San Francisco homes


Homeowners Reap Profits While Fueling Housing Crisis

The widespread critique of California's SB 827 got me thinking about why nobody talks about those really profiting from land use decisions that inflate their property values: homeowners.

Dogpatch homes, by Peter Merholz via flickr, CC BY-SA 2.0.

San Francisco homes

Dogpatch homes, by Peter Merholz via flickr, CC BY-SA 2.0

“SB 827 provides potentially huge additional value to property owners throughout the state without concurrent value capture.” — SF Planning Department, Feb. 15, 2018

“This is not the right way to build housing,” Kim said. “This is a giveaway to landlords and developers without asking anything in return for a city and community.” — SF Examiner, April 3, 2018

Scott Wiener’s failed SB 827 has provoked a huge debate over housing policy. The bill, which in many cases would have raised height limits along transit corridors, was attacked for undermining local control over land use. It had also been accused of fostering gentrification, though the San Francisco Planning Department’s Feb. 15 memo (cited above) found that SB 827 would increase affordable housing in the city overall.

Many critics of SB 827 also saw it as a developer “giveaway,” and providing a windfall to property owners without the public receiving any “value recaptured” from owners whose property values would increase from being able to construct a taller building.

The widespread critique of SB 827 got me thinking about why nobody talks about those who are really profiting from land use decisions that inflate their property values: homeowners. Specifically, those homeowners whose neighborhood zoning prohibits new apartments. And who fight to keep it that way.

Cities believe developers must contribute a public benefit in exchange for the right to build housing—which many see as a public good. In contrast, homeowners who prevent housing in their neighborhoods make huge profits by artificially restricting supply—and cities require them to provide no public benefits at all.

There’s clearly a double standard at play here as to how we assess the beneficiaries of urban land use policies.

Consider San Francisco’s Central Subway project. This roughly $2 billion project vastly increases property values along Chinatown and the other stations where residents are currently underserved by public transit. Yet I recall no public demands that these property owners provide any public benefits for this massive public expenditure, which will greatly increase their property values.

San Francisco’s extension of the Third Street light rail played a key role in the rapid gentrification of Dogpatch. I don’t recall anyone calling for property owners in the Dogpatch neighborhood to share their increased property values.

San Francisco also routinely passes park bonds. This makes homes and apartments near the improved parks more valuable, yet the cost of these improvements are borne by owners citywide. Tenderloin property owners have gotten no increase in their property values from park bonds.

Big Homeowner Profits From Stopping Housing

But the real question about value recapture is why it is not applied to the downzoning of residential neighborhoods. I am referring to the single-family zoned neighborhoods in San Francisco and those whose zoning prohibits housing above three or four stories.

A developer who builds market rate housing adds to the city’s housing supply. And if the city has an inclusionary requirement, they are giving working and middle-class people the ability to live in a neighborhood and likely a city they otherwise could not afford.

In contrast, what public benefit do homeowners fighting to stop new housing confer? Nobody benefits from stopping housing but the current group of owners and their families.

And they’ve been making out like bandits.

Single family home prices in San Francisco went up 24 percent in the past year alone. The median single family home price is now $1.6 million. The average sales price of a Noe Valley single family home sold this February was $3.5 million. Noe Valley residents are particularly militant in stopping new housing—and they have reaped the profits to show it.

new report released this week found San Francisco homes earned $60 per hour in equity. That’s four times more than the city’s minimum wage. And the home doesn’t even have to show up to work.

San Francisco and other cities could go a long way to building lots of affordable housing by attaching a surcharge to homeowner profits akin to those it applies to developers. The surcharge would only apply to neighborhoods where new apartments are banned. This would likely create an incentive for those now faced with paying public benefits to support allowing multi-unit buildings in their neighborhood.

This tax on homeowner profits would likely add more below market rent units than the city has produced through other means. Just consider that over the past six years the average single family homeowner in San Francisco has seen their equity increase by $1 million. That’s $13,125 a month, every month for 6 straight years. Multiply that by the city’s 124,000 single family homes and that is a potentially staggering infusion of public subsidies for affordable units.

When you consider that Prop 13 allows longtime homeowners to pay property taxes at a fraction of their home’s current value, the policy rationale for taxing profits on sale makes even more sense.

I realize that no politician who has to face voters will even suggest taxing homeowner profits reaped from stopping housing. After all, high voter turnout by homeowners underlies exclusionary zoning restrictions.

But if proposals to shift some of the huge public subsidies homeowners get from the mortgage interest deduction have become politically tenable, so should taxes on homeowner profits reaped from restricting housing supply in their neighborhoods.

We need to stop making believe that only developers are profiting from the urban housing shortage. Land use policies that restrict new apartments generate huge profits for existing homeowners. It’s bad policy to ask one group of property owners to return “value” to the public from land use changes while exempting others.

That’s a land use double standard. And it makes the urban housing crisis worse.

A version of this article originally appeared on

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