Should Cities Tax Huge Homeowner Profits From Stopping Housing?

by on April 10, 2018

Homeowners Reap Profits While Fueling Housing Crisis

“SB 827 provides potentially huge additional value to property owners throughout the state without concurrent value capture.” —-SF Planning Department, February 15, 2018

“This is not the right way to build housing,” Kim said. “This is a giveaway to landlords and developers without asking anything in return for a city and community.”SF Examiner, April 3, 2018

Scott Wiener’s SB 827 has provoked a huge debate over housing policy. The bill, which in many cases raises height limits along transit corridors, has been attacked for undermining local control over land use. It has also been accused of fostering gentrification, though the San Francisco Planning Department’s February 15 memo cited above found that SB 827 would increase affordable housing in the city overall.

Many critics of SB 827 also see it as a developer “giveaway.” They say it provides a windfall to property owners without the public receiving any “value recaptured” from owners whose property values will increase from being able to construct a taller building.

This widespread critique of SB 827 got me thinking about why nobody talks about those really profiting from land use decisions that inflate their property values: homeowners. Specifically, those homeowners whose neighborhood zoning prohibits new apartments. And who fight to keep it that way.

Cities believe developers must contribute a public benefit in exchange for the right to build housing—which many see as a public good. In contrast, homeowners who prevent housing in their neighborhoods make huge profits by  artificially restricting supply—and cities require them to provide no public benefits at all.

There’s clearly a double standard at play here as to how we assess the beneficiaries of urban land use policies.

Consider San Francisco’s Central Subway project. This roughly $2 billion project vastly increases property values along Chinatown and the other stations where public transit is currently undeserved. Yet I recall no public demands that these property owners provide any public benefits for this massive public expenditure which will greatly increase their property values.

San Francisco’s extension of the Third Street light rail played a key role in the rapid gentrification of Dogpatch. I don’t recall anyone calling for property owners in the Dogpatch neighborhood to share their increased property values.

San Francisco also routinely passes park bonds. This makes homes and apartments near the improved parks more valuable, yet the cost of these improvements are borne by owners citywide. Tenderloin property owners have gotten no increase in their property values from park bonds.

Big Homeowner Profits From Stopping Housing

But the real question about value recapture is why it is not applied to the downzoning of residential neighborhoods. I am referring to the single-family zoned neighborhoods in San Francisco and those whose zoning prohibits housing above three or four stories.

A developer who builds market rate housing adds to the city’s housing supply. And if the city has an inclusionary requirement, they are giving working and middle-class people the ability to live in a neighborhood and likely a city they otherwise could not afford.

In contrast, what public benefit do homeowners fighting to stop new housing confer? Nobody benefits from stopping housing but the current group of owners and their families.

And they’ve been making out like bandits.

Single family home prices in San Francisco went up 24% in the past year alone. The median single family home price is now $ 1.6 million. The average sales price of a Noe Valley single family home sold this February was $3.5 million. Noe Valley residents are particularly militant in stopping new housing—and they have reaped the profits to show it.

A new report released this week found San Francisco homes earned $60 per hour in equity. That’s four times more than the city’s minimum wage. And the home doesn’t even have to show up to work.

San Francisco and other cities could go a long way to building lots of affordable housing by attaching a surcharge to homeowner profits akin to those it applies to developers. The surcharge would only apply to neighborhoods where new apartments are banned. This would likely create an incentive for those now faced with paying public benefits to support allowing multi-unit buildings in their neighborhood.

This tax on homeowner profits would likely add more BMR units than the city has produced through other means. Just consider that over the past six years the average single family homeowner in San Francisco has seen their equity increase by 1 million. That’s $13,125 a month, every month for 6 straight years. Multiply that by the city’s 124,000 single family homes and that is a potentially staggering infusion of public subsidies for affordable units

When you consider that Prop 13 allows longtime homeowners to pay property taxes at a fraction of their home’s current value, the policy rationale for taxing profits on sale makes even more sense.

I realize that no politician who has to face voters will even suggest taxing homeowner profits reaped from stopping housing. After all, high voter turnout by homeowners underlies exclusionary zoning restrictions.

But if proposals to shift some of the huge public subsidies homeowners get from the mortgage interest deduction have become politically tenable, so should taxes on homeowner profits reaped from restricting housing supply in their neighborhoods.

We need to stop making believe that only developers are profiting from the urban housing shortage. Land use policies that restrict new apartments generate huge profits for existing homeowners. It’s bad policy to ask one group of property owners to return “value” to the public from land use changes while exempting others.

That’s a land use double standard. And it makes the urban housing crisis worse.

Randy Shaw is Editor of Beyond Chron. His new book, Generation Priced Out: Who Will Live in the New Urban America, will be out in October from the University of California Press.


Randy Shaw

Randy Shaw is the Editor of Beyond Chron and the Director of San Francisco’s Tenderloin Housing Clinic, which publishes Beyond Chron. Shaw's latest book is Generation Priced Out: Who Gets to Live in the New Urban America. He is the author of four prior books on activism, including The Activist's Handbook: Winning Social Change in the 21st Century, and Beyond the Fields: Cesar Chavez, the UFW and the Struggle for Justice in the 21st Century. He is also the author of The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco

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