San Francisco

San Francisco Ballot Measure Would Tax Empty Storefronts in Attempt to Boost Retail Sector

The initiative would leave untouched all the city regulations that've made it so hard to start a business in the first place.

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If you tax something, you generally get less of it. That logic undergirds a San Francisco ballot measure that would tax vacant storefronts in hopes of filling them with thriving retail businesses.

Supporters of the idea argue that the city is facing an epidemic of unused commercial space, caused in part by speculating landlords keeping empty units in the hopes of securing higher-paying tenants. Taxing vacant properties would encourage these landlords to get off the sidelines and give business tenants a chance, the thinking goes.

A vacancy tax would encourage "bad actor landlords to get off their duffs" and lease out their properties, said Aaron Peskin, a member of the city's Board of Supervisors and the author of the proposed vacancy tax, according to the San Francisco Examiner.

Peskin has been pushing versions of the vacancy tax since January. In late November, the Board of Supervisors voted unanimously to place it on the March 2020 ballot.

If approved by voters, it would go into effect January 2021.

The tax would apply to the non-residential properties in the city's neighborhood commercial districts that remain vacant for over 182 non-consecutive days in a given year.

The tax rate would start out at $250 per linear foot of storefront that's vacant in 2021, rising to $500 for properties that are vacant in that year and the next, and maxing out at $1,000 per linear foot for storefronts that are vacant for three years in a row.

The tax will bring in very little money. The city's controller estimated it would generate at most $5 million, and that was when the proposed tax rate was a flat $1,000 per linear foot for all vacant storefronts.

This is of little concern to Peskin, who told the San Francisco Chronicle back in January that the idea of slapping fees on vacant storefronts is not "meant to be a revenue generator. It's meant to be a behavior changer."

To avoid penalizing landlords or lessees for circumstances outside their control, Peskin's legislation includes exemptions for buildings that are empty as a result of construction or due to damage by natural disasters or fires. There is also a one-year exemption for empty stores that are waiting on building permits from the city.

That the latter carveout is necessary should suggest that there's more to San Francisco's vacancy rate than landlords refusing to rent out their space. The amount of time businesses spend waiting for city permits, not to mention the number of permits businesses need to get, is a significant factor in why so many storefronts in the city are empty.

That was the case made by Hans Hansson, a managing principal of Starboard Commercial Real Estate, in an April opinion piece for the San Francisco Business Times.

"The majority of the building owners, and certainly retail brokers like myself, all are aggressively trying to fill these vacant spaces," wrote Hansson. "In almost all cases, the rent is not the stumbling block; it's the high cost of starting the business, strict government regulations, and the risk of ultimate success."

Hansson points to city regulations and, in particular, zoning laws that require additional approvals for chain businesses with over 12 locations from setting up shop in parts of the city, as making retail space harder to lease out.

These same factors were cited in a 2018 "State of the Retail Sector" report prepared for the city government, which called out the time it took to secure permits from city agencies as a strain on the retail sector, writing that "brokers, developers, and business assistance providers cited examples of permitting processes that took six to nine months, sometimes resulting in the applicant going bankrupt before they could open."

The process can take even longer if NIMBY ("not in my backyard") neighbors ask the city's Planning Commission to use their discretionary powers to review permit applications, which can stretch things out for months. The commission also has the power to deny permits, even if they comply with all city regulations.

In one recent case covered by Reason, a falafel business trying to set up shop in a vacant storefront in the city's Castro District was prevented from opening for months by a discretionary review initiated by a competing restaurant.

That report also pointed to the specificity of San Francisco's zoning code as reducing the flexibility of retail businesses to adapt to changing economic circumstances, say by co-locating multiple businesses in a single location, or adding food and drink service to attract customers otherwise lost to online shopping.

In another story covered by Reason, one business owner spent over 18 months trying to get city permission to convert an arcade repair shop he owned into a simple arcade that serves food and drink.

In addition to all the ways the planning process stymies business formation, there's also the city's high minimum wage, paid sick and parental leave laws, and other labor regulations that, whatever their merit, raise the costs for retail business owners operating on slim margins.

Rather than trying to combat retail vacancy rates by rolling back some of the red tape that makes starting a business difficult, San Francisco politicians are doubling down on their tax-and-regulate approach.

NEXT: Impeachment and the Spending Power Revisited

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  1. Christian, it would be better for your blood pressure if you pretended San Francisco didn’t exist.

