The city’s new ‘vacancy tax’ on landlords is consistent with its habit of making bad things worse.
The city’s new ‘vacancy tax’ on landlords is consistent with its habit of making bad things worse.
A merican entertainment in the 1960s offered at least one good rule for living: When you’re trapped in quicksand, struggle makes your predicament worse. Throughout pop culture, characters sinking in quicksand learn that help comes only from the outside. Resistance is not only futile. It’s lethal.
Ignoring the social-policy implications of that deep wisdom, San Francisco voters on Election Day approved Measure M, a new regulation that will make the city’s already hellish housing problems worse.
Measure M is a “vacancy tax,” a penalty on landlords with at least three units that remain vacant for more than six months. The penalties escalate over time, from $2,500 per unit in the first year to as much as $20,000 per unit thereafter. Significantly, the measure’s backers promise to use the revenue from fines for the support of other failed public-housing initiatives.
Approved by voters on November 8, Measure M becomes effective on January 1, 2024.
The proposal’s backers used language that sounds remarkably like math. “Over 58,000 homes — nearly 1 in 7 — sit empty in San Francisco while over 8,000 folks live on the streets and thousands more are priced out of the city. We need to pass Prop M this November so we can change that,” the group claimed in countless ads.
In fact, most of San Francisco’s street people don’t need a home so much as they need mental-health services — help the city has unsurprisingly failed to deliver despite spending nearly $1.25 billion from 2018 to 2021. When he ran for governor in the Gavin Newsom recall of 2021, San Fransicko author Michael Shellenberger’s central campaign appeal was Cal-Psych, the forced treatment of drug addiction among the homeless. His proposal met with outrage in the media. The response of a San Francisco Chronicle columnist was typical. He declared the idea “bizarre” and “menacing” in myriad ways, and that’s on top of “the potential for ethics and human rights abuses that an agency like Cal-Psych would have in forcing hundreds of thousands of people into institutions and jails.” Yes, yes, dear Chronicler: Far better to leave thousands on the streets, exposed to violence, crime, hunger, the elements, and overdose.
And, yes, the price of San Francisco housing is indeed quite high. It’s in the top three in the U.S., depending on your preferred ranking. But price is, of course, a function of supply and demand. In San Francisco, regulation rigorously limits supply. Red tape that would have impressed even the Ottomans has been legendarily bad for housing. Rent control limits investment. The result: A recent Coldwell Banker study declared San Francisco the world’s most expensive city for construction — ahead of Tokyo. Three other blue-state big cities — New York, Boston, and L.A. — made the top ten. Hooray for us.
San Francisco housing policy is so awful that even progressives are increasingly awake to the problem. Last summer, Mayor London Breed vetoed an ordinance that “was sold as abolishing single-family-only zoning districts in the city, permitting four-unit homes (fourplexes) to be built on properties where only one dwelling was previously allowed,” Reason’s Christian Britschgi reported. “On the surface, this may sound sensible and deregulatory. But the bill had so many poison pills stuffed inside of it that it would actually make San Francisco’s housing shortage worse.”
Measure M’s countless vagaries will make for a compliance nightmare. Landlords will be penalized if they leave a unit “unused.” But “unused” is, well, “undefined.” Can a landlord’s book collection reside there? Can a relative live there rent-free? What about a residential unit that’s part of a homeowners’ association that restricts renting? And what happens in a real-estate downturn, when owners unable to make mortgage payments begin offloading homes to banks, and the banks become owners — and there are still no renters? Or what if, in the middle of renovating my units, I’m delayed by supply-chain issues or handyman shortages? That sort of “idleness” is protected by the IRS but seems in conflict with Measure M. Who gets to sort out that legal contradiction?
Buried in the fine print, the city will borrow money to fund enforcement of Measure M.
Measure M passed only narrowly, but it nevertheless expresses the view, widely held in California, that regulators can beat market performance. That notion — that selfless, neutral regulators will make housing more plentiful and cheaper — is belied by thousands of years of human experience.
“You may be shocked to know that one of the reasons people own income real estate is to get income,” David Bahnsen said, reacting to Measure M’s passage on a recent episode on National Review’s Radio Free California podcast. “And you may be shocked to find out that when you have a vacant unit, you don’t get income. So the single person with the most incentive on planet Earth to have a unit not vacant is the landlord.”
This wisdom is, as I say, ancient, but it’s rarely observed. San Francisco’s revolutionary socialists actually pretended to understand markets when they wrote, “Prop M would pressure greedy landlords and developers to put their empty units on the market, increasing supply and lowering rents.” Confronting catastrophic inflation in the late Roman Empire, the emperor Diocletian — like revolutionary San Franciscans — blamed greedy merchants who, he believed, were manipulating the empire’s gold market. So he fixed the price for one pound of gold at 50,000 denarii. “Ten years later, it had risen to 120,000,” recounts the historian Joseph R. Peden. “In 324 . . . it was now 300,000. In 337, the year of Constantine’s death, a pound of gold brought 20 million denarii.”
PHOTOS: Streets of San Francisco
This is the nearly universal outcome of even well-intentioned regulation. Trapped in regulatory quicksand of their own design, however, our best and brightest add new layers of regulation.
San Francisco, for instance, “allocated $1.25 billion for homelessness and related services from 2018 to 2021,” a New York Times book reviewer observed in November 2021. That’s more per resident than Los Angeles or New York City. But “a failure of clear leadership and planning, and ineffective nonprofit management, has led to tremendous waste” in San Francisco. “Last year city officials turned Civic Center Plaza into a ‘safe sleeping site,’ installing tents for 262 unhoused people. Each tent cost the city $61,000, 2.5 times the median annual rent for a one-bedroom apartment.”
Writing in National Review, Dominic Pino told us in October of San Francisco’s attempt to end public defecation, a symptom of the city’s inability to manage its homeless problem:
San Francisco is building one public toilet, to be completed in 2025 at a cost of $1.7 million. . . . The process that led to this pricey potty is a pretty good summary of everything wrong with San Francisco’s regulatory environment, the function of which is to make it nearly impossible to build anything.
Just days after the passage of Measure M, San Francisco city auditors alerted the FBI that one the city’s publicly funded housing nonprofits, United Council of Human Services, has gone alarmingly off the rails. The nonprofit has taken in $36 million to address homelessness. But city auditors say it has often used that money to serve its own employees and friends. The auditors allege that the United Council rented out housing for use as an office and allowed an unqualified employee to live rent-free in space designated for homeless veterans. The nonprofit also collected and may have kept tens of thousands in rent payments from homeless residents and, according to the San Francisco Chronicle, “failed to provide invoices for thousands of dollars of transactions on its American Express card.”
Confronted with the scathing audit, the city department charged with overseeing housing nonprofits responded with steroidal vagueness. “The department is eager to support our nonprofit partner and their new fiscal sponsor to improve its practices and continue the important work of serving our unhoused neighbors in the Bayview Hunters Point Community,” spokesperson Denny Machuca-Grebe told the Chronicle in a statement.
San Franciscans would do well to consider the implications of regulation-as-quicksand, illustrated neatly in Get Smart. There, trapped in the stuff, the Chief tells Agent 99 (played by the effervescent Barbara Feldon), “Stop struggling, 99. It’ll just make you sink faster.” Help can come only from outside. In 99’s case, that’s a “maxi-magnet” on a nearby hilltop. In San Francisco’s case, solutions are outside the progressive mind.