12 ms·

Abandoned stores, empty homes: why San Francisco's boom looks like a crisis

121 points by gpresot 7y ago

jseliger 7y ago
At least the writer understands incentives: Since California passed Proposition 13 in 1978, property tax rates for those San Franciscans who owned property back then have been severely capped. Owners may pay Nixon-era property tax rates, while renting out those spaces at rates that have exploded in the last 40 years. They, too, can afford to let buildings sit empty. There have also been vacancy taxes proposed: https://reason.com/2019/12/10/san-francisco-ballot-measure-would-tax-empty-storefronts-in-attempt-to-boost-retail-sector/ https://reason.com/2019/12/10/san-francisco-ballot-measure-w..., but Prop 13 reform would seem to be the more obvious route.
- copenja 7y ago
  Won't forcing property taxes up just force lower income owners to move? You buy a home in a poor neighborhood. Twenty years later the value quadruples... and now the cost of living skyrocket? Also, would make retiring tricky.
  - milesskorpen 7y ago
    I think yes, it might. But most policies have positives and negatives. For example, because property taxes are essentially capped, CA needs to rely more on sales taxes, which are notoriously regressive.
  - nradov 7y ago
    Yes which is why most proposals for reforming Proposition 13 would leave the current system in place for primary residences.
  - rayiner 7y ago
    There is no reason why the percentage rate cannot come down as the property values increase.
  - tash9 7y ago
    Yeah, that's why prop 13 passed in the first place... "Oh how am I going to retire if my property taxes keep going up on my small 2br apartment in the Castro?"
- tehlike 7y ago
  Best case it will apply to commercial properties. I dont foresee changes to prop 13 for residential. They would also have to undo rent control, which is sort of like non-owners prop 13.
  - paul_f 7y ago
    What about a long time family-owned pizza place that owns their space. Does it seem right to raise their property taxes?
    - ghaff 7y ago
      There's probably a stronger argument for "it's just business" than forcing grandma to move out of the house she grew up in because she can no longer afford the property taxes. But, yes for better or worse, it's certainly an aspect of gentrification when the long time family-owned pizza place gets forced out to be replaced by a trendy bar, Starbucks, or a bank branch.
    - deleted 7y ago
      [deleted]
    - waisbrot 7y ago
      Poor little small businesses will always get crushed and it's just a matter of who by. I often see this kind of what-about argument trotted out against regulation (if we ban polluting cars, what about the poor folks who can't afford to get their old car serviced?). But if we're so worried about the pizza joint, are we going to protect them if a chain restaurant offers cheaper pizza? What if the neighborhood changes and now people don't like pizza as much? I think the answers to all these questions are the same.
      - StuffedParrot 7y ago
        Not if the society makes an effort to keep the pizza place.
        7y ago
- lr 7y ago
  From the Reason article: > "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." I don't buy that argument fully. Why is the place vacant in the first place? Usually because the pervious, sometimes long-term business, could not afford the double, or triple rent increase. The question is, Did the owner of Sparky's really want to close, or were they not able to afford the rent increase? And now, we are suppose to believe that the place is empty only because a new business wants to pay that new amount and they're just waiting on permits?
  - lazyforgetful 7y ago
    The Castro area has more retail vacancies than most. Many of the vacancies are owned by a single landlord, last name is Natali I think. He kept the Patio Cafe space vacant for something like 15 years. Thanks to Prop 13 it costs him very little to do so and he has plenty of profit from the other buildings. There is a pattern of landlords raising rents to a level that existing businesses will not be able to afford, and then leaving them vacant. Supposedly there are big brands that will pay these rents, but they are kept out by a San Francisco law against chain stores. Without this law, the Castro would turn into a sort of high end rainbow themed mall. Some of the writing about Greenwich Village in NYC captures this dynamic better - there are national brands that can afford to run a flagship store in a tourist neighborhood, at a loss. The granolashotgun blogger has pointed out that in much of the US, there is simply more retail-zoned space than is necessary in the delivery age. I don't think that's what's going on in the Castro though. Prop 13 is a massive market distortion and the distortion is only growing, just as it was designed to do. That which is not sustainable must end, preferably before it gets worse.
    - ghaff 7y ago
      >there is simply more retail-zoned space than is necessary in the delivery age Although higher-end malls in growing cities are mostly doing pretty well, there's certainly no reason to think that urban retail in general should be immune from at least some of the same forces that help create the "dead mall" phenomenon. I was walking through Cambridge yesterday for the first time in a while. In addition to a non-trivial number of empty storefronts my sense was that there was at least a bit of a shift away from retail and towards trendy-looking restaurants.
acollins1331 7y ago
You can literally write off unpaid rent. The problems here are so simple to fix but no one will fix it because landlords run the show.
dilap 7y ago
I don’t get it though, as a building owner, what do I gain by kicking out a tenant and then letting a building stay empty?
- diogenescynic 7y ago
  Commercial real estate companies assume they will have X% vacancy so it’s factored in. Meanwhile, they pass rent increases onto their other tenants/properties and overall they just keep pushing prices up. They can just sit on the property as prices continue to rise and it won’t really matter. In the end they still come out ahead.
