A study from the Journal of Public Economics on the effect of vacancy taxes in municipalities in France. Evidence suggests that they work; vacancy rates decreased by 13% in the span of four years, and most importantly most of the vacant units became *permanent residences*. (1/13)

The impact of the vacancy tax, or “taxe sur les logements vacants” (TLV) was especially concentrated in long-term vacancies, mostly likely aided by the vacancy tax rate increasing from 10 to 15% depending on length of vacancy (up to 15% after four years). (2/13)

The effect at play here: the TLV increases the opportunity costs for owners who leave their units vacant, and instead incentivizes them to rent at a lower rate, which helps exert downward pressures on rent levels, helping renters find more affordable housing. (3/13)

This is important because America, like many other OECD countries, is in the middle of a housing crisis. Opportunity has been concentrating in large cities and urban areas, but supply has significantly lagged behind skyrocketing demand. (4/13)

Additionally, there are more benefits to reducing vacancy than just affordability; evidence suggests that empty housing leads to negative externalities such as reductions in property values, increases in delinquency rates, and damage to social cohesion. (5/13)

The extremely inelastic (almost fixed in the short term) nature of housing supply exacerbates these problems. The vacancy tax incentivizes owners to reintroduce vacant units into the market to improve the efficiency of the existing housing stock in these high demand areas. (6/13)

Using the Californian housing market as an example: with almost 14.4 million housing units and a vacancy rate of 4.2%, the number of vacant units would be approx. 600,000. A 13% reduction would mean freeing up close to 80,000 housing units! (7/13)

That of course doesn’t account for the benefits from the tax revenue from the vacancy tax on the remaining 520,000 units, which could be used to for public spending on a variety of things...including housing! (8/13)

**An important caveat however:**

The French system features a “living tax” (taxe d’habitation, or TH) paid for every residence. This TH would be higher than the TLV until after 4 years of vacancies. This another incentive working in favor of buyers. (9/13)

Because the TH would be higher than the TLV in most cases until after the TLV fully scaled up to the 5+ year vacancy threshold, the TH encourages owners to rent or sell units as primary residences, rather than making them second residences. The US has no such equivalent. (10/13)

At the end of the day, however there is no replacement for the most necessary action moving forward: massively expanding housing supply through anti-NIMBY measures such as implementing a Land Value Tax (LVT), ending exclusionary zoning, etc. (11/13) https://www.nytimes.com/2020/02/13/business/economy/housing-crisis-conor-dougherty-golden-gates.html

Any vacancy tax measure should only be a *supplementary* measure for easing market frictions. Policymakers must calibrate the tax to local situations to encourage more affordable rentals but not discourage new construction (e.g. a tax moratorium on new units for 1 year.) (12/13)

H/t to @DogmaticPrior for helping me access this study and aiding in analysis. Any of the data not taken from the study (linked below) was obtained from the U.S. Census Bureau or directly linked. (13/13) https://www.sciencedirect.com/science/article/abs/pii/S0047272719301409