The death of activist and affordable housing developer John Elberling this month (opens in new tab) at age 79 marked the end of an era.

Progressives praised Elberling for his skill at extracting concessions from developers, while critics painted him as an obstructionist. All sides acknowledged that he was one of the strongest voices pushing a progressive response to the housing crisis — fees on developers, mandates for affordable units, taxes on high-end sales — in recent decades. 

Now, YIMBY-aligned officials are moving to dismantle the system he helped build, arguing that the city should cut red tape to build market-rate housing taller and faster. The fight over what comes next may determine what kind of city San Francisco becomes and who can afford to live here.

The latest developments are two efforts to roll back progressive housing policies. Mayor Daniel Lurie and Supervisor Bilal Mahmood are trying to halve the transfer tax developers pay on building sales of more than $10 million. Meanwhile, an advisory committee is proposing that supervisors cut the number of affordable units developers are required to include in market-rate buildings by two-thirds. 

The argument against both policies is the same: They impede development.

“They’re chucking the kitchen sink at the private market,” said Shanti Singh, legislative and communications director with the advocacy organization Tenants Together. She doesn’t think the cuts will jump-start housing development and argues that these taxes and fees are small potatoes compared to the real problem: lack of financing. 

With Lurie and Mahmood working to cut the transfer tax and supervisors weighing a proposal to slash inclusionary zoning requirements from 15% to 5%, progressives are renewing calls for a dedicated affordable housing fund backed by city dollars.

“We’re reframing the issue to what it’s always been about, which is consistent public investment,” Singh said.

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Keeping the fight alive

Inclusionary zoning has been the bane of Yes In My Backyard activists for years. Max Dubler, policy manager at California YIMBY, characterized the policy as a tax on housing that stifles development and increases market-rate rents.

“We are requiring developers to lose money on a percentage of the new homes they build, and essentially requiring the market-rate renters who live next door to them to fund that housing subsidy,” Dubler said. He is all for “making sure new housing isn’t exclusively for wealthier people” but said governments should subsidize inclusionary units rather than passing costs to developers. (His call for government funding echoes Singh’s, even though they’re on opposite sides of the issue.)

Shane Phillips, a housing policy researcher at UCLA, said that while inclusionary zoning does produce new below-market-rate units, it doesn’t seem to bring down market rates.

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“What you never find is an inclusionary program associated with an increase in production or a decrease in rents and prices,” Phillips said. “You’re not going to make housing more affordable by making it more expensive.”

As it turns out, progressives aren’t crazy about the policy either. It just doesn’t produce enough units. 

“Nobody loves inclusionary,” Singh said, noting that policymakers have been tinkering with and fighting over the exact percentage requirements for years. But she notes that it can’t be lost for nothing. “You need to give us an alternate source of money,” Singh said.

One such source is the 6% transfer tax on multimillion-dollar real estate sales, which has generated an annual average of $100 million in San Francisco since it went into effect in 2021. Voters in 2020 passed Proposition I, authored by former Supervisor Dean Preson, which doubled the real estate transfer tax on high-end sales. The measure set the rate at 5.75% on sales between $10 million and $25 million, and 6% on sales above that.

Lurie and Mahmood in February introduced legislation to cut the tax back to 2019 rates, in an attempt to jolt stalled construction projects. They argue that the transfer tax pushes developers’ costs above what they can reasonably expect in returns. 

The mayor and supervisor also announced that they are looking into financing affordable housing.

Phillips said research on transfer taxes shows that they decrease sales and argued that lower transfer taxes would actually help city governments generate money because owners would be willing to pay them. 

But progressives last week responded with a ballot initiative spearheaded by Kyle Smeallie, who was an aide for Preston during the Prop. I fight. The ballot measure would preserve the tax and ensure that all revenue from it goes into an earmarked housing fund, rather than the city’s general fund. The measure includes an exemption for buildings younger than 5 years old, so it wouldn’t apply to a new building that a developer is trying to sell. This, Smeallie hopes, will prevent the tax from delaying construction.

“We went to the voters in 2020 and were outspent 20 to 1,” Smeallie said. “They spent more than $5 million, and we earned more than 58% of the vote, and I think what’s clear is that the city has become even less affordable.”

Even if his measure is successful, there’s still plenty of need. Both Dubler and Phillips say one solution would be the repeal of Prop. 13, which greatly limits property taxes. But that remains politically untenable. 

Singh said she’s skeptical of alternative funding sources: Sales taxes are regressive, bonds run out, and slashing fees will do only so much. She argues that only sustained taxes on the wealthy can fund housing at scale. 

She supports Smeallie’s effort to dedicate Prop. I revenue, but that alone won’t produce enough money to build the amount of affordable housing needed.

“It is pure fantasy to think you can raise the money required to have stable and scalable affordable housing while appeasing every demand of the real estate industry, who smell blood in the water and will just keep asking for more cuts until there’s nothing left,” she said.