- scarejunba 7y ago
  If you own a one million dollar property that appreciates 10% unencumbered and loses 7% of value encumbered then you need to get a lot on your lease to make it make sense. What you gain from leaving the building empty is that you can sell to a big guy who wants the whole space. He won't do that if you give him six out of ten units and say "The other guys move out in five years" especially since the other guys will fleece you on buyout.
- peteradio 7y ago
  Keep the buyers strained so you can charge 2200/month for 6 months rather than 1000/month for a year.
- HarryHirsch 7y ago
  You are seeing sticky prices in action, commercial leases often last several years.
- sbuccini 7y ago
  Given the duration of business leases, it's often more worthwhile to wait for a tenant who's willing to pay "market rate", especially if you own many buildings which can help smooth out any temporary blips in rental income.
- waisbrot 7y ago
  Having a tenant is some risk -- they might mess the place up and cost you some money. If you've got profitable housing above then a new tenant might make noise or smells that upset the neighbors. If it's empty you can wait for a really excellent tenant to come along. Of course, that's only sane if the cost of leaving it empty is very low. Which is indeed the case. I lived next to some church property that was similarly blighted: the church paid little or no taxes and wasn't fined for having the property in disrepair. The congregation had all fled to the suburbs. So what was the incentive to put in work finding someone to rehabilitate and then buy or rent the property?
diogenescynic 7y ago
San Francisco is just a really poorly run city, but so many people are willing to look past that because there are tech jobs. There are literally people shooting heroin and smoking meth in public (across from City Hall no less), property crime is ignored, and they just keep trying to raise taxes and throw more money at the problem. It just seems like it’s obvious they are making these problems worse and not better. I don’t blame businesses for leaving. After the sky high rent and thefts, it’s probably hard to survive. We chose this though.
- HarryHirsch 7y ago
  Remember that social services and law enforcement are starved for cash because of Prop 13 and that the oligarchy doesn't have to care - they can afford gated estates and private security. That's the Brazilian model.
  - dilap 7y ago
    SF is hardly starved for cash; its budget is around $12 billion, something like $15K per capita. That’s a huge amount of money.
    - bobbytherobot 7y ago
      Much of the money is pre-allocated by propositions
    - hurricanetc 7y ago
      About half of the budget goes immediately to enterprise departments. Things like SFO, MTA, and the Port of San Fran. Another quarter goes directly to prop-approved set-asides for things such as libraries and Medi-Cal. Then some other large chunk goes to jails, courts, and hospitals. Then there is payroll for the 30,000+ city employees. Not to mention San Francisco has a massive pension liability in excess of $6 billion. The city really is bankrupt. And during the longest economic expansion in US history the city has done virtually nothing to shore up its finances. Not like San Fran is alone in that regard.
logfromblammo 7y ago
So what would the unintended consequences be for changing property tax to be a percentage of the actual annual rent for leased or pay-to-stay properties, assume a statutory minimum rent for vacant properties, and stay with assessed valuation times mill rate for owner-occupied properties? The property tax assessed in this way would be deducted from income, to avoid double-taxation. The desire to minimize the cost of owning a property should create an incentive to ensure a residence is occupied by at least one person who can pay, so the statutory minimum would probably be set such that renting at below-market rates would be slightly less costly after taxes and insurance than the tax rate for a vacancy.
react_burger38 7y ago
Blaming prop 13 for high housing costs ignores the real reasons - restrictive zoning codes, too many environmental reviews, and too many regulations in general. These combined make it nigh impossible to build enough housing around the Bay Area for rent to come down. Rent control makes things worse by reducing the amount of profit on each building. Then add “affordable housing requirements” which mean each new complex has to essentially lose money on 20% or so of the units to give them to low income people... and no wonder the rent is too $&@! high. I mean look at NYC - property taxes are really high there and the rent is almost as high as SF, and higher than LA.
hourislate 7y ago
It's a problem all over in many big cities. Toronto is experiencing the same issues. Small businesses are being pushed out. You have a Deli or a Coffee shop that has been there for decades close and some kind of Boutique shop move in since they can afford the 5-10k a month in rent. The trend now is for small shopping plazas or outdoor malls being sold off to developers to build Condo complexes. Complete neighborhoods have no shopping anymore forcing residents to drive instead of walk to get groceries or enjoy a stroll. It doesn't help that these cash strapped cities (Toronto) just rubber stamp any new development since the tax haul will be several times what they got for what was there. A 20 story Condo brings in a lot more revenue then a parking lot and strip mall. I won't even start about all the green space they are selling off to developers. It's out of control.
- epistasis 7y ago
