San Francisco Wants To Sell the Air Rights Above City Hall for $45 Million. Why Not Give Them Away for Free?

The tradable development rights the city has in its possession are only made valuable by its insane restrictions on new development.

San Francisco is considering a sale of the tradable air rights above City Hall, a move that would bring money into the public coffers without hitting up already overburdened taxpayers, and also opens up development opportunities downtown.

It's a seemingly unobjectionable trade that's only made possible by the city's insane restrictions on new development.

This week, the San Francisco Board of Supervisors was set to vote on a resolution authorizing the city's Director of Property to sell up to 1.2 million square feet of unused space above city hall for an estimated $45 million. The sold-off space could then be used by the owners of other parcels in the city's downtown area to enlarge their own projects beyond what would otherwise be allowed by the zoning code.

The San Francisco Chronicle reports that there is $46.5 million worth of projects at the City Hall building that are currently unfunded, including "roof and dome leak repairs, dome revitalization, exterior stone refurbishments and interior preservation."

Whether the sale actually will actually bring in enough money to fund those projects is an open question. The Chronicle notes that there's a limited number of parcels that could actually make use of the additional development rights and that demand for new downtown development is still suffering from the depressing effects of the pandemic.

The bigger problem with the city's air rights scheme is that it only seems like a pro-development policy in light of San Francisco's insanely restrictive zoning laws.

After all, the only people ultimately interested in purchasing those unused air rights would be developers who have viable projects they'd already be building if existing density limits didn't forbid it. The $45 million the city is hoping to earn on the sale, therefore, represents some of the value of the offices and shops lost to San Francisco's overly restrictive zoning regulations.

The $45 million price tag is also a lot lower thanks to the limits of the program that is enabling the sale of the City Hall air rights. That program, which dates back to the 1980s, allows the owners of historic buildings to sell off square footage that the zoning code permits them, but which they haven't used, to people looking to build bigger projects.

But those development rights can only be transferred to properties in the city's downtown commercial district that are zoned for retail, office, and other related uses. And as mentioned, there's not a lot of demand for those uses right now.

If, however, the program allowed development rights to be transferred to, say, residential properties citywide, you could imagine there would be a whole lot more bidders interested in snapping up square footage that they could then devote to enlarging much-needed housing projects.

That would push the price of those air rights far higher. It would also provide an even clearer window into how much physical space and shelter the city is costing itself with all the red tape and restrictions it puts on new development.

Better yet, the Board of Supervisors could amend the city's zoning code to give out air rights to anyone who thinks they can put them to good use.

That wouldn't directly raise money to spruce up City Hall, but it would enable the construction of new homes and businesses that would expand rental options at every price point, which would in turn draw new residents and eventually grow tax revenue, some of which can be used to repair and restore public buildings.