off a Mamdani-style pied-à-terre tax, like the one New York City's pushing. It's a tax targeting fancy second homes—think luxury condos owned by out-of-towners, sitting mostly empty. New York hopes it'll rake in hundreds of millions to plug a budget hole. But California? Dead end. Voters love their Prop 13 protections, courts just axed a similar vacancy tax in San Francisco, and real estate groups are geared up to fight. To break down the power plays and roadblocks, we're joined by James, our politics analyst.

JAMES

This puts the squeeze on San Francisco's city government first. They tried the Empty Homes Tax with Proposition M, passed by voters in 2022. It aimed to hit owners of vacant residential units. But the San Francisco Apartment Association, Small Property Owners of San Francisco Institute, and four individual landlords sued. On October 31, 2024, Superior Court Judge Charles Haines ruled it unconstitutional. He sided with challengers who said the right to leave property empty—to exclude others—is core to property rights under the Takings and Due Process Clauses. City hall loses enforcement power. Owners gain breathing room. And state courts force local officials to back off progressive tax grabs. That's the immediate shift.

HOST

Judge Haines drew a hard line on the right to keep property vacant. But San Francisco already has a commercial vacancy tax running since 2022. How's that fitting in here?

JAMES

Commercial side hands city hall a small win, but tiny scale. That tax pulled in about $5 million total since 2022—matching what authors projected yearly, but spread over years now. Pressure eases on residential owners, who dodged the bigger bullet with the residential ruling. Challengers like the Apartment Association celebrate, keeping their empty units off the hook. But city budget planners face the hit: no big residential revenue stream. Oakland tried a narrower vacant homes tax back in 2018. It nudged housing availability up a bit, nothing dramatic. Real estate groups hold firm, ready for appeals. San Francisco's city attorney might push back, but owners sit stronger, with courts backing exclusion rights.

HOST

$5 million total from commercials since '22 sounds like pocket change against New York's hundreds of millions goal.

JAMES

New York's pied-à-terre play cranks up the pressure on out-of-state owners, but California's Prop 13 shields locals tight. Enacted in 1978 via ballot, it caps property taxes at 1% of 1975-assessed value, with 2% annual hikes max. U.S. Supreme Court upheld it in 1992, citing neighborhood stability. NBER paper by Nada Wasi and Michelle J. White—Working Paper 11108—shows it locked in homeowners. Average tenure jumped 1.04 years over other states from 1970-2000. Coastal owners win big, low taxes forever. Inland areas lose revenue share. Any pied-à-terre tax here would slam that setup. Lawmakers feel the bind: voters idolize Prop 13. Real estate lobbies loom large.

HOST

Prop 13 locked people in place for decades. Does that explain why state lawmakers aren't chasing this tax?

JAMES

State lawmakers take the brunt, frozen by Prop 13's voter armor. No active push for pied-à-terre taxes. Ballot initiatives cost a fortune—millions to qualify, qualify. Real estate groups vow lawsuits, like they delivered in San Francisco. SF Standard calls it a lesson for tax hikes: courts kill vacancy penalties fast. New York's different—no Prop 13 equivalent. Their Mayor Zohran Mamdani and Governor Kathy Hochul announced it last week, hitting non-primary homes over $5 million, plus condos and co-ops above $300,000 assessed value. Targets NYC income tax dodgers. But California? Owners exhale. Prop 13 continuity trumps revenue grabs. Lawmakers dodge the fight.

HOST

Mamdani and Hochul aim at $5 million luxury pads. California's got over 53,000 investor-owned vacant properties—why not go after those?

JAMES

Investor owners gain the upper hand in California, backed by that Superior Court smackdown. Empty Homes Tax died because excluding others from vacant property counts as a protected right. No U.S. city runs a true pied-à-terre tax anyway. New York's bid, Senate Bill S44A from Senator Brad Holyman originally in 2014, twists their own mess: single-family homes tax one way, co-ops and condos undervalued chronically. Experts say it'll spark valuation wars over high-end spots. California skips that headache. Prop 19 in 2022 already tightened transfers: vacation homes to kids now reassess to market value unless the kid lives there primary and value stays under parent's tax base plus $1 million. Families adjust plans. Investors hold steady.

HOST

Prop 19 hits family handoffs hard—full reassessment on vacation spots. But back to the tax block: any chance San Francisco appeals and wins?

JAMES

Appeal pressure lands on San Francisco's city attorney. Someone named Preston bets they'll succeed eventually, letting the city tax empty apartments. But challengers struck first with their May 2024 summary judgment motion, and Judge Haines granted it October 31. Core argument: vacancy tax takes property rights without compensation. City officials scramble for workarounds, but owners and associations dig in. Oakland's 2018 tax, narrower scope, barely moved housing supply. No big revenue details there. California's vacancy claim—lower than national averages—despite 53,000 investor empties per Attom Data. Real estate wins the round. State stays hands-off.

HOST

Oakland's tax did little for supply. Makes sense real estate groups fight so hard. What about New York's edge—could California copy if they tweak?

JAMES

New York forces non-residents to react sharp—pay the surtax or claim residency and eat city income tax. But California courts already drew blood: U.S. District Judge William Shubb eyed a reporting law last December, saw substantial burden risks, though he didn't block it outright. Prop 13's stability halo blocks copycats. Wasi and White's paper questions if lock-in gains beat revenue losses and inland-coastal shifts. No clear win. Mamdani's plan distorts NYC's broken system more, per critics. California lawmakers won't touch it. High ballot costs, sure lawsuits from Apartment Association types. Owners keep exclusion power intact.

HOST

Shubb flagged reporting burdens. Everyday owners hear "tax empty homes" and think it's fair—why do courts say no?

JAMES

Courts hand power to property owners by guarding exclusion as Takings Clause bedrock. Challengers nailed it: forcing occupancy or payment strips that right. San Francisco's commercial tax eked $5 million since '22, against yearly hopes. Residential version? Zapped. No true pied-à-terre anywhere in U.S. New York's $5 million threshold hits luxury in hot neighborhoods, but needs new valuation fixes for co-ops. California? Prop 13 voters rule. State claims low vacancies, yet 53,000 investor-owned empties. Lawmakers pivot elsewhere. Real estate groups dictate terms—no new taxes stick.

HOST

53,000 empties but "low" rates officially. Prop 13 seems the unbreakable wall. Any other states eyeing this after San Francisco?

JAMES

No other states rush in—San Francisco's loss cools momentum. Oakland's modest bump in availability sets low bar. Preston eyes SF appeal win, but timeline drags. New York's Hochul and Mamdani push amid budget deficits, controversial since 2014. California transfers via Prop 19 already squeeze: kids inherit vacation homes at market value now. Bay Legal helps families dodge. Courts prioritize owner rights. Cities like SF feel revenue pinch. Investors breathe easy. State inaction rules.

HOST

Prop 19 changed inheritance games. Ties back to stability Prop 13 promised.

JAMES

Stability winners are coastal holdouts under Prop 13—decades of low taxes. NBER shows tenure spike. Inland spots fund less. Vacancy taxes test that: courts say owner choice trumps city needs. No pied-à-terre copy here. New York battles valuation fights ahead. California lawmakers sit it out. Real estate holds the line.

HOST

James, spot on—California's tax dreams crash on Prop 13 rocks and court smackdowns. Listeners, that's the read on why a Mamdani-style pied-à-terre tax won't fly here. Empty homes stay empty, owners stay protected. I'm Alex. Thanks for listening to DailyListen.