  I don't know Toronto, but your description is the exact opposite of what is happening in San Francisco. All residential development has been frozen. There are a few small areas where very modest amount of housing has been built, but even there it has been with an abundance of retail, that takes a long time to find retail tenants. And because most of the city is blocked from any development; and only small areas get what look like massive changes, it take many years to adapt. The entire western side of SF is basically unchanged in the 20 years I've been in the area, and the age of the buildings say that it's been unchanged for decades more.
  - Areading314 7y ago
    North beach, Russian hill, marina, cow hollow, telegraph hill are all basically unchanged too.
    - notyourwork 7y ago
      Mission bay and soma are the two places where residential is being built but it’s all expensive high rise esque units that middle income can not afford.
lmnt 7y ago
There is an excellent documentary by Fredrik Gertten called "Push" that explores this phenomenon, definitely worth a watch if there's a screening nearby: http://www.pushthefilm.com/ http://www.pushthefilm.com/
- PeterStuer 7y ago
  Looks interesting, but it seems there is no way to see this film outside of the organized screenings which for most people means that they will never see it.
gd2 7y ago
Seems like an important topic to discuss. Serious question, how do should I understand the concluding sentence/word, "But walk through parts of San Francisco today, and you get a different sense altogether: not an uncanny effectiveness, but a panicked swirl of homeless capital." What is meant by "homeless capital"? does it mean SF is the capital city for homeless like Washington DC, or does capital go to opposite of venture capital, like in banking/finance/Wall St?
- OnlineCourage 7y ago
  Is that really a "serious question?" There are a lot of homeless people in San Fransisco. Nothing else needs to be construed.
  - eckmLJE 7y ago
    Possibly the phrase 'homeless capital' could mean human capital that is experiencing homelessness? The way the clause is constructed is pretty unclear. It could just mean there are a lot of homeless people, and is failing at being poetic.
  - whitebread 7y ago
    The author personifies capital earlier in the piece when he writes “noncommittal capitalism.” The way he structures the last sentence does seem to point towards the idea that the capital in SF is homeless.
- tiredwired 7y ago
  The last 2 paragraphs mention venture capital and VC dollars. I think the "homeless capital" refers to funds that are not being invested and have not found a "home" in new long-term businesses.
- usefulcat 7y ago
  > What is meant by "homeless capital"? I take it to mean capital (in the banking/finance sense). So "homeless capital" might suggest that there is more invesment money available than there are good places to invest it.
fallingfrog 7y ago
It’s a bubble. Get out while you can. Properties with zero income being sold and resold in a closed loop- an ourobouros of prosperity. What could go wrong?
lr 7y ago
Government must remove the ability to claim an income loss on the balance sheets of property owners that purposely leave spaces empty. There is no reason to double (or more) the rent on a space. They are doing it because maybe someone will pay, and until then, they get to claim the loss of income as a write off on their taxes. If this is not true, then how can property owners, who claim that they need the new rental rate, afford to leave a place empty for a year or more???
- eckmLJE 7y ago
  Paraphrasing someone below, if you as a property owner had the option to sign a 5y lease at $1,000/mo. with a local business that could fail, or hold out a year or two to sign a 10y lease at $2,500/mo. with a national bank that will pay on time forever, which would you do?
  - OzzyB 7y ago
    The OP is pointing out that the property owner also has the ability and incentive to wait by deferring the unrented space as a loss which essentially distorts the "Free Market".
    - lotsofpulp 7y ago
      I can't find anything online that would let commercial property owners do that: https://www.investopedia.com/terms/r/rentalreal-estate-loss-allowance.asp https://www.investopedia.com/terms/r/rentalreal-estate-loss-...
      - OzzyB 7y ago
        I'm not a tax lawyer but I see the link you posted states owners can get a tax deduction for upto $25k a year, which is ~$2k/month which means you can wait for that comfy Bank to come and lease your space. Of course this is based on owners with deep pockets that can benefit from this, and not the rest of us that might actually need that rental income; but like they say, the rich get richer...
aazaa 7y ago
> Some might say this is all simply market Darwinism, just with more cold-pressed beet juice. But it’s interesting that the free market exists only on one side of the equation. Since California passed Proposition 13 in 1978, property tax rates for those San Franciscans who owned property back then have been severely capped. Owners may pay Nixon-era property tax rates, while renting out those spaces at rates that have exploded in the last 40 years. They, too, can afford to let buildings sit empty. Tax policies play a big role in setting up market distortions like those happening in San Francisco. It's not just the rate, but the basis. Strong Towns has a discussion of the idea that taxing land, not improvements leads to better outcomes: > A parking lot in a bustling downtown is the classic example of a property where nearly all of the value is in the land itself, not the asphalt on top of it. In a rising market, you can hold onto the land and watch its value go steadily up (thanks to all the things your neighbors are doing to make the place more productive and successful). You can collect enough in parking fees to cover the taxes, and cash out when you're ready to cash out. Your property tax bill will be relatively low, because it's based on the sum of land value and improvements. The land may be in a central, prized location, but the "improvements" on the property (that's tax-assessor speak for any sort of structure built on the land) are worth next to zero. https://www.strongtowns.org/journal/2019/3/5/whats-with-that-empty-lot-in-the-heart-of-the-city https://www.strongtowns.org/journal/2019/3/5/whats-with-that... This line of thinking may also apply to empty shops in SF. As long as the overall property is covering expenses, why bother making the improvements needed to attract new tenants (and thereby adding the tax burden) when you can just sit back and watch real estate prices head to the moon.
