Prop E Will Destroy San Francisco’s Economy- Here’s Why
Mar 04, 2020
The people have spoken and Proposition E has passed. As a recap, the proposition will limit future office growth in San Francisco as a function of the city’s shortfall of new affordable housing. It’ll also increase the office space cap for smaller office developments by reclassifying projects between 25,000 and 100,000 square feet as “small.”
Proposition M, which originally passed in 1986 by voters, will be amended to limit annual office development approvals across the city to 925,000 square feet. Smaller projects containing less than 50,000 square feet of office space are reserved 75,000 square feet of approvals. Larger projects are reserved the rest of the office space allocation.
Both propositions will put a halting brake on any new office developments while increasing costs on current projects. Once the proposition takes effect, it will cripple San Francisco’s economic growth.
San Francisco already faces challenges of having the most expensive homes, residential rents and office rents. As a result, we have become a city where not only the wealthiest residents, but also the most well-funded office tenants.
Recently, San Francisco has lost two of our oldest traditional office tenants– Charles Schwab and McKesson Corporation, both moving their headquarters to Texas. Many local firms, particularly non-tech, is struggling with rental increases above 40 percent.
Rather than stop construction of office space, San Francisco should be considering ways to ease office construction to meet the demand. Our city officials seem to always blame landlords and developers for the woes of our city. The reality is the reason why we have such high costs of office space and high cost of living here is that we have create an over-regulated system to get projects through our city permitting and planning processes.
Prop E does not offer any streamlining to assist in the development of either office or residential. Forcing office developers to match square footage to affordable housing will only kill office development entirely. We are quickly taking away all of the incentives for developers to build in San Francisco.
Back in the 1980’s when Prop M passed, the market was in a similar situation that today. Prop M created a limitation on yearly office development. Building had stopped as the market was headed for a correction, but “no growth” proponents pushed for limitations for additional office space to avoid the “Manhattanizing” our city.
Affordable housing unfortunately is the biggest loser with the passing of Prop E. This measure will not create an incentive to build more because the same reasons for why affordable housing is not being built has not changed. The permitting process is too long and financing affordable housing is next to impossible.
Our city officials need to go back and take basic Economics 101. We live in a supply-and demand-economy. If there is demand, you must increase the supply. If your supply outpaces the demand, prices will drop and construction will end.
We don’t have “greedy” landlords or developers– what we do have is an incredibly bureaucratic and costly system to secure necessary permits to get any project up and running. Unfortunately, we are electing board members that have no business experience. Furthermore, they don’t talk to brokers or landlords because we are perceived as being the problem. Unless city officials get all parties involved in the discussion, we will continue to see things like Prop E and D passing.
Written by: Hans Hansson
Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, hanshansson.com.