Supervisor Dean Preston plans to ask voters this November to double the tax on the sale of properties in San Francisco valued at $10 million or more as he warns of real estate speculation in the coronavirus era and the need to protect renters from displacement.
Preston told the San Francisco Examiner that the proposed real estate transfer tax hike on both commercial and residential properties is “trying to address the coming wave of real estate speculation as well as raise funds.”
He said the tax is “targeting those that can most afford to pay their fair share during this time,” namely the multi-millionaires or billionaires selling properties over $10 million. Preston pointed to recent news reports that real estate investors are looking to purchase distressed properties as they did in the last recession.
The tax revenues would benefit those “who are struggling the most” and bring needed resources to one of the most pressing challenges. “Quite clearly housing stability is one of the top needs right now to address,” Preston said.
The new revenue would go toward buying affordable housing sites that nonprofits can manage, as well as to set up a fund to encourage landlords to waive the back rent tenants owe after falling behind due to income loss caused by the impacts of the coronavirus pandemic. More than 70,000 people have filed for unemployment benefits in San Francisco.
Landlords would have to waive rents owed by Dec. 31, 2020 to have access to the funds. The funding won’t cover the full amount of rents owed but a certain percentage. It’s possible landlords with lesser means could see a larger percentage of the money. Those finer details are still being hashed out.
The proposal adds to the work done by Preston, a tenants rights attorney, to protect renters from losing their homes as a result of the pandemic. He has recently introduced legislation that would transform back rent into renter debt and ban it as a cause for eviction. Renters are temporarily protected from eviction for failure to pay rent under a moratorium enacted by Mayor London Breed, which is currently set to expire on July 21.
Preston believes many landlords would find his proposal attractive since it would give them the ability to at least get some of the back rent amount and sooner “rather than engaging in a long term fight to get money that tenants don’t have.”
There are other efforts underway to address tenants inability to pay rent, such as the national cancel-rent movement to suspend rent without any of it accruing, but Preston said, “I don’t think we can rely on it.”
“We have to create a program to try to resolve this … and create stability as soon possible,” he said.
Preston announced the measure Monday but plans to officially introduce it in the coming weeks as he continues to fine tune the measure with the City Attorney’s Office. It would take six votes to place it on the November ballot or four signatures by board members.
Preston also sees the measure as a way to encourage property owners to sell their multi-family buildings to The City — sales of property to The City do not assess a real estate transfer tax — to preserve them as affordable housing through its small sites acquisition program in partnership with nonprofit affordable housing groups.
Preston estimates the tax could generate between $100 million and $150 million annually.
The proposal has the backing of the San Francisco Tenants Union.
“We know what happens when large real estate speculators take over buildings — long-term, rent controlled tenants are forced out to maximize shareholder profit,” Deepa Varma, executive director of the San Francisco Tenants Union, said in a statement. “This measure would deter real estate speculation, encourage owners to sell to the city or affordable housing providers, and make sure when this kind of transaction takes place, that the City is generating the funds needed to help struggling San Franciscans get back on their feet.”
Under the measure, the real estate transfer tax for buildings sold between $10 million and $25 million would increase from 2.75 percent to 5.5 percent, and for buildings sold for $25 million or more from 3 percent to 6 percent. It would apply to both commercial and residential properties.
The measure would require over 50 percent of the vote to pass. It would not dedicate the revenue for any one use, but the Board of Supervisors would pass legislation to declare its intent to use the money for what’s being called a “rent resolution fund” and a “social housing fund.”
Preston said it was a safe bet realtors would oppose the measure since they “oppose any efforts to rein in real estate speculation.” But he said landlords and small property owners may back it since they would benefit from the funding.
“Part of our announcing this early is to have the opportunity to meet with all of those groups,” he said.
Preston’s proposal comes amid fears that San Francisco will experience a similar rise in evictions and real estate speculation to what it had a decade ago when coming out of the Great Recession.
As The City enacted economic policies to promote a tech industry, such as the Twitter tax break, and even decreased affordable housing requirements to encourage development, the local economy came charging back. Displacement dramatically escalated along with the cost-of-living during the boom after the bust.
Eviction notices filed with the Rent Board began increasing annually. In 2010, there were 1,328 evictions filed with the rent board. By 2016, eviction notices reached a high of 2,304 before starting to decline.
Rents have only continued to increase. Last month one-bedroom apartments in San Francisco rented for an average of $3,446 a month while two-bedroom apartment rents averaged $4,498, according to Rent Jungle. In January 2011, the rent for a one-bedroom was $2,176 and a two bedroom $2,611.
Tenant and affordable housing advocates are sounding the alarm at a time when The City’s 80-member economic recovery task force, which includes members from construction labor unions and affordable housing developers, has begun to chart an economic path forward.
“We face the biggest potential displacement crisis in history with the looming economic collapse from COVID-19,” Peter Cohen, co-director of the Council of Community Housing Organizations, a group of affordable housing developers, said in a statement Saturday to the Examiner. “And we need to act quickly and decisively to prevent evictions, defaults, and homes being lost.”
He continued, “San Francisco’s ability to have resources for community housing nonprofits to acquire apartments and homes before they’re swept up on the speculation market will be the difference between seeing a light at the end of this long dark tunnel or the City suffering the same kind of housing collapse and displacement disaster of the Great Recession a decade ago.”