Win-Win Solution to SF Housing Crisis

P Segal | 03/10/2015
Excelsior neighborhood of San Francisco
Photo Credit
Joseph Smooke

It’s no secret that there are somewhere between 10,000 and 30,000 units in the city of San Francisco left vacant for tax purposes. The owners of those empty buildings have more to gain by leaving them empty— for the purpose of showing a loss—to offset tax liabilities from other income. And so because these vacant units increase the scarcity of available apartments, exacerbating the city’s housing crisis, we see ongoing Ellis Act and other types of evictions.

While these building owners don’t make money from rents, in our highly competitive housing market, they still save money by leaving them empty, for the ten years an investment can be used to show a loss. After ten years, the owner can make even more money by selling the building for a profit.

Under the circumstances, this seems like an unfair benefit for the wealthy at the expense of everyone else. However, allowing for tax losses benefits others, besides the very wealthy. It’s part of what helps small business owners survive the years it takes for a small business to become profitable. It’s also what could change the paradigm that drives real estate investment now, by creating a mutual benefit for landlords and tenants.

In the process of developing ways to create an artists’ housing project in San Francisco, I asked the question, “If property owners can declare a loss having no tenants, can they also declare a loss by renting spaces to a nonprofit for a nominal rent?” The answer to this question was yes. As a result, it is possible to set up a landlord-nonprofit alliance to provide housing at well below market rates, serving the financial needs of both building owners and tenants. What is needed now, in this city where housing issues have reached crisis proportions, is to direct the philanthropic model to the shortage of affordable housing, a win-win for everyone.

Classic philanthropy creates a separation between donors and beneficiaries. Donors give money to nonprofits, which allocate funds to address needs. However, in a more direct form of philanthropic support, the quest for tax benefits could be satisfied by building owners offering low rents, with, perhaps, an advantage for long-term residents displaced by Ellis Act and other types of evictions. While a nonprofit entity might act as the go-between– currently some nonprofits acts as property management companies– local donors can witness the direct result of philanthropy at home.

The pieces are already in place to make this happen. There already are nonprofits in the city that exist to provide affordable housing. The Non-Profit Housing Association connects groups dedicated to this objective. Mercy Housing tackles the needs of low income and senior tenants, and the Northern California Land Trust helps people buy houses. My organization, Bohemia Redux, focuses on artists’ housing and venues. A shift in how we think about the application of a tax loss could change things overnight, from a housing crisis to a viable solution, through existing nonprofit entities and a revised conception of tax advantages.

Building owners using property for losses have two choices. The first is to retain empty buildings and be part of the problem. The other is to provide housing well below market rates and be part of the solution. While both options fill a financial need, only the second carries with it prestige and a genuine legacy. This potential new breed of philanthropist, the angel landlord, gives an immeasurable service to the city, enabling it to regain the diversity that has been lost.

As fortunes increase in the Bay Area, the need for tax losses only grows as well. Using the losses to provide affordable housing serves the angel landlords, displaced tenants, and the city, which relies on rapidly constructing low-cost units to meet the increasing need. It’s a solution that requires no legislation, funding for construction, or government involvement. It requires only the desire, on the part of donors, to take positive action for change.