By now you’ve probably heard about San Francisco’s Proposition G, set to be voted on in the upcoming elections. In case you haven’t, however, let’s start with a quick summary: Proposition G is a proposed increase in the so-called “transfer tax”, or a tax charged by the city on real estate transactions. The transfer tax Proposition G would impose would be up to 24 percent of the total value of the property, and would apply to all rental properties with between 2 and 30 units.
We’ve spoken at length about the issues with Proposition G, including its huge loopholes and the stifling effect it might have on the economy, but there are some other, more insidious effects that Proposition G is likely to have that are explained nicely in a recent article by Bora Ozturk in the Examiner. Let’s delve into those problems.
For starters, as pointed out in an earlier post here and by Ozturk, Proposition G does not exempt single family homes that have an in-law suite that is rented out. This means that, if Proposition G is enacted, all properties being rented or on the market at the time Proposition G takes effect are subject to the regulations of the law, and hence up to a 24 percent tax on the total value of the property will apply if the property is sold within five years. The likely effect of this is for many of the owners to choose to evict their tenants under California’s Ellis Act. Those units will not be returned to the market. This means the housing market will actually contract, and at the same time thousands of more tenants will suddenly be looking for a place. Simply put, Proposition G, because it is poorly written and ill-considered, will shrink the housing market and increase rent, the exact opposite of its intended effect.
Secondly, Proposition G will kill employment. While the boom in the housing market has driven up rent, it has provided thousands of jobs to the area, mainly in the area of construction and related trades. As it stands, when a property owner embarks on a renovation to improve a property, they poor money into the construction sector, providing for the employment of many, many residents of the city. These residents often make a good living, but those earnings will dry up, along with construction work, if owners no longer have any incentive to improve properties. And make no mistake: if Proposition G passes, it will kill any such incentive. After all, what sane person would undertake such a renovation if they are forced to choose between holding the property for five years or face a tax of up to 24 percent on the total value of their property?
For these reasons, and many others, Proposition G is a bad idea for San Francisco. Everyone in the city agrees there is a problem, and a solution needs to be found. However, Proposition G is a perfect example of how rushing into something headlong without carefully considering the consequences of that action risks causing more harm than good. If you love San Francisco the way I do, I urge you to do the right thing for the city and vote “no” on Proposition G. Together, we can find a reasoned, appropriate solution to the city’s housing woes. Whatever that solution ends up being, Proposition G is certainly not it.
If you want to know more about Poposition G, check out this informative discussion from San Francisco Government TV: