Portland’s Proposed Vacancy Fee Is a Solution Looking for the Wrong Problem

Portland’s real estate market is wounded.

Walk through downtown, Old Town, or the languishing Hollywood District, and the evidence is unmistakable: papered-over windows, locked gates, dark interiors, weathered “For Lease” signs. The political pressure to do something about it is understandable.

To address this, some city council members have proposed employing the age-old battlefield tactic of bayoneting the wounded.

Under a $62,520 contract with ECOnorthwest, Portland is studying a fee on commercial and residential property owners whose spaces have sat vacant for at least six months.

Later on, I call this a half-baked proposal. I don’t mean that as an insult. There is no formal proposal yet, but it’s pretty clear where things are headed.

Council President Jamie Dunphy—of Netflix tax fame—has been the most vocal proponent, arguing that property owners are sitting on empty spaces, refusing to accept market-clearing rents, and—in his words—exploiting vacancies as “tax write-offs.” The political theory is that landlords are behaving badly, and a financial penalty will correct that behavior.

The evidence points in a different direction, and following it where it leads has real stakes for the city’s economy.

The numbers tell a much different story.

ECOnorthwest’s 2026 State of the Economy describes Portland as operating in “a new national baseline of reduced demand for commercial real estate” within a regional economy that has faced “stalled population growth [and] job losses.” Specifically, the report notes that the region lost 8,800 jobs in 2025, ranking fourth-worst among the 80 largest U.S. metro areas. Portland ranks 80th out of 81 metro areas in national real estate attractiveness.

The downtown office vacancy rate hit 34.7% in the last quarter of 2025, according to CBRE.

Quarterly office leasing in the Central City averaged 252,289 square feet in 2025—the lowest on record with the exception of 2020—representing roughly a third of the 800,000-square-foot quarterly peak averaged in 2014, according to the Portland Metro Chamber’s 2026 State of Downtown report.

Rents are falling, concessions are widespread, and major landlords are taking deals they would have rejected five years ago. The Portland Business Journal reports that the CEO of Melvin Mark Companies, which manages 4 million square feet of Portland commercial property, has described executing lease deals he would never have considered pre-pandemic.

Councilor Dunphy has argued publicly that property owners can exploit vacancies as tax write-offs, creating a financial incentive to keep spaces empty. He is simply wrong.

Under standard tax accounting, property owners can deduct ongoing operating expenses—maintenance, insurance, property taxes—regardless of occupancy, but cannot deduct the foregone income of a vacant unit. A vacant property incurs full costs with no offsetting revenue, resulting in a straightforward financial loss. Analysts at HFO Investment Real Estate documented this error at length.

Prosper Portland’s estimate of a 32% retail vacancy rate appears to refer to downtown or Central City retail, not to Portland as a whole. In contrast, Kidder Matthews’ retail market report for the first quarter of 2026 covers the Portland metro area and reports an overall retail vacancy rate of 4.8%.

That gap is huge!

A city-wide vacancy fee aimed at a downtown-specific problem would impose costs on landlords throughout Portland—Woodstock, St. Johns, Lloyd District, Gateway—for a vacancy crisis concentrated in the Central Business District.

The policy discussion has not acknowledged this geographic mismatch, and a vacancy tax won’t solve it.

The oddest part of this half-baked vacancy tax is who won’t be taxed.

Some of the worst residential vacancy rates don’t sit in some fat cat speculator’s portfolio. Nope. They sit in the city’s own public housing authority.

Home Forward, Oregon’s largest affordable housing provider, has more than 900 vacant units—a vacancy rate of roughly 12%, or about 60% higher than the city’s overall affordable vacancy rate.

The shortfall stems from a mix of institutional and financial pressures. HUD voucher subsidies have not kept pace with Portland-area costs, leaving Home Forward with an estimated $30 million deficit in the current fiscal year. The agency is also facing a growing backlog of repairs it cannot afford to complete. At the same time, market rents have fallen close enough to subsidized levels that even units priced at 60% of the area’s median income are proving hard to fill.

The institution posting the city’s highest measured residential vacancy rate—with the most direct connection between empty units and people who need housing—would be exempt by design.

In early 2025, Prosper Portland and the Old Town Community Association launched the “No Vacancy” pilot—offering technical support and financial assistance to businesses willing to occupy vacant Old Town storefronts.

As of January 2026, not a single business had opened through No Vacancy. Applicants encountered spaces requiring expensive renovations they couldn’t afford, prohibitive tenant-improvement costs, and lease structures they couldn’t make work—barriers that exist independent of any landlord’s willingness to negotiate.

A vacancy fee can pressure landlords to find tenants faster. But, it can’t generate the tenants.

Portland’s 20 largest office buildings have lost roughly 70% of their market value since 2019. The Big Pink tower sold for $45 million—roughly 12 cents on the 2015 dollar—cutting the city’s annual property tax collections from the building by 68%. More than 700 commercial property tax appeals were filed in Multnomah County in 2024.

A vacancy fee in this context produces one of two obvious outcomes: either landlords sign up tenants faster, or they can’t. It’s more likely they can’t.

In a market where rents are falling but absorption is negative, additional cost pressures are more likely to accelerate disinvestment than to fill vacant storefronts. The results are further declines in assessed values, more property tax appeals, and a widening fiscal hole that the tax was supposed to help address.

The city-commissioned study will cover both commercial and residential vacancies—two structurally distinct markets with distinct causes and remedies.

I fear the study will focus solely on the supply side, neglecting the demand side. Even worse, I fear the study will be balanced, but the council will focus solely on the supply side and downplay the demand side.

The Governor’s Central City Task Force, ECOnorthwest’s earlier research, and the Metro Chamber’s downtown analysis all point in the same direction. Demand is a bigger driver of vacancies than supply.

That requires a different set of policy tools. Demand-side tools that increase public safety, improve mobility, retain employers, and encourage visitors.

A vacancy fee might—but probably won’t—work in tight markets where documented speculative withholding is occurring. The empirical preconditions for such a policy—a supply-constrained market, documented owner holdouts, a reliable vacancy registry—are largely absent here.

In current conditions, sticking a financial bayonet in a wounded real estate market would penalize property owners for a market outcome largely outside their control, and risk accelerating the doom loop the city is so desperate to exit.