A coalition of San Francisco tenants' groups has won the needed four votes from county Supervisors to place an "anti-speculation tax" initiative on the city and county municipal ballot in November. The initiative, which would impose a 24-percent tax on investors who sell rental housing within five years of purchase, is the latest attempt of long-time city residents to beat back the waves of rising rents and housing values in what has become the nation's most expensive housing market.
The anti-speculation tax may carry an extra emotional charge for some of its supporters: a similar proposal was one of the last projects of legendary gay rights activist and San Francisco Supervisor Harvey Milk before he was assassinated in 1978. The umbrella group campaigning for this November's ballot measure, known as the Anti-Displacement Coalition, includes the San Francisco Tenants' Union, Causa Justa/Just Cause, Eviction Defense Collaborative, Housing Rights Committee, and the Chinatown Community Development Center.
However sympathetically we may view the frustrations of working-class and middle-class people facing rapidly rising housing prices, it seems unlikely that either the initiative process or other political efforts can control gentrification and runaway real estate speculation. Part of the reason is the law and another part concerns the nature of cities and investment cycles.
Although nobody can predict elections, it is plausible, if far from certain, that the anti-tax initiative could squeak through in November. The city population has a plurality of renters, most of whom are unable to move from their rent-controlled units into other rental properties; in San Francisco, a one-bedroom unit can command $3,500 in monthly rent.
Even for a non-lawyer like the present writer, the anti-speculation tax seems unworkable. One does not have to be a glassy-eyed supporter of property rights to realize that a 24-percent tax on a private investment is onerous. Even if foes of gentrification can see a clear public purpose in punishing short-term investors, the law probably does not.
Then there's the equity issue: Why would housing investors be subject to a punitive tax, while owners of other forms of investment real estate would not share a similar burden? How would the law handle cases of mixed-use developments that combine housing with retail, office, childcare and health clinics? For example, would the law require the owner to pay a full 24 percent of the sale proceeds of a mixed-use property? Or could the owner negotiate a partial payment, based on some arcane formula, such as the percentage of the total square footage devoted to housing, perhaps, or the percentage of income that the rental housing units contribute to the total cash flow? And then there would be loopholes for people who inherited property and wanted to liquidate their estates within five years. What would stop those heirs from forming limited partnerships with real estate investors? And so on. Even if the law survived a constitutional challenge, which is unlikely, it would be full of loopholes as a piece of French lace.
The deeper problem is the nature of cities. Cities are dynamic places where change is axiomatic. The dirty secret is that cities live on money. Successful cities are those that are able to attract a steady flow of investment in private homes, rental housing, commercial space and public areas. In a sense, cities are fossil records of the periods of greatest investment, because those periods are when the greatest amounts of construction and re-construction occur. And current levels of investment, like it or not, make the difference between San Francisco and Detroit.
In a perfect world, cities would experience just enough investment to maintain property values while discouraging neighborhoods from deteriorating into slums. But investment is not rational, and the current phenomenon of investment in Bay Area housing is a case in point. This is an overheated housing bubble.
Bubbles do not last. Real estate is cyclical by its nature: Bust follows boom every four or five years; the prolonged recession in recent years was a rare exception. Long-time Bay Area residents will recall that the Dot-Com Boom, the boom that promised to change the rules of the economy forever (alas for days gone by!) was followed by the Tech Wreck. That collapse in values left many offices and storefronts suddenly empty South of Market, together with tens of millions of square feet of office space in throughout the Bay Area and Silicon Valley. People lost their jobs or could no longer afford to live in the Bay Area. At one point, San Francisco residential vacancies approached 10 percent.
The same fate awaits the current tech-driven housing bubble. Something will inevitably spoil the run-up in prices. For starters, technology is mercurial. Apple, Google, Oracle and Adobe, inconceivable as it sounds, may all lose market share and pull back at some time in the future. Intel and Microsoft, formerly viewed as bulletproof, have already lost ground; Blackberry and Nokia, market leaders in their time, are much diminished. Does anyone remember that Cisco Systems was the highest cap stock at one point?
Beyond the fortunes of technology, a national or global recession could dampen the market. So could, God forbid, the unexpected shifting of continental plates. The only certainty is that the market will cool and values will drop somewhat.
It's true that San Francisco has been Manhattanized and that the social cost is high. So far, it's proven difficult or impossible to legislate a certain kind of urban quality, at least in America. The law seems largely indifferent to urban quality, which can mean different things to different people. (Personally, I'm attracted to messiness, crowding and near-insoluble infrastructure problems, but I realize this is a personal taste.) Alas, the trickle-down theory, justly maligned in macro-economics, may be applicable to cities: Where there's money, there are exciting shopping streets, exciting new buildings and preservation, and hot new districts. And bountiful tax proceeds bring in public money for museums and parks.
In short, cycles of reinvestment and disinvestment are the cost of remaining a money-center city. As in nature, the presence of too many nutrients for one species may cause one part of an ecosystem to grow too quickly, to the detriment of a balanced system. That overgrowth, in turn, brings about a correction over time. The process, which may appear chaotic from short range, may look more orderly from a distance. It's true that the San Francisco of Alfred Hitchcock's Vertigo has become a theme park for the rich. I'm not particularly happy about it. On the other hand, I haven't booked a hotel room in Detroit for a long time.