    1. It would be better for America’s blood pressure if Sam Francisco didn’t exist.

      1. The big one can’t come soon enough

      2. We could give California back to Mexico.

        1. What makes you think they want it? They have enough problems

          1. They have already practically given it back to Mexico and any other Latin country invading the state.

  2. Wouldn’t wanting to start a business in SF be a disqualifying factor since you’re clinically insane to do so?

    1. I wonder about this myself. How bad do things have to get before we just shrug and say, “we told you so”.

  3. The beatings have failed to improve morale, let’s try jabbing them with pointied sticks.

  4. Off topic, but it seems the progs are jizzing their pants over a speech by Chief Avocado in Houston, (metaphorically) standing on the body of a dead cop who was apparently shot to death by a suspect who was legally prohibited from owning a gun.

    Avocado challenged Republicans: “Make up your minds, whose side are you on? Gun manufacturers, the gun lobby, or the children that are getting gunned down in this country every single day.”

    It’s not as if he’s trying to distract attention from some kind of major scandal in his department by shouting “look over there!”

      1. At some time in the distant future, some politician will have to balls to reply “I am on the side of the constitution of the United States of America, and of individual freedoms guaranteed by that document.”.
        Whose side are YOU on?

        1. Ask that fucktard Donk Fascist what law he would like to enforce that would have prevented this tragedy.

          Then ask him if he can recite the Second Amendment.

    1. This case is the failure of the state and local government of doing their jobs. The killer had a domestic violence restraining order already and would not have been allowed to buy a gun (legally) but that did him from acquiring one.

    2. Saw that. It should be obvious that he’s ignoring a practical predicted consequence of corrupt cops: shoot first to defend yourself, because they aren’t going to ask any questions before they start shooting on trumped up warrants.

    3. Avacodo is one of the reason why we have the second amendment, to protect ourselves from cops like him.

    4. Isn’t this the same chief who presided over the murder of two innocent civilians in a home invasion perpetrated by his hired goons?

      1. The very same – I simplified the spelling of his name a little. I think it’s technically Acecedo or something.

  5. Ask not what you can do for your citizens, ask what you can do to your citizens.

  6. It’s always amazing to me how proggies do not understand profit or even plain old money. Why do they think landlords would gladly leave a store empty, paying mortgage and insurance and property taxes and upkeep, rather than rent it out and collect money every month? And yet proggies also demonize landlords as thinking of nothing but money.

    It’s almost as if they were inconsistent.

    1. there is a liberal in our town who thinks we can solve the homeless problem by taxing all lots that aren’t built on yet as punishment for not building. he thinks they can magically suddenly build and ironicly it would require the entire county to be built out which I’m sure he wouldn’t like the sudden explosion of houses everywhere either

        1. town idiot, town liberal, its the same thing.

    2. Why do they think landlords would gladly leave a store empty, paying mortgage and insurance and property taxes and upkeep, rather than rent it out and collect money every month?

      Because that is exactly what Prop 13 incentivizes. Two of those four carrying costs – mortgage and property tax – are (or can be) essentially non-factors for long-time owners. And chances are they get a great tax loss by leaving the property empty (which is a hassle anyway esp re retail now) and doing the usual fraudulent real estate accounting.

      The dream of Prop 13 was that no one would ever even be squeezed a bit into selling. It’s all a one-way market there. Make me an insanely outrageous offer – and then I’ll sell and you can rent it out. Until then – move along, I’m waiting for an insanely outrageous offer.

      1. I’m not convinced that prop 13 is the primary culprit here. It’s possible that prob 13 becomes a late-game crutch of convenience, but while these property owners are sitting in a raing hurricane of San Francisco development restrictions, certifiably insane neighborhood activists and neighbors who weaponize environmental reviews and historic landmark regulations, wrapped in a market with rent control and a dangerously impulsive City council (board of supervisors as I believe sf calls them), they’re losing money on that property. Yes, maybe they’re banking on the connected developer to make them that offer, but all the stuff that sits on top of prop 13 is the real culprit.

        1. But if that property is long-time owned, it is not costing much money at all. A property that hasn’t changed owners since Prop13 (or remains in the same family) may have a prop tax of 0.1%. If he leaves it vacant for 10 years, that’s not even a significant cost. It’s a lower cash-cost than putting the money in a money market fund.

          Yes – they lose rent. But what is the upside now of renting anything to retail? That ain’t a healthy market and that has nothing to do with SF. Compared to the annual ratcheting up of prop values with all the now permanently embedded tax breaks and subsidies – and the option value of being flexible if neighboring props go on sale for a consolidation-and-develop.

      2. Further, I would say that the primary mistake that the populist revolt of prop 13 failed to consider was the the state was going to extract it’s pound of flesh one way or the other. The only way to stop the profligate state is to replace it. Their mistake was they left it in place.

        1. I worked with an ex-Californian and insufferable prog who would not stop complaining about how prop 13 had ruined his state, esp because how all the idiots who voted for it benefitted the most from higher taxes. He was the real life Rev Kirkland

        2. They weren’t interested in getting rid of the state. They wanted feudalism. Where the state protects the land owner and extracts the pound of flesh from the serfs.

