Double taxes on $10M+ property sales

Prop I doubles taxes on sales of properties valued at $10 million or more, with revenues compensating landlords who waive rent payments due to Covid-19 and funding public housing projects. This has been sold as a tax on “mansions,” but in reality, its targets are new apartment buildings and large commercial buildings, which are transferred from the developer to property managers. The city economist projects major negative impacts due to discouraging construction:

• 450 housing units lost per year (0.1 percent), raising housing prices by 0.17 percent
• 210,000 square feet of commercial space lost per year (0.2 percent), raising non-residential prices by 0.31 percent
• 625 jobs lost (0.06 percent)
• $50 million of GDP lost (0.03 percent)
• $100 lower per-capita disposable income by 2030

A less robust part of their analysis also found that it would have raised revenues by an average of $196 million per year (about 3 percent of the General Fund) over the past three years. However, this does not consider the effects on deferring sales to avoid triggering the tax, and the economist cautions that actual future revenues would be less.

This measure taxes specifically what San Francisco needs more of: large multifamily housing and dense commercial space. It puts more wood behind a broken arrow, with the transfer tax discouraging the turnover in properties that loosens San Francisco’s tight housing market, and also creating huge cliffs at particular sale prices by virtue of not being a marginal tax. Transfer taxes should cover the cost of the city processing the transfer, and no more.

By funding specific programs, it also reduces elected officials’ power over budgeting. And these specific programs are particularly flawed. Reimbursing waived rent will accrue disproportionately to landlords and tenants in expensive properties, who will be disproportionately rich. It also fails to target people in need, targeting instead those who know new laws well enough to find how to get rent waived. Public housing is allocated by lottery, forcing low-income people into whichever home they happen to be selected for, rather than empowering them to choose where to live. San Francisco also has programs to help low-income people in more direct and freeing ways, such as the Working Families Credit.

Prop I is a misleading measure that discourages density, harms the economy, and directs resources to flawed programs.