San Francisco

San Francisco Wants to Tax Vacant Shopfronts to Attract New Business

Supervisor Aaron Peskin is pitching his bill as a way to help out small business and crackdown on speculating landlords.

|

Dreamstime

San Francisco politicians have a plan to attract tenants to the empty storefronts and apartments popping up around the city: tax the vacant units. On Tuesday, The San Francisco Chronicle reported that Supervisor Aaron Peskin plans to put a vacancy tax on both residential and commercial properties on the city's November ballot.

A lot of the specifics still need to be worked out, but according to the Chronicle, Peskin's proposal would put a $250 fee on commercial buildings that have sat empty for over six months in designated Neighborhood Commercial Districts. The $250 fee would also apply to residential buildings that've had three or more units vacant for more than six months citywide.

"This is by no means meant to be a revenue generator. It's meant to be a behavior changer," said Peskin on Tuesday, saying the bill was about going after landlords who sit on vacant properties while waiting for rents and property values to increase.

Under his proposal, the city's Department of Building Inspection would be responsible for determining which landlords are keeping their buildings vacant as some sort of speculative bet, and which have legitimate reasons for maintaining an empty unit.

Given that real estate speculators are about as popular as Donald Trump in San Francisco, Peskin's proposal has been well received so far. A number of local merchant associations have signaled their support, saying vacant shopfronts next door reduce foot traffic to existing businesses. The city's pro-development YIMBY faction likes the idea as well, according to The San Francisco Examiner.

However, there are a number of problems that arise from the tax code and line drawing from administrative agencies to crack down on undesired behavior, says Joan Youngman of the Lincoln Institute for Land Use Policy.

"It's very hard for us to know what is the cause for a change in behavior or why properties are being kept vacant," says Youngman. "We know landlords are not making profits while a property is vacant, so there's a natural question there."

Sometimes properties are vacant while undergoing renovations. A 2018 survey of vacant commercial properties in the city's North Beach Neighborhood Commercial District, for example, found that 20 percent of these units were empty because of ongoing city-mandated seismic retro-fitting.

Depending on city bureaucrats to identify which renovation-induced vacancies are "legitimate," and which are being done to game the system, says Youngman, is going to be a difficult, error-prone mission.

Other times, properties are left vacant due to difficultly finding a suitable tenant, which is something that San Francisco's proscriptive zoning laws make more difficult. That same North Beach study noted that nearly 80 percent of vacant shops were zoned for non-restaurant use, meaning those landlords are cut off from a large pool of potential renters.

It's also the case that more retail shopping is moving online, decreasing demand for physical commercial space even more. Taxing empty shopfronts could end up penalizing property owners who are already losing out to their online competition.

And even if there are a large number of landlords holding on to empty properties with the hope of renting them out at higher rates in the future, the fact that this would even be a profitable activity suggests something is off with San Francisco's real estate market

In a healthy real estate market, one would assume that property owners would want to lease out their buildings now before another developer constructs competing units that steal their potential tenants or lower the rents they can charge.

In San Francisco, where new development is exceedingly expensive, time-consuming, and rare, incumbent property owners are protected against that price-lowering competition. That could indeed create an economic incentive to hold on to empty properties, particularly when strict state and city tenant protection laws—which increase the risks of renting out a property—are considered.

A more direct response to that would be to simply allow for more development, not to impose another blunt tax on property owners.

So perhaps instead of reflexively turning to taxes to solve the problem of vacant storefronts and apartments, politicians like Peskin should try to tackle some of the underlying issues that drive these vacancies in the first place.

NEXT: School Vouchers Aren't Welfare for the Rich

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Why don’t they tax progressive stupidity? The homeless will be crapping on gold streets if they do.

  2. “This is by no means meant to be a revenue generator. It’s meant to be a behavior changer,” said Peskin

    You mean, increasing the rate at which residential and commercial property owners leave the city?

    1. If they try to take a walk they’ll tax their feet.

      1. Then they will learn to walk on their hands.

  3. Next on the agenda: taxing the dead to encourage new life.

    1. How about the mostly dead?

      1. Hmmm, let’s tax both the living and the dead. That way we’ll have covered all of the bases.

  4. Is there any problem that MOAR TAXEZ won’t solve?

    1. Ridding us of progressives for one.

      1. i’d pay that

  5. The beatings will continue until morale improves.

  6. Under his proposal, the city’s Department of Building Inspection would be responsible for determining which landlords are keeping their buildings vacant as some sort of speculative bet, and which have legitimate reasons for maintaining an empty unit.

    Why is a speculative bet an illegitimate reason?

  7. If there’s an excess of vacancies, then they need to increase demand. Taxing vacant properties won’t do it – you need to give businesses a reason to rent those spaces.

    What needs to be done is to tax businesses that won’t occupy these spaces.

    /SF Prog Logic

  8. BTW, Peskin is one of the leading lights in the campaign to decide which business is ‘needed’ in a particular location. IOWs, he is a prime generator of vacancies.
    If he fell in a hole and died, only those who didn’t mind standing in line would go to spit on his grave.

  9. A number of local merchant associations have signaled their support, saying vacant shopfronts next door reduce foot traffic to existing businesses.

    None of them, of course, were ever willing to look for potential tenants to fill those vacant shopfronts next door nor to pitch in and help cover the lease.

    Why doesn’t San Francisco tax these going concerns and use the ‘revenue created’ to subsidize tenants to help fill these vacant shopfronts? After all, its the landlords that are suffering from San Francisco’s policies while its these stores that are benefiting from the protection the city government provides.

