*Important to see the most recent update at the bottom of this article.
What’s Being Proposed
The San Diego City Council recently voted to move forward with a proposal that could appear on the June 2026 ballot — a new “second-home and vacation-rental tax” that would charge owners $5,000 per bedroom per year on certain properties not used as primary residences. The measure, spearheaded by Councilmember Sean Elo-Rivera, passed its initial committee vote 3-to-1 and will return to the full council in March 2026 with refined language.
City officials claim the proposal is designed to improve housing affordability by discouraging the number of homes sitting vacant or used as short-term rentals. Early estimates suggest it could affect roughly 10,600 homes citywide and generate $100 million – $135 million annually for city housing initiatives. However, even basic definitions remain unclear — including what exactly counts as a “vacant” second home, how many days of occupancy qualify, and how enforcement would work.
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Key Details:
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Proposal: $5,000 annual tax per bedroom on vacant second homes and vacation rentals.
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Stage: Advanced past initial vote (3-1) — headed to full council review March 2025; potential June 2026 ballot measure.
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Scope: Roughly 10,600 homes affected citywide.
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Revenue: Estimated $100 million – $135 million per year.
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Supporters say: Will increase housing affordability and reduce vacant units.
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Critics say (including me): Would devastate Downtown and coastal markets dependent on second-home buyers.
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Why It Matters for Downtown San Diego
While the goal of expanding housing access is understandable, the potential economic impact could be severe for communities like Downtown San Diego and other coastal areas where second homes are common.
Based on 15 years of market experience, I estimate that about one-third of Downtown condos are owned as second homes. Many of these owners are part-time San Diegans who support local restaurants, entertainment venues, and small businesses. A blanket tax that heavily penalizes them could drive these owners to sell or simply avoid purchasing here in the first place.
That, in turn, risks creating an imbalance: more inventory + less demand. Downtown already faces record-low sales activity — about 50–60 percent below pre-COVID averages — and adding a punitive annual tax could further suppress an already fragile market. It’s also worth noting that Downtown isn’t experiencing a supply shortage today; instead, it’s dealing with weak demand and slow sales velocity. Low demand is tipping the scales in favor of buyers currently. Downtown’s job market is weak and office spaces are struggling to fill vacancies. This means that the market is heavily reliant on the second home buyer.
My Take – A Misdirected Remedy for a Complex Market
While I understand the intention behind this proposal—to address affordability and raise city revenue—it’s a fundamentally flawed approach for the markets it targets.
The assumption that every second home or vacation rental takes away a unit from a full-time San Diego resident oversimplifies how local housing markets actually function. Downtown properties, in particular, cater to a very specific lifestyle: convenience, amenities, and walkability. Those units don’t always translate into affordable housing options even if they were vacated.
One of the biggest flaws in the revenue-generation argument is the failure to consider what happens if market values decline. If punitive taxes drive sales and reduce demand, property values across the board—primary, secondary, and investment—will fall. When that happens, it’s not only second-home owners who feel the impact; full-time residents also see their equity decline.
And as prices fall, so does property-tax revenue, which undermines one of the very goals this proposal claims to support. In other words, short-term tax gains could quickly turn into long-term losses for both homeowners and the city itself.
Rather than penalizing ownership types, San Diego should focus on sustainable affordability solutions: incentivizing new housing production in areas that serve a broad resident pool, streamlining permitting, and improving financing access for first-time buyers. Those strategies address the root issue without weakening existing communities or discouraging investment.
Politics aside, this proposal feels like a blunt instrument aimed at the wrong problem—and for Downtown San Diego, it could not come at a worse time.
Important Update:
Several people have reached out and provided me information on a court case in San Francisco (Case No. CGC-23-604600) where a “Empty Homes Tax”, or Proposition M, was challenged and successfully overturned. The Empty Homes Tax was an attempt to tax homes that are vacant more than 182 days a year.
“On October 31, 2024, the San Francisco Superior Court ruled in favor of the plaintiffs, finding that the Empty Homes Tax violates state and federal constitutions and is preempted by California law. A subsequent court order issued on November 26, 2024, prohibited the City from enforcing or administering the tax.”
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Ryan Ponce - REALTOR®
DRE# 01902950
(619) 228-6790
Ryan@livingthesandiegolife.com
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