Increase the Business License Tax for Owners of Residential Rental Properties
On November 8, 2016, in a major victory for the affordable housing movement in California, the voters of the cities of Berkeley and East Palo Alto overwhelmingly passed increases in the business license tax paid by owners of residential rental property, for the purpose of funding affordable housing and homelessness prevention.
Berkeley voters passed Measure U1 by a margin of 75% to 25% (43,014 yes; 14,389 no). U1 raises the business license tax on residential rental units by 1.8% of gross receipts, from 1.081% to 2.88%, with an exemption for small landlords with less than 5 units and a temporary 12-year exemption for new construction. The measure will cost the average landlord $30 per unit per month and raise $4 million annually for affordable housing and homelessness prevention, rising as rents continue to rise. U1 is a majority-vote general-purpose tax, but directs the Housing Advisory Commission, a citizen oversight committee of people with expertise and experience in affordable housing and homelessness prevention to advise the City Council on how to spend the money. The tax cannot be passed on to tenants. Most tenants are protected by the city’s Rent Stabilization Ordinance. The tenants in newer buildings that are exempt from rent stabilization are already receiving rent increases as high as the market will bear. Their landlords may claim they will raise the rent if the measure passes, but the reality is that they will raise the rent just as much even if it doesn’t pass.
Measure U1 was sponsored by Berkeley’s non-profit affordable housing developers and homeless service providers and was unanimously endorsed by the entire City Council, by the League of Women Voters, the Sierra Club, the Alameda County Democratic Party, and a great many community organizations. In an effort to defeat U1, Berkeley’s landlords paid signature gatherers to put a competing Measure DD on the ballot and spent over $800,000 attacking U1 and promoting DD. DD was defeated, 29% Yes to 71% No. The U1 campaign spent $75,000, with two-thirds of that coming from affordable housing developers and companies that work with them.
East Palo Alto Voters passed Measure O by a margin of 78% to 22% (4,861 yes; 1,408 no). Measure O was closely modeled on U1 and is expected to raise $600,000 a year. It was placed on the ballot by a 4 – 1 vote of the City Council. It had no organized opposition.
Fund Affordable Housing with a Windfall Profits Tax on High Rents: “Skyrocketing rents are creating severe hardships for tenants and windfall profits for landlords throughout the San Francisco Bay Area. This massive transfer of income from tenants to real estate investors drains money from the community and increases demands for public services of all kinds, from social services to subsidized housing to emergency rental assistance to prevent families with temporary financial troubles from falling into homelessness.It is only fair that we recover a small part of that windfall through a tax and use it to provide non-profit housing so that seniors, people with disabilities and low-wage working people can afford to stay in our communities” said Stephen Barton, Ph.D., retired Berkeley Housing Director and Co-Chair of the Berkeley U1 campaign.
“The ballot measures in Berkeley and East Palo Alto are based on an important economic principle” said Barton. “The real estate industry has a saying that the three things that determine whether real estate will go up in value are ‘location, location and location’. But it’s not the landlords who make locations in the Bay Area valuable. It’s the public, homeowners and renters alike, who make it valuable by investing in the public services such as education, parks and transportation, preserving our beautiful natural environment and creating a diverse and creative culture that encourages innovation and a thriving economy. Then real estate investors get to charge tenants higher rents for value that is created by the public. Nothing could be more appropriate than to tax this unearned income and reinvest it in affordable housing and preventing homelessness for the tenants who are most harmed by high and rising rents.”