    1. Or just get out of the way and allow storeowners in a district to work together to help build up new businesses in those vacant shopfronts by offering self-funded grants and loans–though I’d think that being located in San Francisco would do a decent amount to cut down on foot traffic of the sort that spends money. Pretty much everybody who isn’t on the dole and isn’t rich can’t afford to live there.

      Oh, I know! Why not have an effective tax on vacant buildings: Drop property taxes on any property that’s been rented out–just leave the tax the rent. Don’t have a tenant? Then you’re paying property taxes. (Don’t bother figuring out if the owner’s a speculator, either; make it entirely dependent on if there is currently a paying tenant.)

      1. No. If you do that then what is the city government *for*?

      2. What if you have a multi-unit building? Pay property tax *and* tax on rental earnings until everything is leased?

  10. Unnamed sources say the democrat party wants to turn the USA into a communist state.

  11. Get ready for sham tenants on month-to-month ‘leases’ whose ‘shops’ are rarely open.

  12. It’s going to cost the city more than $250 to figure out which owners owe the $250. This is batshit crazy.

    Most retail lessees go out of business within a couple years. It’s hard to imagine that landlords are worried about tenants locking in rates that are too low.

    1. “It’s going to cost the city more than $250 to figure out which owners owe the $250. This is batshit crazy.”

      Yeah so. The San Fran City Worker’s union doesn’t see a problem with that. And next year, we can always raise the tax.

      1. “Yeah so” were exactly the words which came to my mind .

    2. And if they were, they’d certainly be able to put a rate rise in the lease.

  13. Key detail. It’s $250/day.

    1. Holy shit, you’re right!

      “Under Peskin’s proposal, owners of commercial properties in Neighborhood Commercial Districts ? areas where stores and services are clustered ? that are vacant for more than six months would face a fine of at least $250 per day. And while storefronts are the visible face of the long-term vacancy problem, Peskin wants to target residential properties as well. Landlords with three or more units that are vacant for six months would also pay $250 per unit per day until the unit is leased.”

      Wow, I have to give the Progs a little more respect. This isn’t a little bit of regulatory socialism, this is a lot.

  14. “”This is by no means meant to be a revenue generator. It’s meant to be a behavior changer,” said Peskin on Tuesday”

    Fuck off slaver. Taxes should only ever be a revenue generator.

  15. Don’t they already have property taxes? Taxes that would presumably encourage landlords to generate revenue that will pay these taxes?

    Not to mention the interest on the capital, etc.

    1. the property tax might be 1% of the value from 5, 10, 15, 20, 25 or more years ago, plussed up by 2% per year when property values might have risen 5% or 10% per year. Fair?

      And the “capital” involved in buying a property, 30 years ago, which was already mostly land value and an already-depreciated building is trivial compared to the value of the site today. The interest has long been paid back.

      1. And if the lot is vacant, I think its possible that the property tax paid on them can be written off as a loss?
        I’m no lawyer, but I remember being told many years ago that developers would buy land and build a strip mall even without the prospect of immediate or near term tenants to fill it because it was somehow cheaper or more profitable to do it that way rather than leaving the land undeveloped.

        No idea if that’s accurate, but I think we all know the solution to SF’s vacant storefront problem:
        Just fill me with homeless people

  16. “This is by no means meant to be a revenue generator. It’s meant to be a behavior changer,” said Peskin on Tuesday, saying the bill was about going after landlords who sit on vacant properties while waiting for rents and property values to increase.

    And I’m sure he produced reams of evidence to support that assertion, right? RIGHT?!

    Sometimes properties are vacant while undergoing renovations. A 2018 survey of vacant commercial properties in the city’s North Beach Neighborhood Commercial District, for example, found that 20 percent of these units were empty because of ongoing city-mandated seismic retro-fitting.

    Hmmm, am I being more cynical than usual here? I can easily foresee the city ordering a bunch of properties to undergo seismic retro-fitting or other mandated renovations resulting in the properties sitting vacant, then charge the landlords the $250 fine for letting the properties sit vacant.

  17. I don’t get it. If I own a building, then renting it out at a rate higher than the cost of letting it sit, to a tenant who will pay the rent and not tear the place up makes more money than doing nothing. The “landlords who sit on vacant properties while waiting for rents and property values to increase” will get upside down really quickly.

    So, what’s really going on?

  18. A property owner already has an incentive to rent–otherwise he goes broke. “Speculators” is just BS. I live in a prosperous midwestern town–a local grocery went out of business 3 years ago and the space is still empty because it is hard to find a tenant for such a big space. The property owner should be punished for this?

  19. quoting: “It’s very hard for us to know what is the cause for a change in behavior or why properties are being kept vacant,” says Youngman. “We know landlords are not making profits while a property is vacant, so there’s a natural question there.”

    They aren’t receiving rent, but land values under their buildings continue to rise, and their property taxes are awesomely low.

    A 1% rise in the value of a site worth $1 million — a postage stamp in many San Francisco neighborhoods — is $10,000. And if the owner is paying 1% or 1.25% property taxes based on its 1976 value (plus 2% per year), or its 1990 value (plus 2% per year) or its 2008 value (plus 2% per year), well, they can afford to wait. Meanwhile, their newer neighbors — or their tenants — pay the property taxes that subsidize the vacancy landlord.

    What a deal!!

  20. I earned $5000 last month by working online just for 5 to 8 hours on my laptop and this was so easy that i myself could not believe before working on this site. If You too want to earn such a big money then come.
    visit……….. http://www.Mesalary.com

  21. “And even if there are a large number of landlords holding on to empty properties with the hope of renting them out at higher rates in the future, the fact that this would even be a profitable activity suggests something is off with San Francisco’s real estate market”

    Smells like rent control.

  22. Oh San Fransicko…the city that never ceases to amaze me with the liberal nonsense they come up with.

Please to post comments

Comments are closed.