SF housing tax fight brewing

San Francisco’s next housing fight is not about where to build. It is about whether one of the city’s biggest taxes on luxury real estate gets locked away for affordable housing or kept available to plug budget holes. (yahoo.com, sf.gov) The tax at the center of the fight is Proposition I, which voters passed in November 2020. It doubled San Francisco’s real estate transfer tax rate on sales from $10 million to $24.99 million from 2.75% to 5.5%, and on sales of $25 million or more from 3% to 6%. (sf.gov) A transfer tax is a fee paid when a property changes hands, so it spikes when towers, hotels, office buildings, or mansions sell. In San Francisco, Proposition I money goes into the general fund, which means the mayor and Board of Supervisors can spend it through the normal budget process instead of automatically sending it to housing. (sf.gov, sf.gov) That gap between what voters thought and what City Hall could legally do has been simmering for years. A city oversight board said Proposition I generated $324 million in added revenue from January 1, 2021 through March 31, 2024, and projected another $127 million over the next two fiscal years. (sf.gov) The same board said more than $203 million had been released for affordable housing initiatives and emergency rent relief, but not all of the new tax money was fenced off for those uses. That is why housing groups are now trying to write the fence into law. (sf.gov) The new proposal is called the Affordable Housing Guarantee Act. According to the San Francisco Chronicle’s April 9 report, it would dedicate all revenue from Proposition I to building and preserving affordable housing instead of leaving that money available for general city spending. (yahoo.com) The measure is also designed as a direct answer to Mayor Daniel Lurie’s housing tax plan. On February 25, Lurie and Supervisor Bilal Mahmood unveiled the BUILD Act, which would lower transfer tax rates on housing development projects and downtown transactions in an effort to restart stalled projects. (sf.gov) The Chronicle reported that Lurie and Mahmood want to cut the top rates back to their pre-2020 levels, halving the current 5.5% and 6% rates on large deals. Housing advocates are responding by trying to preserve the current rates and dedicate the proceeds before City Hall can repurpose them. (yahoo.com, sf.gov) The politics are sharper because San Francisco is trying to do two expensive things at once. Lurie is pushing pro-construction measures to revive private development, while also managing a city budget that Mission Local reported in March still involved major deficit pressure even after the shortfall estimate improved by roughly $300 million. (sf.gov, missionlocal.org) That budget pressure makes flexible tax revenue valuable to a mayor, because general fund dollars can be moved around to cover transit, public safety, homelessness programs, or payroll. An earmark does the opposite: it turns a citywide piggy bank into a locked box with one label on it. (sf.gov, yahoo.com) The housing side has tried to blunt one of the biggest criticisms of Proposition I. The Chronicle said the new measure would exempt the first sale of residential buildings with four or more units if that sale happens within five years of completion, which is aimed at developers who say the transfer tax punishes new construction. (yahoo.com) Now the race is procedural as much as ideological. The citizen initiative needs 12,000 valid signatures by July 6 to reach the November 3, 2026 ballot, and if it gets there, San Francisco voters will be deciding whether a tax created during one housing crisis should be permanently locked into solving the next one. (yahoo.com, sos.ca.gov)