Plan Would Cut High-End Real Estate Tax for Union-Built, Pension-Backed Residential Projects
By Robert Fulton | contributing writer
Legislation recently introduced by San Francisco supervisor Ahsha Safaí could go a long way toward stimulating much-needed housing development, putting union pension dollars to work, and providing plenty of union construction jobs for the building trades in the City — all in one fell swoop.
How would this trifecta of success be achieved? Believe it or not, the answer involves a tax cut on certain high-dollar real estate transactions. Safaí’s plan would reduce the City’s transfer tax, which kicks in when the highest-value properties are sold in the City, from 6% to 3% — but only for new housing developments that are financed by at least $25 million in investment from union pension funds, built with union labor, and include at least 12% on-site affordable units.
Safaí’s proposal would also apply the 3% transfer tax reduction to the sale of any developments completed since 2014 that meet the above qualifications. Such properties would include 101 Polk Street (The Civic), 100 Van Ness, and 99 Ocean Avenue (Ventana Residences), all of which many local building trades members will remember working on.
If all goes to plan, the proposal will help provide significant remedies to some of San Francisco’s most pressing needs: work for workers, housing for working people, and more of the right kind of investment in the City.
A Surgical Approach
Safaí, who represents SF District 11 and is now running for mayor, said that he did his research and considered a number of different tools that might jump-start development while also creating housing. His transfer tax reduction proposal is the outcome of that work. He characterized it as a “win-win-win-win.”
“We needed to do something aggressively to get [new housing development] going, and we want to put union people to work, put union money to work,” Safaí said.
The San Francisco Building and Construction Trades Council is a sponsor of the legislation and counts the supervisor as an ally; earlier this month, it granted one of its dual endorsements for mayor to Safaí. (The other went to former interim mayor Mark Farrell.)
Safaí spoke about his experience meeting with investors around the country as a member of the SF Retirement Board, which oversees retirement plans for city workers. Those conversations helped him better understand the barriers to investment in San Francisco.
“We want to jump-start [developers’] desire to move forward on projects that are sitting on the sidelines,” Safaí said. “We saw the opportunity to move this forward.”
Alex Lantsberg sits on the City’s Housing Stability Fund Oversight Board and is the research and advocacy director for the San Francisco Electrical Construction Industry. He described Safaí’s proposal as a “surgical” way to get projects moving that will be built by union labor.
Lantsberg also pointed out that Safaí’s proposal is possible because of Proposition C, which the City’s voters passed in March. Prop C allows for a one-time transfer tax exemption for owners of properties converted from commercial to residential following conversion and authorizes the SF Board of Supervisors to amend the transfer tax without voter approval.
A More Targeted Taxation
The proposal has drawn support from the leadership of the Emerald Fund and the AFL-CIO Housing Investment Trust (HIT), two big Bay Area players that use pension-fund investing in their development projects.
Ted Chandler, senior managing director of strategic initiatives for HIT, is bullish on Safaí’s proposal.
“I think it’s a really common-sense way to stimulate additional investment in the City to get affordable housing built, to put union members to work, to strengthen union pension funds,” Chandler said. “I think it’s something that every city should look at doing. I think that doing this kind of […] relief — where it’s targeted to a narrow group of investors who bring additional benefit to a city — makes sense.”
It was back in November 2020 when SF voters passed Proposition I, doubling the City’s real estate transfer tax on commercial and residential properties valued between $10 million and $24.99 million from 2.75% to 5.5%, and on properties valued at $25 million or more from 3% to 6%.
Oz Erickson, founder and chairman of the Emerald Fund, despises Prop I. He said it was sold to voters as a mansion tax, but once enacted, it didn’t deliver as promised. Its negative impact on large-scale residential development wound up dwarfing its intention of getting a fair share from the personal-mansion-dwelling-and-selling set.
Erickson said that it was a mistake for Prop I to have not exampted union-pension funded projects from the tax increase in the first place.
“[Prop I] is an entirely regressive tax,” he said. “It falls on teachers. It falls on construction workers. It falls on people who have no means. It should never, ever have been passed. If it was truly a mansion tax, that’s what it should have been. It never should have been a tax that fell on construction workers. Never.”
Stimulating Development
Both Erickson and Chandler believe that Safaí’s proposal will stimulate development.
“It makes the math of development easier to make work,” Chandler said, citing the myriad factors that play into new housing projects.
Erickson sees eliminating transfer taxes as a valuable tool to spur development.
“In my professional opinion, all transfer taxes should be eliminated for construction-union projects for some extended period of time in order to stimulate jobs for the construction industry,” he said.
Rudy Gonzalez, secretary-treasurer of the SF Building Trades Council, also thinks Safaí’s proposal will get more development going faster. Gonzalez praised the proposal as a “strategic economic recovery tool.”
“When you jump-start pension investments into building projects, we can get our people back to work — simple as that,” he said.
