San Francisco has only limited options when it comes to taxing big corporations and developers; the state bans, for example, local corporate income taxes. So for the past decade, as real estate values have soared and speculators have made fortunes, progressives have looked for way to capture just a little of that the money.
One option: Tax the transfer of property worth more than $10 million to $25 million. When those mansions or giant office buildings change hands, the city has a rare opportunity to reclaim some of the wealth that has accumulated because of a vast influx of investment capital into the city.
That’s what the voters did with Prop. I in 2020, doubling the transfer tax on very high-end sales to fund affordable housing.
The seller pays the tax, not the buyer. So, for example, when a German investment fund sells the Transamerica Building, which will command at least $650 million, it will pay the city a transfer tax—and that money is supposed to go to affordable housing. (Former Mayor London Breed refused to spend the proceeds, which have totaled closed to half a billion since voters passed the tax, on housing, largely because she didn’t want to give the Prop. I sponsor, Sup. Dean Preston, a political victory. Mayor Daniel Lurie hasn’t put the money into affordable housing either.)
But that’s big money coming into the city, and it’s coming from big, rich corporations and the few individuals who can buy a mansion worth more than $10 million.
Now Sup. Bilal Mahmood and Mayor Daniel Lurie want to cut the transfer tax in half—in theory to spur the development of more housing. From the Chron:
The move aims to jump-start the construction of thousands of housing units that are approved but stalled due to economic infeasibility.
This makes absolutely no sense.
The developers who have approved properties already own the land. The transfer tax isn’t stopping them from breaking ground. Some of them might want to sell those entitlements to others, but the buyers won’t pay the tax anyway.
Meanwhile, the city will lose hundreds of millions of dollars.
Mahmood and Lurie say the tax would be offset because they
will introduce a ballot measure that would raise revenue by eliminating a tax exemption currently in place for foreclosures and “deed in lieu” foreclosures, where property owners voluntarily hand distressed properties back to lenders.
That would have to happen (I bet it doesn’t) and pass. And there is no economic analysis to show us that the revenue would be the same (or that, in these cases, the city could even collect the revenue.)
The real benefit: Speculators who build housing then immediately sell it would pay lower taxes.
Preston told me:
Prop I passed with overwhelming support from SF voters. It has raised over $500 million by taxing the ultra-wealthy to fund affordable housing. Mayor Lurie and Sup. Mahmood are trying to repeal it to give tax breaks to billionaires. They are waging a class war against low-income and working class San Franciscans.”
Quintin Mecke, director of the Council of Community Housing Organizations, noted that
The proposal would cut in half one of the city’s only truly progressive, equity-based revenue sources — a tax that has already generated more than $200 million for affordable housing, rent relief, public housing repairs, educator housing, SRO upgrades, and the preservation of rent-controlled buildings.
At a moment of massive local budget deficits and deep federal uncertainty, the question is straightforward: why are we eliminating one of the only revenue streams that has consistently funded affordable housing?
There are more than 17,000 approved affordable housing units in the current pipeline awaiting subsidy. Where is the plan to fund those homes?
Cutting transfer taxes does not close those funding gaps, it widens them.
Most of the housing that is currently approved and not built is at the very high end of the scale. The evidence shows that more market-rate housing doesn’t bring more affordability, and may well make the crisis worse.
A bit of perspective: The United States has more than 50 years of data showing that tax cuts don’t trickle down, don’t improve the economy, and simply give the very rich even more money. Why are we even talking about this?
