Hussain Farwa

Los Angeles has an unhoused population of more than 36,000, while over 93,000 housing units ironically sit vacant. These units are withheld from the housing market by speculative investors, making the market extremely financialized. Moreover, vacancy in L.A. also has a particular geography, as it is concentrated in areas with inflated housing markets and gentrification, including Downtown, East and North Hollywood, Venice, and some of the city’s Westside neighborhoods. Therefore, my project aims to address the hyper-vacancy rate in L.A. by exploring whether a vacancy tax can be successfully implemented in the city.

Precedent analysis from the Canadian province of British Columbia and Oakland shows that implementation of a vacancy tax can not only generate revenue that can be directed towards affordable housing initiatives, but can also reduce the vacancy rate in the city. It is imperative to understand that the provision of housing is not the end goal because housing does not only provide a roof but serves multiple purposes. Therefore, social housing needs to be holistic where it meets both primary and secondary needs such as access to affordable nutritious food and safe and affordable housing, and higher-order needs, such as capacity and well-being, to improve quality of life for current generations without compromising the ability of future generations to meet these needs.

Vacancy taxes may have the ability to drive this philosophy forward because analysis indicates the possibility that implementation of such a tax may cause the rent prices to decrease throughout the city and simultaneously create opportunities for residents from varying income brackets to move into neighborhoods where they have the opportunity to have a better and balanced quality of life. This project focuses on Cheviot Hills, an affluent neighborhood in West L.A., as a case study, with majority single-family homes and a vacancy rate of about 30% (U.S. Census Bureau). Based on the availability of data, there are two recommended ways that vacancy tax can be implemented in the city. The first is based on property value and the second on rent estimates.

Conclusively, if a vacancy tax is implemented in L.A., it will have a positive impact on the housing market. It mainly seeks to increase residents’ access to housing, whether by incentivizing property owners to sell or rent unoccupied properties or by raising revenue devoted to affordable housing causes.

Cities and Affordable Housing - Guiding Principles

The guiding principles or framework for the provision of affordable housing have been defined in the book titled Cities and Affordable Housing by Severson and Esther where they recognize four principles that must guide the actions taken to meet the needs for social housing. These four principles are:

[ Intergenerational + Intragenerational Equity ]

It is imperative that the actions taken to meet these needs must align with intergenerational equity which refers to reducing inequality for this generation and intragenerational equity which ensures that the actions taken today do not negatively impact future generations and instead act to improve equity in the future.

Based on this philosophy and L.A.'s background on affordable housing the question becomes:

For the scope of this project we will consider the latter definition where vacancy is because the units are held off the market on purpose because they are vacation homes.

There are a number of reasons for vacancies in L.A. The first is that there are thousands of units that are held off the market on purpose. Second, is that homes are being built, but only for the rich therefore there are affordability issues. The third is the issue of financialization of properties along with high levels of speculation which removes thousands of units a year from the market and lastly, L.A. is not building nearly enough affordable housing.

The map below shows that high levels of corporate ownership are associated with high rates of vacancy in the same census tracts. For any given census tract, a greater number of units owned by investment vehicles is associated with a greater number of vacant units.

The reason for proposing the vacancy tax for L.A. is to combat speculative vacancy and raise money for affordable housing and other housing-related services.

For this purpose, the cases of Oakland, Vancouver, and the province of British Columbia were looked at, where vacancy taxes have been implemented.

• In Vancouver (2017) vacancy tax has generated $38.7 million and it also motivated owners of vacant properties to put them into the rental pool as the number of vacant lots dropped by 22%.

  • Vacancy Definition: Unoccupied for over six months a year; “unoccupied” means not the principal residence of the occupier, or not occupied by an arm’s-length tenant for at least 30 consecutive days.

• In Oakland (2018) the annual tax was approved for the next 20 years, and in its first year, the tax brought in $5.6 million.

  • Vacancy Definition: In use fewer than 50 days per year.

• Whereas, the speculation and vacancy tax in British Columbia (2018) has brought $231 million in its three years from the five regions where it is in effect.

  • Vacancy Definition: Property is not owner’s principal residence or property is not rented out for at least three months of the year.

For all three cases, the vacancy tax is defined differently as the definition of vacancy varies. The exemptions provided by the governments are also somewhat different depending on the individual context of the areas however, one main thing in common is the fact that all of them use the revenue from taxes towards affordable housing initiatives.

The first exercise that is needed is to speculate what concerns will be raised if a vacancy tax is implemented or proposed.

There is a high likelihood that speculative investors will oppose the vacancy tax as they are the ones who will directly be affected by it for keeping their properties as investment vehicles.

It is also estimated that the city would need to spend $2.9 million initially and $5.6 million annually to administer such a tax. Another form of resistance could be from those developers who are stuck in bureaucratic procedures as well as their financial hardships. There would also be concerns regarding the fact that there is no availability of reliable vacancy or property ownership data and the fact that the long-term effects of a vacancy tax remain unknown.

I was able to gather some of these speculations from the letters written by the public to the city and some of them are mentioned below:

These are only a few letters out of a total of 35 or more where people, as well as companies, have shared their concerns regarding the proposal of implementing vacancy taxes in L.A. which is where we drew some of the speculations from.

Even though there has been conversation around vacancy taxes in L.A. but its deployment has been delayed not only due to COVID but the plans are also unclear. Therefore, based on what other cities and states are doing there are three ways to go about vacancy taxes for L.A.

Number one, taxes based on property value. Number two is based on rent estimate and the last one is a flat rate which mainly comprises a fixed amount collected from vacant property owners throughout the city.

The limitation with the first option is that proposition 13 in L.A. does not allow for taxes to be based on property values however, for the sake of theorizing we will be discussing the possibility anyway.

Study Area - West L.A.

As an exercise, I selected a neighborhood to do some number crunching to see how much money can be generated against the government expenditure of almost $6 million.

For my case study, I looked at a neighborhood in west L.A. called Cheviot Hills which is located between Fox Studios and Sony Studios and has been used for the location of many films. The reason I decided on this area is because it has one of the highest vacancy rates of about 30% (U.S. Census Bureau) which implies a total of 527 vacant properties in this small neighborhood.

1. Tax Calculation Matrix

I carried out some web scraping from the limited data I could get from Zillow to find out the property values in this area and identified the average property value and rent estimate with respect to the number of bedrooms.

I further calculated the weighted average because the distribution of the type of houses is not uniform and I wanted to see a singular value for the area’s average property value.

Based on this matrix I was able to predict that if 1% of the property value is collected as vacancy tax, around $13.2 million worth of revenue can be generated from Cheviot Hills alone.

Financially, this model can be feasible for the city but further study needs to be carried out and we certainly need more data.

2. Tax Percentage as a Function of Area Vacancy Rate

In my opinion, the second method where tax percentage is a function of the area vacancy rate is a better approach to implement vacancy tax because hypothetically, it may ensure that all the vacant properties do not accumulate in one neighborhood. There is a high likelihood that since the vacancy tax would be relative to the number of vacant properties in the neighborhood, it may incentivize community members to either hold their neighbors accountable or encourage them to not keep their properties vacant. There is a community engagement element in this approach that takes away from the rhetoric of "to each their own" and also promotes a certain type of transparency when it comes to understanding who owns the property in L.A.

In conclusion, based on the successful case studies, it can be argued that if a vacancy tax is implemented in LA it will have a positive impact on the housing market. Even though it can be argued that there have not been many examples that showcase or highlight where the tax revenue has been used but at the same time, we need to realize that the concept of vacancy taxes is very new and there has not been enough research that is readily available which shows what kind of social housing projects have come out of it.

At this point what the local government of L.A. needs to focus on is to find a way to maintain a database for all the properties that are vacant and get ownership data for transparency. This is the first step that needs to be taken in order to make all property owners accountable such that speculative investors cannot get away with exploiting the housing market. One of the major issues that will arise with stakeholder engagement is that it is likely that getting the ownership information will not be shared on purpose which would further slow down the process.

Besides arguing for a vacancy tax rate for the city of Los Angeles, another intention of the project is to change the rhetoric around vacancy taxes. The intent is different because I argue that the taxes mainly seek to increase residents’ access to housing, whether by incentivizing property owners to sell or rent unoccupied properties, or by raising revenue devoted to affordable housing causes which can prove to be viable financially and socially in the future.

CBC. 2021. Vancouver empty homes tax will triple to 3% starting in 2021 | CBC

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November 2021].

CBC. 2021. Vancouver's empty homes tax boosts city coffers by almost $40M | CBC News. [online] Available at: https://www.cbc.ca/news/canada/british-columbia/vancouver-s-empty-homes-tax-boosts-city-coffers-by-almost-40m-1.5367892 [Accessed 19 November 2021].

Duncan, J., 2021. BC’s speculation tax has brought in $231M in revenue over its first 3 years. [online] KelownaNow. Available at: https://www.kelownanow.com/watercooler/news/news/Provincial/BC_s_speculation_tax_has_brought_in_231M_in_revenue_over_its_first_3_years/ [Accessed 19 November 2021].

Ferrer, A., Graziani, T., Woocher, J., & Frederick, Z. (2020). The Vacancy Report: How Los Angeles Leaves Homes Empty and People Unhoused. SAGE. Retrieved November 1, 2021, from https://www.saje.net/wp-content/uploads/2020/09/The_Vacancy_Report_Final.pdf.

Los Angeles Times. 2021. Editorial: Could a vacancy tax help L.A.'s housing crisis? Maybe. But not the version the city is planning. [online] Available at: https://www.latimes.com/opinion/story/2020-06-21/editorial-could-a-vacancy-tax-help-l-a-s-housing-crisis-maybe-but-not-the-version-the-city-planning [Accessed 19 November 2021].

Orenstein, N., 2021. Nonprofit run by homeless people says it was unfairly taxed for trying to build housing. [online]

The Oaklandside. Available at: https://oaklandside.org/2021/10/20/nonprofit-run-by-homeless-people-says-it-was-unfairly-taxed-for-trying-to-build-housing/ [Accessed 19 November 2021].

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