A moderate faction of the Board of Supervisors and members of the mayor’s office explored a repeal of Proposition I this year but put it off to focus on getting the Family Zoning Plan approved. But sources say an effort to repeal the voter-approved transfer tax increase will be renewed next year.
Prop. I in 2020 doubled the transfer tax rate on the sale of properties valued at $10 million or more from roughly 3% to 6%. On a $25 million sale, the seller pays $1.375 million, versus $687,000 before the measure passed.
A spokesperson for Mayor Daniel Lurie declined to comment. TheOffice of Economic and Workforce Development has not prepared any legislation or studied the fiscal impact of a transfer tax cut, according to a spokesperson, but remains “keen to remove city barriers to construction.”
If such efforts begin next year, the office and the city economist would have to explore the full impact of such a cut and negotiate with supervisors to offset any reductions in funding. Of the supervisors who sponsored or endorsed Prop. I in 2020 (opens in new tab), only Shamann Walton and Rafael Mandelman are still on the board.
The renewed interest comes amid a broader movement to overhaul San Francisco’s tax system, which the business community says makes it too costly to invest in the city. Last year, voters passed both Prop. M, which reshaped business taxes to assist small and large companies, and Prop. C, which waived taxes on office-to-housing conversion projects. The latter made it easier for the Board of Supervisors to reduce, suspend, or repeal the transfer tax without putting those decisions to a citywide vote.
Even though a transfer tax cut would not require voter approval, concerns about the loss of revenue could determine which supervisors would support such a move.
The debate is unfolding as San Francisco’s real estate market continues to struggle despite signs of a mounting recovery. More than 20 million square feet of office space in San Francisco remains vacant. Once-thriving commercial corridors like Powell Street and Van Ness Avenue are still riddled with empty storefronts. The city’s largest mall, the San Francisco Centre, has been reduced to a single Panda Express.
Many properties stuck in purgatory require mass transformation or redevelopment. Incumbent owners rarely make that bet. After the downturn, they’re either underwater or out of patience. But new buyers can, particularly when they get in at discounted prices.
Essentially, San Francisco needs more properties to trade hands to accelerate its real estate comeback.
A way to grease the wheels would be to lower the cost of transacting. San Francisco has some of California’s highest transfer tax rates (opens in new tab). Voters helped make it that way by passing four tax-rate increases on properties sold for more than $5 million since 2008; most recently, Prop. I.
Those increases made sense during the city’s boom times and have helped fund critical services like emergency rent relief and acquisition of land for affordable housing development. Between 2021 to 2024, Prop. I generated $324 million in additional revenue for San Francisco, according to the Housing Stability Fund Oversight Board (opens in new tab), which was established to monitor how the funds were allocated.
But today, the measure is more likely to have a chilling effect on real estate transactions, especially on properties that are primed for redevelopment after trading hands. According to the Assessor’s Office, the tax increase from Prop. I added the equivalent of $64 per square foot in costs on nonresidential development and more than $32,800 per unit on residential development.
Independent of any local effort, there is an initiative by the Howard Jarvis Taxpayers Association to introduce a statewide measure to cap any city’s ability to raise transfer taxes (opens in new tab) and raise the threshold needed to pass voter-backed tax hikes from a simple majority to a two-thirds vote.
Should that initiative pass next year, it would make certain existing taxes null and void two years following enactment.