In Debbane v. City and County of San Francisco, No. A172067 (Cal. Ct. App. Sep. 11, 2026), the California Court of Appeal upheld the invalidation of San Francisco’s Proposition M, which the voters enacted “to ‘tax’ owners of certain residential units in buildings with more than two units for any unit kept ‘vacant’ for more than 182 days.” Slip op. at 1. The purpose of Prop M is to make it too economically painful for property owners to withhold units from the rental market, “thereby increasing the number of housing units available for occupancy.” Id.
[Disclosure: we filed an amicus brief in support of the property owners in this case.]
San Francisco, like a lot of other places in California (and elsewhere) is in the midst of an affordability crisis. Thinking of purchasing a home? Good luck with that unless you have boatloads of money (and be prepared to offer more than asking price). Renting is an option, but one you are going to pay for dearly, as well. The cause seems pretty obvious, as development there is among the most restricted in the nation, with the city having the unenviable reputation of being among the most difficult, expensive, and time-consuming places to build more housing.
You might think that in response, San Francisco would consider making it easier to build more housing. Increase the supply, and the market might just work. But no, the august voters of the City and County instead adopted Prop M, which in effect blames the lack of housing on property owners who do not voluntarily rent their units. Choosing to stay out of the rental market is a not-irrational position, given the City’s (and California’s) rent and vacancy control laws, which make it nearly impossible to get rid of a tenant except in very limited circumstances.
So the voters overwhelmingly decided to economically punish certain owners who exercise their right to not rent by adopting the “Empty Homes Tax Ordinance,” which imposes a yearly-increasing tax on qualifying owners that starts at $2,500 (for units with square footage less than 1,000), $3,500 (with square footage from 1,000 to 2,000), or $5,000 (with square footage greater than 2,000). If the unit continues to be vacant through the following tax year, the rate increases for each square footage tier to $5,000, $7,000, and $10,000, respectively. If still unrented, the rate again increases for each tier to $10,000, $14,000, and $20,000.
State court lawsuit followed, alleging that the vacancy tax was a taking and was preempted by California’s Ellis Act, among others. After full briefing and argument, the Superior Court concluded the vacancy tax violated the Takings Clause and was preempted by the Ellis Act.
The California Court of Appeal affirmed, but only on the Ellis Act preemption grounds:
The Ellis Act provides, with certain exceptions not relevant here, that no statute, ordinance, regulation, or administrative action shall “compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease. . . .”
Slip op. at 11. In short, the Act acknowledges an owners right to not rent, and “to go out of the residential rental business[.]” Id. The court rejected the city’s argument that Prop M is a local tax measure that cannot be preempted under the city’s home rule power. Yes, the ordinance is a local law concerning local affairs, but that doesn’t answer the preemption question which is resolved by asking whether this local measure conflicts with state law. (The court decided to not decide the question of whether the vacancy tax is really a “tax” as the city claimed, or is a penalty as the challengers claimed.)
Yes, the ordinance and the Ellis Act conflict because the vacancy tax is attempting to impose a prohibitive price on the exercise of the right to get out (or remain out) of the rental business:
Bullock, Reidy, and Coyne collectively instruct that local ordinances like Proposition M that place conditions on a residential property owner’s right to not offer their property for rent are preempted if those conditions are not required by the Ellis Act.
Slip op. at 15. The city argued that yes, there may be a right to exit the rental market, but we’re trying to force you into the rental market, and that’s a big different. The court disagreed, concluding that the Ellis Act protects owners’ rights to enter and to exit. And, in any event, “there is no material difference between” the right to exit the rental business and the right not to enter (or reenter) the rental business:
In fact, one could say the right at issue here is a residential property owner’s right to remain exited from the rental market. Otherwise, as the City apparently sees it, while a property owner, indeed, has the right to exit the residential rental business, they have no correlative right to remain out of that business and can be pressured back into it on pain of significant taxation. This circularity in reasoning is a patently unreasonable reading of the Ellis Act.
Slip op. at 16.
The city countered by arguing that this tax doesn’t coerce anyone to do anything, and “the owner still has ‘choices’ — they can use but not reside on the property, they can reside on the property, or they can choose not to use or reside on the property and pay the Empty Homes Tax.” Slip op. at 17. The city actually argued with a straight face that owners remain free to avoid the tax “as an office, personal gym, or a private art studio.” Id. The court rejected that argument not by laughing at it as it should have but because the city had not raised it below “and has therefore forfeited the issue.” Id. The court did note that the city here was arguing that the way to avoid the vacancy tax was to use the property in a way that would result in a violation of the zoning code:
Furthermore, the City’s assertion that making nonresidential use of a residential property is a choice an owner can legitimately make to avoid the Empty Homes Tax is at odds with the uses of a “Residential Unit” allowed under San Francisco’s Planning Code. San Francisco Planning Code section 102 provides that the “Principal” permitted use of a “Residential Unit” (or “Dwelling Unit”) is “Residential Use,” defined to “provide housing for San Francisco residents.” While the owner of a “Residential Unit” may also engage in “Accessory Use,” like a home office, such use is limited to a “related minor Use that is either necessary to the operation or enjoyment of a lawful Principal Use or Conditional use, or appropriate, incidental, and subordinate to any such use. . . .”
And here you thought it was your property!
Having ruled that the ordinance is invalid because it conflicts with the Ellis Act, the court (unfortunately, in our view) did not address the takings issue
We therefore conclude, for all the reasons we have discussed, that Proposition M is preempted by the Ellis Act. This conclusion dictates that the judgment in favor of the plaintiffs must be affirmed, and we therefore need not, and do not, reach the additional grounds, including the constitutional grounds, on which the trial court granted summary judgment.
Slip op. at 25.
Debbane v. City and County of San Francisco, No. A172067 (Cal. Ct. App. Sep. 11, 2026),