- gwern 7y ago
  You know, the most ironic thing about all this is that Henry George invented Georgism in... San Francisco: https://en.wikipedia.org/wiki/Henry_George#Political_and_economic_philosophy https://en.wikipedia.org/wiki/Henry_George#Political_and_eco... The more things change, the more they stay the same.
  - aazaa 7y ago
    That was a relevant passage indeed - hadn't heard of George before: > George was in a position to discover this pattern [mere land possession harms the poor, and can be discouraged through a land tax], having experienced poverty himself, knowing many different societies from his travels, and living in California at a time of rapid growth [1870s]. In particular he had noticed that the construction of railroads in California was increasing land values and rents as fast as or faster than wages were rising. https://en.wikipedia.org/wiki/Henry_George#Political_and_economic_philosophy https://en.wikipedia.org/wiki/Henry_George#Political_and_eco...
supernova87a 7y ago
Like so many things in the Bay Area, this is a self-created problem. Despite living here, I have little sympathy for the sob-stories who voted for the exact policies that put them out of business. It infects every level of policymaker thinking (at least what they choose to publicly state and run for office on). It's a fruitless desire to resist development and population growth, no matter what the cost. And we're seeing the costs obviously now. The political inclination of government (and the mistaken belief of voters) to "keep things the same" and prevent gentrification or any kind of development matching the demand for people to move here may play well for votes, but is causing every problem you can see. The constraints on housing and development trickle down to everything. The cost of hiring people, the price of retail/commercial space, the inability to police / prevent crime, the emptying out of formerly affordable neighborhoods, traffic, homelessness, etc. This is not a puzzle. When you make land so valuable (which pleases some), it leads to things that cannot show their value clearly to be priced out. And the very policies that are intended to protect the people who got here first (a very questionable policy), end up hurting them. The more you try to control rent, the worse the situation gets. Politicians intend well. But intentions are highly overrated. Effects are what matter. As long as we refuse to build up, out, and have rational transportation systems (overcoming local inertia against building them), and accept that we're growing, this will continue.
- downerending 7y ago
  I had an offer from a FAANG a few years back, for a BA job, and turned it down because I realized I couldn't afford to live there on the offer. I can't imagine how "ordinary" people survive.
  - blaser-waffle 7y ago
    Roommates, long commutes, squatting, maybe some rent control. Got an old friend in the Tenderloin, and he loves it, even though he's got a wife and 2 roommates.
    - downerending 7y ago
carapace 7y ago
Important subject, poor article, IMO. Here's a background piece that covers most of the history and issues: https://www.businessinsider.com/san-francisco-housing-crisis-history-2017-7 https://www.businessinsider.com/san-francisco-housing-crisis... TL;DR: It's complicated. Also (and especially for those of us from the Old World) remember that SF is ridiculously young as cities go, even for American cities. The continent was largely settled from East to West. The Western part of the city was sand dunes and scrub. People panned for gold next to Lake Merced. Here's a thing from 2016 "Employment, construction, and the cost of San Francisco apartments" : https://experimental-geography.blogspot.com/2016/05/employment-construction-and-cost-of-san.html https://experimental-geography.blogspot.com/2016/05/employme... He got some data: > I set out to replicate the DataBook's methodology over a wider range of years, but quickly gave up on including just two-bedroom apartments, because ads in the early 1960s rarely referred to apartment sizes in these terms. Instead, for each first Sunday in April from 1948 through 1979, plus a few other years, I made a list of all the advertised unfurnished apartments, flats, houses, and, later, condos, regardless of size, that were advertised in the Chronicle. Mostly I used the San Francisco Public Library's page scans of the newspaper but resorted to microfilm for the few later years where no page scans are available. Here's the main take-away: > in 1956, apartments began to be listed in increasing numbers, but their prices also began to rise. Overall, they went up 6.6% every year. Today's outrageous prices are exactly in line with the 6.6% trend that began 60 years ago. So, big long complicated history, dead simple stable 6.6%/year increase. - - - - Solutions: Bucky Fuller mega-city Old Man River City https://en.wikipedia.org/wiki/Old_Man_River%27s_City_project https://en.wikipedia.org/wiki/Old_Man_River%27s_City_project https://solutions.synearth.net/2002/11/24/ https://solutions.synearth.net/2002/11/24/ Look at the cross-section: the structure is hollow. It's built like a suspension bridge. Imagine rotating the Golden Gate bridge around a vertical axis though its midpoint. See the article for the rest of the description. Integrated with ecologically harmonious waste reclamation and "bioreactors" to make arcologies: https://en.wikipedia.org/wiki/Arcology https://en.wikipedia.org/wiki/Arcology A few of these in the CA Central Valley on the Sacramento river would take all the housing pressure off the cities.