          1. Except the landowner isn’t some Baron living in a tower on a hill, he was a working class guy who lived in an 1100 sq ft 1960 s ranch style house desperately trying to keep the crushing property taxes at Bay.

            1. It was ATTACHED to a legitimate complaint about inflation in the 70’s. But the intent and effect of it was always to create a landclass-based ‘solution’ to that. Between ‘we-who-are-already-here’ (who must be protected from increases in spending) and ‘you-smelly-new-people’ (who are responsible for paying for all increases in govt spending).

              That is feudalism. And you can see it in all the outcomes. Even stuff like annual turnover of housing. The overall turnover has dropped by half. Some of which is normal, some is a distortion. We Americans don’t move as often as we used to. But if you drill down – there are two distinct classes of sale.
              Previously owned less than 5 years = higher than normal-state turnover that includes the regular movers and superficial flippers etc.
              Previously owned more than 10 years = turnover is near non-existent. That is also the property that has depreciated more and is usually an obvious target for full redevelopment. That lack of supply – as much as the constipated regs – is why redevelopment/construction doesn’t happen much now. And why CA now has the oldest ‘age of housing stock’ outside the declining peeps Rust Belt.

  7. “You vill zell vat ve tell you , venn ve tell you, how ve tell you”, said the trans gentleman in the oh-so-stylish pink jackboots.

    1. “Is the accent mandatory?”

      ‘There are three German accents: effeminate german, Nazi german, and effeminate Nazi german, pick whichever one you like best’

  8. Imagine trying to “own” property in San Francisco in 2019. I’m just utterly baffled as to who is still trying to make a go of it over there.

    I mean, guys, they’ve sent you a pretty clear message – this is their land, not yours, and they don’t want you there. Seems to me like you woulda cut your losses and gone somewhere less oppressive five years ago.

  9. Ha, as if land speculation has no relationship to government policy.

    It seems landlords made the bet that San Francisco would continue to inflate the value of land and they bet correctly.

    Sadly, it appears that at least some of them forgot that SF inflates the value of land by specifically fucking over land owners. That’s right, land is so valuable there that the value of land itself outweighs the potential economic use of said land. It has officially become currency, I suppose.

    You’ll excuse me if I don’t cry crocodile tears over those people getting fucked over by this, since the writing has been on the wall for long enough that the only possible excuse is illiteracy.

  10. Supporters of the idea argue that the city is facing an epidemic of unused commercial space, caused in part by speculating landlords keeping empty units in the hopes of securing higher-paying tenants.

    There is no idea about how a business is run that is too stupid for people who have never run a business.

    1. Socialist motto?

  11. Peskin’s legislation includes exemptions for buildings that are empty as a result of construction or due to damage by natural disasters or fires.

    New York City is covered with scaffolding because of laws that make erecting new scaffolding expensive.

    So now San Francisco is going to be full of empty storefronts ‘going through renovation’ all year long where a construction company comes in and dicks around for one day every month.

    Sort of like road construction crews.

    1. Construction, fires or “natural” disasters. Plenty of options.

    2. You’re suggesting developers read the text of the law carefully.

  12. If you tax something, you generally get less of it.

    Then by all means, San Francisco, have at it!

  13. What this economic moron Aaron Peskin doesn’t seem to grasp, is that those buildings are vacant because businesses are already overtaxed and over-regulated in San Francisco/”the city on the bay” or as I like to call it “Caligula by the bay.”

  14. you have done great job on the blog posts. Cuckoo Carpet Cleaning

  15. Shame they can’t just tax raw land to lower the price of that – and then forget trying to tax/regulate everything else where those taxes/regulations raise the cost of all that other stuff.

    Even more of a shame that pretty much nobody who ever took Econ101 even understands the above sentence.

  16. Vacancy tax? How about a vagrancy tax?

  17. A friend of mines daughter lives in San Fran and they pay $36,000 a year in just property taxes. These are uber liberals mind you and even they are starting to question what exactly they get for that money other than screwed over. I guess shoveling human shit off the streets costs a lot?

    1. The Mayor is doing her damnedest to build the bum population, now offering free medical care delivered to the tent door in a bus, plus water-front view properties for free.
      And then we get Peskin (the spark plug for the vacancy rents) who also decides which retail outlet is ‘proper’ for that location; a lot of the vacancies are vacancies as a result.

  18. San Francisco: Land of liberal airheads like Nancy Pelosi, Big Tech fascist billionaires who like to censor other people’s speech on their sites and shit on the streets.
    Welcome to the paradigm of heaven according to all progressives.

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