California Appeals Court Blocks San Francisco Empty Homes Tax

A California appeals court on Sept. 12 blocked San Francisco’s Empty Homes Tax, ruling that the voter-approved measure conflicts with state law. The decision means Proposition M cannot be enforced for now, preserving the city’s suspension of the program while officials consider whether to seek further review.

The unanimous ruling from the 1st District Court of Appeal affirmed an October 2024 decision by San Francisco Superior Court Judge Charles Haines. According to Hoodline’s account of the ruling, Justice Kathleen Banke wrote that the 1985 Ellis Act prevents public entities from compelling owners to rent residential property.

What Changed

Proposition M was approved by San Francisco voters in 2022 with 54.5% support. It was designed to push vacant apartments back onto the rental market by imposing a tax on units left empty for six months or more.

The tax applied to owners of residential buildings with three or more units. It exempted single-family homes, duplexes, and government- or nonprofit-owned properties. Depending on unit size and how long a unit remained vacant, the levy ranged from $2,500 to $20,000 per unit.

The appeals court concluded that the measure ran into the Ellis Act, which Hoodline reported gives property owners the right to enter the rental market, leave it, and stay out of it. In practical terms, the court said San Francisco could not use a local tax to pressure owners into renting units if state law protects their decision not to do so.

Who Is Affected

The ruling matters most for owners of multifamily residential properties in San Francisco, especially those who keep some units vacant for personal use or other non-rental purposes. The lawsuit was brought by trade groups and individual owners, including brothers Eric and Andrew Debbane, who, according to Hoodline, keep units in their five-unit building for personal use rather than renting them.

For city finances, the decision also removes a potential revenue source that had been expected to support affordable housing and low-income rent subsidies. San Francisco’s Controller’s Office estimated in August 2022 that Proposition M would generate $20 million in tax year 2024, $30 million in 2025, and as much as $37 million in 2026 if vacancy patterns stayed the same.

For renters and housing advocates, the court’s decision is a setback for one approach to increasing housing supply. Hoodline reported that proponents targeted an estimated 4,000 vacant apartment units per year. The Chronicle’s account, cited by Hoodline, also said about 10% of San Francisco’s roughly 406,000 rental housing units sat vacant in 2019.

The After-Tax Math

Because the tax never took effect, owners did not owe the amounts contemplated under Proposition M. That has a straightforward cash-flow implication for affected property owners: a blocked local tax is a tax not paid, at least unless a higher court later revives the measure.

Example: an owner of a qualifying building with two vacant units that would each have faced a $10,000 Empty Homes Tax would avoid $20,000 of local tax for that year while the measure remains unenforceable. If the owner had four such units, the avoided tax would be $40,000. At the high end of the schedule, a single unit could have triggered a $20,000 bill.

That said, this is not a refund story, because the measure had already been blocked from taking effect. After the trial court loss, the Board of Supervisors voted 9-2 in early 2025 to suspend collection and administration while the city pursued its appeal.

For high-income households and real-estate investors, the main takeaway is that local housing taxes can still create meaningful exposure even when they are framed as policy tools rather than traditional property taxes. Households with California rental property may want to track local ballot measures and litigation closely, because the legal status of a tax can determine whether a projected expense ever becomes due.

What to Consider

For owners of multifamily buildings in San Francisco, the immediate question is administrative rather than strategic: whether the city seeks review from the California Supreme Court. City Attorney David Chiu’s office said it was disappointed by the ruling but respected the court’s decision, according to Hoodline. The office did not say whether it would pursue further review.

Households that model after-tax returns from California real estate may also want to separate enacted costs from proposed ones. Proposition M had sizable projected revenue, but those amounts were never collected. That distinction matters when evaluating net operating income, expected holding costs, and the value of keeping units off the market for personal or family use.

It may also be worth discussing with a CPA or real-estate attorney how local taxes interact with state law constraints. The central issue here was not whether San Francisco could identify vacancies, but whether it could legally penalize owners for choosing not to rent.

What to Watch

The next step is whether San Francisco asks the California Supreme Court to review the case. Until then, Proposition M remains on hold.

The ruling could also shape housing-tax debates elsewhere in California. Hoodline reported that San Diego voters rejected a similar measure in June and that opponents pointed to San Francisco’s earlier court loss. That suggests the appellate ruling may carry weight beyond one city, especially where local governments consider taxes aimed at unused residential property.

For affluent property owners, the broader lesson is that state-law limits can override local tax policy, even after voter approval. In California, that legal hierarchy may be as important as the tax rate itself.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.