NEW REAL ESTATE TAX IS A BAD IDEA FOR SAN DIEGO
San Diego’s Housing Federation would like to place a real estate transfer tax on the November 2024 ballot as a way to combat the city’s homeless and affordable housing crisis, but the unintended consequences will most likely make homes and rentals more expensive as costs are passed onto the consumer. San Diego cannot tax itself out of a homeless or housing crisis. If our elected leaders continue to push for initiatives that drive up home prices and infringe on private property rights, in no time at all we will end up like Los Angeles, whose homeless population is nearly 70,000, or San Francisco, where the average rent for an apartment is $3,313 — even higher than San Diego.
Similar to Los Angeles’s recently approved Measure ULA — the United to House L.A. initiative also called the “mansion tax” — this progressive real estate transfer tax would require property owners to pay an additional 1.75 percent to 2.25 percent on real estate sales. The transfer tax would be levied on all property types in the city of San Diego, commercial or residential, over $2.5 million, and the more expensive the property, the higher the transfer tax rate.
While $2.5 million is a lot of money for a home, it is not for a commercial building or a multiunit residential property. If commercial property owners are forced to pay an additional tax on sales, they will most likely increase the listing price, and this increase will ultimately be transferred to renter by the new owner to make up the difference. Typically, these types of taxes end up being absorbed by the consumer and the ones who are affected the most are generally those who are struggling the most.
In California, approximately 0.5 percent of tax-filing residents contribute around 40 percent of the total personal income taxes in the state. These individuals are often categorized as affluent, which holds true in comparison. While some may assume that these property owners can easily accommodate an extra tax burden, it’s important to note that they are likely to opt not to sell, as was observed in Los Angeles when the city introduced its mansion tax earlier this year.
In the days before Los Angeles’ mansion tax took effect, luxury property owners were selling as quickly as they could. Prices were cut and escrows were rushed on million-dollar deals. Some sellers even offered exotic cars and expensive bonuses to anyone willing to buy their home by the end of March 2023. All this commotion was in an attempt at avoiding Measure ULA, a new transfer tax that levied a charge on all residential and commercial real estate sales in the city.
However, beginning April 1, the luxury real estate market froze in Los Angeles. Instead of paying the tax, sellers elected to take their properties off the market. Homes that were discounted prior to April 1 shot back up in price to make up for the new tax. Luxury home sales essentially stopped and so did the revenue they generate that would have been achieved when the property was reassessed after the sale. Implemented in April, the tax was intended to bring in an average of $56 million in revenue per month to the city of Los Angles. During its first month, it brought in just $3.6 million. And this newly implemented L.A. mansion tax is already facing a lawsuit that could result in the city returning the money to taxpayers.
Proponents of the San Diego real estate transfer tax would like 20 percent of the funds to go to homeless prevention assistance including eviction support programs and tenants’ rights education. San Diego has already spent billions towards managing the homeless crisis and with all the money spent the homeless population increased in June 2023. The Regional Task Force on Homelessness tallied a 22 percent year-over-year spike in overall homelessness. Therefore, throwing more money at the problem by taxing property owners is not the answer.
Regulatory costs to build a home are high in San Diego, representing between 34 percent and 51 percent of the average cost of building housing, and local government has the ability to manage regulatory costs and make homes more affordable by waiving or substantially reducing permit fees. Rather than another tax hike on private property, real solutions are needed such as tax incentives for builders, streamlining the permitting process and incentivizing the building of auxiliary dwelling units.
A similar tax that took effect in the city of Los Angeles this spring has disappointed housing advocates. The United to House L.A. measure has generated far less revenue than hoped.
Editor’s note: We welcome a 750-word essay with a different view of this tax proposal. Please email it to laura.castaneda@sduniontribune.com.