121 points by gpresot 7y ago

At least the writer understands incentives: Since California passed Proposition 13 in 1978, property tax rates for those San Franciscans who owned property back then have been severely capped. Owners may pay Nixon-era property tax rates, while renting out those spaces at rates that have exploded in the last 40 years. They, too, can afford to let buildings sit empty. There have also been vacancy taxes proposed: https://reason.com/2019/12/10/san-francisco-ballot-measure-would-tax-empty-storefronts-in-attempt-to-boost-retail-sector/ https://reason.com/2019/12/10/san-francisco-ballot-measure-w..., but Prop 13 reform would seem to be the more obvious route.

copenja 7y ago
Won't forcing property taxes up just force lower income owners to move? You buy a home in a poor neighborhood. Twenty years later the value quadruples... and now the cost of living skyrocket? Also, would make retiring tricky.
- milesskorpen 7y ago
  I think yes, it might. But most policies have positives and negatives. For example, because property taxes are essentially capped, CA needs to rely more on sales taxes, which are notoriously regressive.
- nradov 7y ago
  Yes which is why most proposals for reforming Proposition 13 would leave the current system in place for primary residences.
- rayiner 7y ago
  There is no reason why the percentage rate cannot come down as the property values increase.
- tash9 7y ago
  Yeah, that's why prop 13 passed in the first place... "Oh how am I going to retire if my property taxes keep going up on my small 2br apartment in the Castro?"
tehlike 7y ago
Best case it will apply to commercial properties. I dont foresee changes to prop 13 for residential. They would also have to undo rent control, which is sort of like non-owners prop 13.
- paul_f 7y ago
  What about a long time family-owned pizza place that owns their space. Does it seem right to raise their property taxes?
  - ghaff 7y ago
    There's probably a stronger argument for "it's just business" than forcing grandma to move out of the house she grew up in because she can no longer afford the property taxes. But, yes for better or worse, it's certainly an aspect of gentrification when the long time family-owned pizza place gets forced out to be replaced by a trendy bar, Starbucks, or a bank branch.
  - deleted 7y ago
    [deleted]
  - waisbrot 7y ago
    Poor little small businesses will always get crushed and it's just a matter of who by. I often see this kind of what-about argument trotted out against regulation (if we ban polluting cars, what about the poor folks who can't afford to get their old car serviced?). But if we're so worried about the pizza joint, are we going to protect them if a chain restaurant offers cheaper pizza? What if the neighborhood changes and now people don't like pizza as much? I think the answers to all these questions are the same.
    - StuffedParrot 7y ago
      Not if the society makes an effort to keep the pizza place.
      - 7y ago
lr 7y ago
From the Reason article: > "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." I don't buy that argument fully. Why is the place vacant in the first place? Usually because the pervious, sometimes long-term business, could not afford the double, or triple rent increase. The question is, Did the owner of Sparky's really want to close, or were they not able to afford the rent increase? And now, we are suppose to believe that the place is empty only because a new business wants to pay that new amount and they're just waiting on permits?
- lazyforgetful 7y ago
  The Castro area has more retail vacancies than most. Many of the vacancies are owned by a single landlord, last name is Natali I think. He kept the Patio Cafe space vacant for something like 15 years. Thanks to Prop 13 it costs him very little to do so and he has plenty of profit from the other buildings. There is a pattern of landlords raising rents to a level that existing businesses will not be able to afford, and then leaving them vacant. Supposedly there are big brands that will pay these rents, but they are kept out by a San Francisco law against chain stores. Without this law, the Castro would turn into a sort of high end rainbow themed mall. Some of the writing about Greenwich Village in NYC captures this dynamic better - there are national brands that can afford to run a flagship store in a tourist neighborhood, at a loss. The granolashotgun blogger has pointed out that in much of the US, there is simply more retail-zoned space than is necessary in the delivery age. I don't think that's what's going on in the Castro though. Prop 13 is a massive market distortion and the distortion is only growing, just as it was designed to do. That which is not sustainable must end, preferably before it gets worse.
  - ghaff 7y ago
    >there is simply more retail-zoned space than is necessary in the delivery age Although higher-end malls in growing cities are mostly doing pretty well, there's certainly no reason to think that urban retail in general should be immune from at least some of the same forces that help create the "dead mall" phenomenon. I was walking through Cambridge yesterday for the first time in a while. In addition to a non-trivial number of empty storefronts my sense was that there was at least a bit of a shift away from retail and towards trendy-looking restaurants.

acollins1331 7y ago

You can literally write off unpaid rent. The problems here are so simple to fix but no one will fix it because landlords run the show.

dilap 7y ago

I don’t get it though, as a building owner, what do I gain by kicking out a tenant and then letting a building stay empty?

