Empty homes in certain markets now face a perverse economic incentive. A new analysis reveals that exit taxes—levies imposed when sellers transfer property—can cost enough that landlords and owners rationally choose to leave units vacant rather than sell.
The math works like this. When capital gains taxes, transfer taxes, and local exit fees combine, sellers in high-appreciation markets face six-figure bills. An owner who bought a home for $500,000 and watched it appreciate to $1.5 million faces steep taxes on that $1 million gain. Add transfer taxes and exit fees in jurisdictions like San Francisco or New York, and the total bill balloons beyond what many sellers can stomach.
Holding the property empty costs less than selling. Property taxes on vacant units run lower than taxes on occupied homes in some jurisdictions. Maintenance on an empty house costs little. The owner avoids triggering the exit tax entirely.
This dynamic removes units from the market. Tenants lose rental options. Buyers lose purchase opportunities. Communities end up with boarded-up buildings serving no productive purpose.
Cities and states created exit taxes to fund services and discourage speculation. Instead, the unintended consequence locks property off the market. Some jurisdictions have begun reconsidering these fees, recognizing that the revenue gains don't offset the loss of housing stock.
For buyers, this shrinks already tight inventory. For renters, fewer available units mean higher rents. For sellers who do move, the tax hit remains brutal. Property owners sitting on appreciated assets face a genuine dilemma. Selling triggers an enormous bill; holding costs virtually nothing.
The solution requires policymakers to recalibrate exit taxes. Lower fees would encourage sales and free up housing supply. Higher fees entrench the problem further. Markets already dealing with scarcity cannot afford to penalize transactions that would normally clear supply bottlenecks.