San Diego City Council members endorsed Wednesday a possible November ballot measure that would levy a new tax on companies that own and rent out more than 10 single-family homes or homes in small buildings like duplexes.
The goal is making it easier for ordinary San Diegans to buy a home by discouraging corporations from buying up large numbers of houses and renting them out as part of an investment strategy.
“The large portfolio ownership of single-family homes is commercializing the American dream,” said Councilmember Kent Lee, who is spearheading the effort. “These types of owners are taking the promise of homeownership and turning it into a profit-making mechanism.”
The tax wouldn’t apply to apartment buildings with more than four units.
While the proposal could appear on the November ballot, Lee said the complexity of the issue might require so much analysis and negotiation that waiting for a later election could make sense.
Lee said he wants to take a transparent and collegial approach so the new tax doesn’t create unintended consequences, especially discouraging homebuilding or having investors pass the cost of the tax on to tenants.
Corporate ownership of single-family homes is a relatively small problem in San Diego compared to some other places. An initial review by Lee’s staff found that about 6,000 of the city’s 500,000 homes are corporately owned.
Congress recently tried to discourage institutional investors from buying up homes by passing the bipartisan 21st Century Road to Housing Act, which restricts that activity. In California, Gov. Gavin Newsom and several members of the state Legislature have been calling for similar legislation.
An organization representing local housing developers said Wednesday that city officials should focus on making sure the new tax would be narrow and very specific.
“We want to make sure we are not slipping into a situation where we are taxing rental homes,” said Stefanie Benvenuto of the Building Industry Association.
She said it was also important not to discourage new home development, including a new initiative proposed by Mayor Todd Gloria to encourage more townhomes in single-family neighborhoods.
“We don’t want to slow investment,” Benvenuto said.
Council President Joe LaCava praised Lee for taking a slow and steady approach.
“I think we can all reach agreement pretty easily on what the problems are, but it’s very difficult for government to be surgical in its approach and really get the intended consequences to solve a problem,” LaCava said.
Lee said he plans to exempt newly built housing. He also stressed that his proposal wouldn’t apply to most rental housing but only to single-family homes, condominiums, duplexes and multiplexes of two to four units.
Lee said he chose those types of housing because they are the ones that historically have provided entry-level homeownership opportunities for families.
He said the tax would likely be progressive, meaning investors would pay a higher rate if they own more homes. He didn’t include even a preliminary estimate of how large the tax would be.
Councilmember Sean Elo-Rivera praised the proposal, which was approved 5-0 by the council’s Rules Committee.
“Housing is a human right, and that means corporate and speculative investment that makes housing more difficult to access is wrong,” Elo-Rivera said.
He called Blackstone and Greystar the worst examples of the practice, accusing them of neglecting properties, using algorithms to pick rents that maximize profit and charging excessive fees.
Elo-Rivera said he’d like the proposal to include a first right of refusal for ordinary San Diegans when properties come up for sale.
Lee said he would consider all ideas and perspectives. He also said some related ideas could be handled separately from the proposed tax, which requires a vote of the people, as new city policies or ordinances.
To pass, the tax would require only a simple majority of voters, because the money would go into the city’s general fund. If it were to be used for a specific purpose, that would increase the approval threshold to two-thirds.
Lee said he plans to return to the Rules Committee soon with more details.
“We’re still early in the process, and we’ll be looking forward to engaging stakeholders and the public,” he said.