diogenescynic 7y ago
Commercial real estate companies assume they will have X% vacancy so it’s factored in. Meanwhile, they pass rent increases onto their other tenants/properties and overall they just keep pushing prices up. They can just sit on the property as prices continue to rise and it won’t really matter. In the end they still come out ahead.
scarejunba 7y ago
If you own a one million dollar property that appreciates 10% unencumbered and loses 7% of value encumbered then you need to get a lot on your lease to make it make sense. What you gain from leaving the building empty is that you can sell to a big guy who wants the whole space. He won't do that if you give him six out of ten units and say "The other guys move out in five years" especially since the other guys will fleece you on buyout.
peteradio 7y ago
Keep the buyers strained so you can charge 2200/month for 6 months rather than 1000/month for a year.
HarryHirsch 7y ago
You are seeing sticky prices in action, commercial leases often last several years.
sbuccini 7y ago
Given the duration of business leases, it's often more worthwhile to wait for a tenant who's willing to pay "market rate", especially if you own many buildings which can help smooth out any temporary blips in rental income.
waisbrot 7y ago
Having a tenant is some risk -- they might mess the place up and cost you some money. If you've got profitable housing above then a new tenant might make noise or smells that upset the neighbors. If it's empty you can wait for a really excellent tenant to come along. Of course, that's only sane if the cost of leaving it empty is very low. Which is indeed the case. I lived next to some church property that was similarly blighted: the church paid little or no taxes and wasn't fined for having the property in disrepair. The congregation had all fled to the suburbs. So what was the incentive to put in work finding someone to rehabilitate and then buy or rent the property?

diogenescynic 7y ago

San Francisco is just a really poorly run city, but so many people are willing to look past that because there are tech jobs. There are literally people shooting heroin and smoking meth in public (across from City Hall no less), property crime is ignored, and they just keep trying to raise taxes and throw more money at the problem. It just seems like it’s obvious they are making these problems worse and not better. I don’t blame businesses for leaving. After the sky high rent and thefts, it’s probably hard to survive. We chose this though.

HarryHirsch 7y ago
Remember that social services and law enforcement are starved for cash because of Prop 13 and that the oligarchy doesn't have to care - they can afford gated estates and private security. That's the Brazilian model.
- dilap 7y ago
  SF is hardly starved for cash; its budget is around $12 billion, something like $15K per capita. That’s a huge amount of money.
  - bobbytherobot 7y ago
    Much of the money is pre-allocated by propositions
  - hurricanetc 7y ago
    About half of the budget goes immediately to enterprise departments. Things like SFO, MTA, and the Port of San Fran. Another quarter goes directly to prop-approved set-asides for things such as libraries and Medi-Cal. Then some other large chunk goes to jails, courts, and hospitals. Then there is payroll for the 30,000+ city employees. Not to mention San Francisco has a massive pension liability in excess of $6 billion. The city really is bankrupt. And during the longest economic expansion in US history the city has done virtually nothing to shore up its finances. Not like San Fran is alone in that regard.

logfromblammo 7y ago

So what would the unintended consequences be for changing property tax to be a percentage of the actual annual rent for leased or pay-to-stay properties, assume a statutory minimum rent for vacant properties, and stay with assessed valuation times mill rate for owner-occupied properties? The property tax assessed in this way would be deducted from income, to avoid double-taxation. The desire to minimize the cost of owning a property should create an incentive to ensure a residence is occupied by at least one person who can pay, so the statutory minimum would probably be set such that renting at below-market rates would be slightly less costly after taxes and insurance than the tax rate for a vacancy.

react_burger38 7y ago

Blaming prop 13 for high housing costs ignores the real reasons - restrictive zoning codes, too many environmental reviews, and too many regulations in general. These combined make it nigh impossible to build enough housing around the Bay Area for rent to come down. Rent control makes things worse by reducing the amount of profit on each building. Then add “affordable housing requirements” which mean each new complex has to essentially lose money on 20% or so of the units to give them to low income people... and no wonder the rent is too $&@! high. I mean look at NYC - property taxes are really high there and the rent is almost as high as SF, and higher than LA.

hourislate 7y ago

It's a problem all over in many big cities. Toronto is experiencing the same issues. Small businesses are being pushed out. You have a Deli or a Coffee shop that has been there for decades close and some kind of Boutique shop move in since they can afford the 5-10k a month in rent. The trend now is for small shopping plazas or outdoor malls being sold off to developers to build Condo complexes. Complete neighborhoods have no shopping anymore forcing residents to drive instead of walk to get groceries or enjoy a stroll. It doesn't help that these cash strapped cities (Toronto) just rubber stamp any new development since the tax haul will be several times what they got for what was there. A 20 story Condo brings in a lot more revenue then a parking lot and strip mall. I won't even start about all the green space they are selling off to developers. It's out of control.

