That man­sion on Nob Hill could see a big­ger tax bill

San Fran­cisco will pro­pose a tax in­crease on megalux­ury homes “The city has pri­or­i­tized the wealthy de­vel­op­ers”

Bloomberg Businessweek (Asia) - - CONTENTS - −Ali­son Vek­shin Edited by Al­li­son Hoff­man

There’s a new tar­get in San Fran­cisco’s in­come in­equal­ity wars: lux­ury man­sions. Jane Kim, a mem­ber of the city’s board of su­per­vi­sors, is seek­ing to put a pro­posal be­fore the vot­ers in Novem­ber that would in­crease trans­fer taxes on homes sold for more than $5 mil­lion, with prop­er­ties worth more than $25 mil­lion in­cur­ring a min­i­mum fee of $750,000 typ­i­cally paid by the sellers. “There is a strong sense right now in San Fran­cisco that af­ford­abil­ity is the No. 1 is­sue, and the eco­nomic di­vide that we’re see­ing here is un­prece­dented and stark,” says Kim, a civil rights lawyer who’s run­ning for the state leg­is­la­ture. “While we can­not stop peo­ple from com­ing to San Fran­cisco and en­cour­ag­ing this lux­ury econ­omy, we can ask them to help pay for the cri­sis that they are con­tribut­ing to.”

The in­flux of highly paid tech­nol­ogy work­ers into the city has fu­eled some of the high­est rents and home prices in the U.S., spurring pub­lic out­cries over ten­ant evic­tions and the in­crease in homelessness. Pro­test­ers have fre­quently tar­geted the com­muter buses that ferry tech work­ers to jobs in Sil­i­con Val­ley, about 40 miles south of the city. “San Fran­cis­cans are up­set that the city has pri­or­i­tized the wealthy de­vel­op­ers and spec­u­la­tors over ev­ery­day San Fran­cis­cans,” says Sarah Sher­burn-Zim­mer, ex­ec­u­tive di­rec­tor of the Hous­ing Rights Com­mit­tee of San Fran­cisco, which has or­ga­nized anti-evic­tion protests.

The is­sue has dogged Mayor Ed Lee, who’s cred­ited with draw­ing the tech­nol­ogy com­pa­nies to the city. He was elected to a se­cond full term in Novem­ber on a “shared pros­per­ity” agenda. Kim’s pro­posal, which re­quires sup­port from five other mem­bers of the board of su­per­vi­sors to ap­pear on the Novem­ber bal­lot, would in­crease the tax on prop­er­ties worth $5 mil­lion to $10 mil­lion by a quar­ter point, to 2.25 per­cent. The trans­fer tax on prop­er­ties sold for $10 mil­lion to $25 mil­lion would also rise a quar­ter point, to 2.75 per­cent, and homes worth more than $25 mil­lion would be taxed 3 per­cent—a new bracket that in­creases the tax on such homes by half a per­cent­age point.

The tax hikes would gen­er­ate $26.8 mil­lion in ex­tra an­nual rev­enue, says Drew Mur­rell, city­wide rev­enue man­ager in the divi­sion of bud­get and anal­y­sis at the San Fran­cisco Con­troller’s Of­fice. The city col­lected $240 mil­lion in trans­fer taxes on prop­er­ties worth more than $5 mil­lion in fis­cal 2015, a 33 per­cent in­crease from fis­cal 2012, city data show.

The San Fran­cisco metropoli­tan area had the high­est me­dian home price in the U.S. in Novem­ber, at $1.1 mil­lion, ac­cord­ing to the most re­cent data from con­sumer an­a­lyt­ics firm CoreLogic. There are cur­rently two home list­ings for $25 mil­lion or more in the area, out of 294 across the U.S., Zil­low data show. There are 99 list­ings in the San Fran­cisco metro area for homes worth $5 mil­lion to $25 mil­lion.

Tax­ing the wealthy has be­come a pop­u­lar pol­icy in Cal­i­for­nia, where vot­ers in 2012 ap­proved tem­po­rary in­come tax in­creases on peo­ple mak­ing more than $250,000. At the time, Cal­i­for­nia faced a $9 bil­lion bud­get short­fall; the taxes gen­er­ated $15.2 bil­lion over the last two fis­cal years, help­ing to erase the state’s bud­get deficit. The state’s largest teach­ers union and the Cal­i­for­nia Hos­pi­tal As­so­ci­a­tion are among groups push­ing to ex­tend the in­come tax in­creases.

Some bro­kers aren’t thrilled at the prospect of ad­di­tional taxes on mul­ti­mil­lion-dol­lar prop­er­ties. “Homes sell­ing for higher prices in San Fran­cisco al­ready pay sub­stan­tially higher trans­fer taxes than the norm,” says Pa­trick Carlisle, chief mar­ket an­a­lyst at the city’s Paragon Real Es­tate. “In­creas­ing them sig­nif­i­cantly con­sti­tutes an un­fair penalty be­ing levied upon cer­tain home­own­ers sim­ply be­cause of their fi­nan­cial suc­cess.”

Oth­ers say the pro­posed real es­tate tax would de­press prices of homes that should be worth more than $5 mil­lion to just below that amount, so sellers can avoid the ad­di­tional fees. “At that price point, the city al­ready gets a healthy chunk,” says John Kirk­patrick, a bro­ker at Pa­cific Union In­ter­na­tional, a real es­tate firm in San Fran­cisco. He’s cur­rently list­ing his own three­bed­room condo at the St. Regis in the city’s South of Mar­ket district for $5.5 mil­lion. “The per­cep­tion is that San Fran­cisco is be­com­ing more heav­ily taxed than other cities. It’s not good for busi­ness.”

The bot­tom line A San Fran­cisco law­maker is propos­ing a tax of at least $750,000 on homes sold for more than $25 mil­lion.

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