march 2024 primary
Yes On Prop C
Real Estate Transfer Tax Exemption and Office Space Allocation
Problem: too few houses + too many empty offices = dying downtown. Solution: incentivize developers to convert empty offices into new homes. This proposition allows landlords who convert office buildings to housing to sell without paying the 6 percent transfer tax for real estate transactions over $25 million. Will this completely fix downtown and solve the housing crisis? Nope, it’s not enough to make these conversions completely financially feasible—but it’s a step in the right direction.
ENDORSEMENT TEMPERATURE: CAN’T HURT
The Context
Mayor London Breed’s measure attempts to improve two issues at once: reviving our declining downtown and adding more badly-needed housing in San Francisco. Downtown has a record-high 34 percent office vacancy rate right now, and that’s not just a problem for commercial real estate landlords—it affects the city’s tax base, the downtown stores that depend on foot traffic, and public safety. At the same time, San Francisco needs to add 82,000 new housing units by the end of 2031 to meet its RHNA goal, and we’re nowhere near meeting that goal.
So we have a lot of empty office space, and need a lot of housing. This measure would make it more cost-effective for developers to convert office space to residential space by allowing landlords who convert their buildings to housing to sell without paying the 6 percent transfer tax for real estate transactions over $25 million. This is a clever solution for two existing problems, but will it be enough of an incentive to actually generate a lot of these conversions? Probably not, so we wish this measure did more to spur housing than remove one of the many taxes on residential conversion projects. Converting offices to homes is just a really expensive undertaking—this tax waiver reduces about 25% of the losses developers face when converting office to residential. Still, it’s a small step in the right direction to stimulate downtown’s recovery.
The Support & Opposition
Support comes from the measure’s author, Mayor London Breed, along with developers like Jack Sylvan and Oz Erickson. The public policy non-profit SPUR recently released a report that found that 40 percent of downtown San Francisco buildings are suitable for conversion, and recommended policies like this transfer tax reductions to promote conversions.
Opposition comes from John Avalos, the Executive Director of the Council of Community Housing Organizations, who suggested the measure may primarily benefit wealthy real estate owners and emphasized the importance of creating affordable housing. Developer Cyrus Sanandaji of Presidio Bay Ventures also expressed skepticism, pointing out that the one-time tax waiver won't fundamentally change the overall tax burden for subsequent property buyers.
Anything Else I Should Know?
This measure is expected to reduce the city’s tax revenue. That matters because the city’s overall transfer tax revenue—which is directly tied to the sale of buildings—has fallen off a cliff due to far fewer properties trading hands. In the 2021-22 fiscal year, San Francisco pulled in just $186 million in transfer tax revenue—the lowest number in more than a decade. While less tax revenue isn’t ideal in San Francisco’s new belt-tightening reality, the economic benefits of new residents living and shopping downtown will hopefully outweigh the costs.
Paid for by TogetherSF Action (tsfaction.org). Not authorized by any candidate or committee controlled by a candidate. Financial disclosures are available at sfethics.org.