epistasis 7y ago
I don't know Toronto, but your description is the exact opposite of what is happening in San Francisco. All residential development has been frozen. There are a few small areas where very modest amount of housing has been built, but even there it has been with an abundance of retail, that takes a long time to find retail tenants. And because most of the city is blocked from any development; and only small areas get what look like massive changes, it take many years to adapt. The entire western side of SF is basically unchanged in the 20 years I've been in the area, and the age of the buildings say that it's been unchanged for decades more.
- Areading314 7y ago
  North beach, Russian hill, marina, cow hollow, telegraph hill are all basically unchanged too.
  - notyourwork 7y ago
    Mission bay and soma are the two places where residential is being built but it’s all expensive high rise esque units that middle income can not afford.

lmnt 7y ago

There is an excellent documentary by Fredrik Gertten called "Push" that explores this phenomenon, definitely worth a watch if there's a screening nearby: http://www.pushthefilm.com/ http://www.pushthefilm.com/

PeterStuer 7y ago
Looks interesting, but it seems there is no way to see this film outside of the organized screenings which for most people means that they will never see it.

gd2 7y ago

Seems like an important topic to discuss. Serious question, how do should I understand the concluding sentence/word, "But walk through parts of San Francisco today, and you get a different sense altogether: not an uncanny effectiveness, but a panicked swirl of homeless capital." What is meant by "homeless capital"? does it mean SF is the capital city for homeless like Washington DC, or does capital go to opposite of venture capital, like in banking/finance/Wall St?

OnlineCourage 7y ago
Is that really a "serious question?" There are a lot of homeless people in San Fransisco. Nothing else needs to be construed.
- eckmLJE 7y ago
  Possibly the phrase 'homeless capital' could mean human capital that is experiencing homelessness? The way the clause is constructed is pretty unclear. It could just mean there are a lot of homeless people, and is failing at being poetic.
- whitebread 7y ago
  The author personifies capital earlier in the piece when he writes “noncommittal capitalism.” The way he structures the last sentence does seem to point towards the idea that the capital in SF is homeless.
tiredwired 7y ago
The last 2 paragraphs mention venture capital and VC dollars. I think the "homeless capital" refers to funds that are not being invested and have not found a "home" in new long-term businesses.
usefulcat 7y ago
> What is meant by "homeless capital"? I take it to mean capital (in the banking/finance sense). So "homeless capital" might suggest that there is more invesment money available than there are good places to invest it.

fallingfrog 7y ago

It’s a bubble. Get out while you can. Properties with zero income being sold and resold in a closed loop- an ourobouros of prosperity. What could go wrong?

lr 7y ago

Government must remove the ability to claim an income loss on the balance sheets of property owners that purposely leave spaces empty. There is no reason to double (or more) the rent on a space. They are doing it because maybe someone will pay, and until then, they get to claim the loss of income as a write off on their taxes. If this is not true, then how can property owners, who claim that they need the new rental rate, afford to leave a place empty for a year or more???

eckmLJE 7y ago
Paraphrasing someone below, if you as a property owner had the option to sign a 5y lease at $1,000/mo. with a local business that could fail, or hold out a year or two to sign a 10y lease at $2,500/mo. with a national bank that will pay on time forever, which would you do?
- OzzyB 7y ago
  The OP is pointing out that the property owner also has the ability and incentive to wait by deferring the unrented space as a loss which essentially distorts the "Free Market".
  - lotsofpulp 7y ago
    I can't find anything online that would let commercial property owners do that: https://www.investopedia.com/terms/r/rentalreal-estate-loss-allowance.asp https://www.investopedia.com/terms/r/rentalreal-estate-loss-...
    - OzzyB 7y ago
      I'm not a tax lawyer but I see the link you posted states owners can get a tax deduction for upto $25k a year, which is ~$2k/month which means you can wait for that comfy Bank to come and lease your space. Of course this is based on owners with deep pockets that can benefit from this, and not the rest of us that might actually need that rental income; but like they say, the rich get richer...

aazaa 7y ago

> Some might say this is all simply market Darwinism, just with more cold-pressed beet juice. But it’s interesting that the free market exists only on one side of the equation. Since California passed Proposition 13 in 1978, property tax rates for those San Franciscans who owned property back then have been severely capped. Owners may pay Nixon-era property tax rates, while renting out those spaces at rates that have exploded in the last 40 years. They, too, can afford to let buildings sit empty. Tax policies play a big role in setting up market distortions like those happening in San Francisco. It's not just the rate, but the basis. Strong Towns has a discussion of the idea that taxing land, not improvements leads to better outcomes: > A parking lot in a bustling downtown is the classic example of a property where nearly all of the value is in the land itself, not the asphalt on top of it. In a rising market, you can hold onto the land and watch its value go steadily up (thanks to all the things your neighbors are doing to make the place more productive and successful). You can collect enough in parking fees to cover the taxes, and cash out when you're ready to cash out. Your property tax bill will be relatively low, because it's based on the sum of land value and improvements. The land may be in a central, prized location, but the "improvements" on the property (that's tax-assessor speak for any sort of structure built on the land) are worth next to zero. https://www.strongtowns.org/journal/2019/3/5/whats-with-that-empty-lot-in-the-heart-of-the-city https://www.strongtowns.org/journal/2019/3/5/whats-with-that... This line of thinking may also apply to empty shops in SF. As long as the overall property is covering expenses, why bother making the improvements needed to attract new tenants (and thereby adding the tax burden) when you can just sit back and watch real estate prices head to the moon.

gwern 7y ago
You know, the most ironic thing about all this is that Henry George invented Georgism in... San Francisco: https://en.wikipedia.org/wiki/Henry_George#Political_and_economic_philosophy https://en.wikipedia.org/wiki/Henry_George#Political_and_eco... The more things change, the more they stay the same.
- aazaa 7y ago
  That was a relevant passage indeed - hadn't heard of George before: > George was in a position to discover this pattern [mere land possession harms the poor, and can be discouraged through a land tax], having experienced poverty himself, knowing many different societies from his travels, and living in California at a time of rapid growth [1870s]. In particular he had noticed that the construction of railroads in California was increasing land values and rents as fast as or faster than wages were rising. https://en.wikipedia.org/wiki/Henry_George#Political_and_economic_philosophy https://en.wikipedia.org/wiki/Henry_George#Political_and_eco...

supernova87a 7y ago

Like so many things in the Bay Area, this is a self-created problem. Despite living here, I have little sympathy for the sob-stories who voted for the exact policies that put them out of business. It infects every level of policymaker thinking (at least what they choose to publicly state and run for office on). It's a fruitless desire to resist development and population growth, no matter what the cost. And we're seeing the costs obviously now. The political inclination of government (and the mistaken belief of voters) to "keep things the same" and prevent gentrification or any kind of development matching the demand for people to move here may play well for votes, but is causing every problem you can see. The constraints on housing and development trickle down to everything. The cost of hiring people, the price of retail/commercial space, the inability to police / prevent crime, the emptying out of formerly affordable neighborhoods, traffic, homelessness, etc. This is not a puzzle. When you make land so valuable (which pleases some), it leads to things that cannot show their value clearly to be priced out. And the very policies that are intended to protect the people who got here first (a very questionable policy), end up hurting them. The more you try to control rent, the worse the situation gets. Politicians intend well. But intentions are highly overrated. Effects are what matter. As long as we refuse to build up, out, and have rational transportation systems (overcoming local inertia against building them), and accept that we're growing, this will continue.

downerending 7y ago
I had an offer from a FAANG a few years back, for a BA job, and turned it down because I realized I couldn't afford to live there on the offer. I can't imagine how "ordinary" people survive.
- blaser-waffle 7y ago
  Roommates, long commutes, squatting, maybe some rent control. Got an old friend in the Tenderloin, and he loves it, even though he's got a wife and 2 roommates.
  - downerending 7y ago

carapace 7y ago

Important subject, poor article, IMO. Here's a background piece that covers most of the history and issues: https://www.businessinsider.com/san-francisco-housing-crisis-history-2017-7 https://www.businessinsider.com/san-francisco-housing-crisis... TL;DR: It's complicated. Also (and especially for those of us from the Old World) remember that SF is ridiculously young as cities go, even for American cities. The continent was largely settled from East to West. The Western part of the city was sand dunes and scrub. People panned for gold next to Lake Merced. Here's a thing from 2016 "Employment, construction, and the cost of San Francisco apartments" : https://experimental-geography.blogspot.com/2016/05/employment-construction-and-cost-of-san.html https://experimental-geography.blogspot.com/2016/05/employme... He got some data: > I set out to replicate the DataBook's methodology over a wider range of years, but quickly gave up on including just two-bedroom apartments, because ads in the early 1960s rarely referred to apartment sizes in these terms. Instead, for each first Sunday in April from 1948 through 1979, plus a few other years, I made a list of all the advertised unfurnished apartments, flats, houses, and, later, condos, regardless of size, that were advertised in the Chronicle. Mostly I used the San Francisco Public Library's page scans of the newspaper but resorted to microfilm for the few later years where no page scans are available. Here's the main take-away: > in 1956, apartments began to be listed in increasing numbers, but their prices also began to rise. Overall, they went up 6.6% every year. Today's outrageous prices are exactly in line with the 6.6% trend that began 60 years ago. So, big long complicated history, dead simple stable 6.6%/year increase. - - - - Solutions: Bucky Fuller mega-city Old Man River City https://en.wikipedia.org/wiki/Old_Man_River%27s_City_project https://en.wikipedia.org/wiki/Old_Man_River%27s_City_project https://solutions.synearth.net/2002/11/24/ https://solutions.synearth.net/2002/11/24/ Look at the cross-section: the structure is hollow. It's built like a suspension bridge. Imagine rotating the Golden Gate bridge around a vertical axis though its midpoint. See the article for the rest of the description. Integrated with ecologically harmonious waste reclamation and "bioreactors" to make arcologies: https://en.wikipedia.org/wiki/Arcology https://en.wikipedia.org/wiki/Arcology A few of these in the CA Central Valley on the Sacramento river would take all the housing pressure off the cities.