Proposition G: More Harm Than Good

San Fran ApartmentsBy 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:

Proposition G: A Bad Idea for San Francisco

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Every time real estate in San Francisco changes hands, the city charges a modest fee on the transaction called a “transfer tax”. When residents of the city take to the polls in November, they will be asked to vote on an amendment to the law called “Proposition G” that would increase this tax. Proponents of Proposition G claim it will be good for the city, raising needed revenues and solving the housing crisis. This is why they’re wrong:

Proposition G Turns the Transfer Tax From Modest to Monstrous

Currently, the transfer tax rate in San Francisco is fairly low and based on the amount for which the property is sold. It ranges from 0.5 percent for properties sold for under $250,000 to 2.5 percent for properties sold for over $10 million. Proposition G would add a new tax based on how long the seller owned the property. The new rates under Proposition G would range from 14 percent for properties owned between four and five years prior to the sale to a whopping 24 percent for properties owned less than a year. This tax would apply to the entire sale price of the property and would be paid in addition to the existing transfer tax.

Proposition G Is Poorly Written

Supporters of this amendment rushed to get it onto the ballot, and it shows in Proposition G’s poorly thought out language. As written, Proposition G would apply to all residential properties with between 2 and 30 units. This includes the estimated 50,000 single-family homes with in-law suites or garage apartments. This measure fails, however, to provide for the estimated 40,000 renters who live in buildings with more than 30 units. If Proposition G protects residents of smaller properties, why are larger buildings exempt? Clearly, this measure is poorly written and/or overtly political in nature.

Proposition G Offers No Common-Sense Exemptions

Proposition G makes no exceptions for situations in which people may need to sell a home quickly through no fault of their own, such as a job change, a medical emergency, a death in the family, or financial hardship. Having to sell a home because of a medical or financial catastrophe is hard enough, but by providing no provision for the sale of a home due to extenuating circumstances, Proposition G kicks folks while they’re down, imposing a tax of up to 24 percent on people already struggling to deal with a difficult situation. Proposition G also offers no exemption for senior citizens, despite the fact that many of them use their home as the majority or entirety of their retirement investment.

Proposition G Affects Too Many Properties

Proposition G levies a tax on property sales based on the amount of time the seller has owned the home, including owners who have owned their home as long as five years. The average home is sold every seven years. This means that Proposition G will affect tens of thousands of people.

Proposition G Provides No Accountability

Supporters of Proposition G claim it will generate revenue the city can use to provide affordable housing. However, the amendment has no language requiring that money be used for that purpose. In fact, under Proposition G the city is free to use those funds in any manner it wishes.

Proposition G Will Not Solve the Housing Crisis

Proposition G will exacerbate the housing crisis, not alleviate it. Besides making no guarantee that the money it generates will go to affordable housing, Proposition G will also cause the pool of available housing to shrink. Because Proposition G affects single-family homes with in-law suites, the owners of these secondary units are likely to pull them off the market or risk having to pay an exorbitant fee when they go to sell their home. Because there are over 50,000 secondary units in San Francisco, this could dramatically decrease the number of units on the market.
Additionally, Proposition G will raise housing prices. Sellers will pass the majority of their increased costs on to home buyers by asking more for properties. New landlords will simply pass this price increase on to tenants in the form of higher rents. Clearly, the people who will feel the greatest pinch from Proposition G will be middle-class home buyers or renters.

Proposition G Is Not the Same Tax Proposed By Harvey Milk

Proponents of Proposition G are trying to drum up support for this deeply flawed law by claiming that it was first proposed by Harvey Milk. While Supervisor Milk did at one point propose an increased transfer fee, the measure he proposed differs drastically from Proposition G in several key ways. Mr. Milk’s proposal would have only taxed profits made by a home sale, not the entire price of the home. Additionally, under Mr. Milk’s proposal, single-family homes with secondary units were also exempted. Finally, Mr. Milk’s proposal would have exempted those over 63. Clearly, this isn’t the measure Harvey Milk proposed, and just as clearly, it isn’t a law he would support.

Everyone agrees San Francisco is facing a housing crisis, and everyone agrees something needs to be done to fix it. Unfortunately, Proposition G isn’t the solution. In fact, Proposition G is an ill-conceived, overtly political, poorly thought out knee-jerk reaction to the situation that will do far more to harm than good to the housing market. Proposition G imposes an excessively high tax that will increase housing costs, and because it doesn’t exempt in-law suites, it will cause secondary units to be pulled from the market, tightening the market further rather than expanding it. Because it doesn’t offer protections for senior citizens or provisions for emergency situations, it threatens to disproportionately harm those who are most vulnerable. It provides no accountability for spending the revenue it would raise. In short, Proposition G is bad for San Francisco.

This law will affect everyone who lives in San Francisco, regardless of whether they rent or own. Therefore, this November, when time comes to cast your vote, I ask you to make the right choice for San Francisco. Vote “NO” on Proposition G.

If you’d like to learn more about Proposition G, enjoy this informative debate sponsored by The San Francisco League of Women Voters in partnership with San Francisco Government TV: