San Francisco Voters May Have Just Handed Office Owners a Gift

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(Bloomberg) -- San Francisco office landlords may have gotten a gift from the city’s voters.

Proposition E -- a measure that will tie new office development to progress the city makes on its affordable housing goals -- passed Tuesday. It’s the latest effort to spur affordable housing in a region that’s long been better at creating jobs than homes.

But it may end up making the city more expensive. San Francisco has fallen short of its affordable housing construction goals by about 30% over the last decade, according to Green Street Advisors, a real estate research firm. If that trend continues, it’ll drive up commercial rents.

“If I’m an office landlord, that’s pretty good for me,” said Daniel Ismail, a senior analyst at Green Street. “It means fewer new shiny buildings being built in my city, which should allow me to increase rates.”

The downside? Businesses could have to pay more in rent and the city’s tax revenues will suffer, according to a January report by the city’s offices of controller and economic analysis. Funding may also drop for affordable housing, because of a fee the city charges developers of office buildings.

Just last month, Twitter Inc. Chief Executive Officer Jack Dorsey said his company’s concentration in San Francisco is “not serving us any longer.” He was the latest corporate executive to wring his hands over the cost of doing business in a city where high housing costs mean employers have to pay big salaries to retain workers.

Prop E could make those issues worse, according to J.D. Lumpkin, executive managing director for Cushman & Wakefield in San Francisco.

“It will have real unintended consequences of hampering the city’s ability to grow and prosper,” said Lumpkin, who primarily represents landlords and developers. “If you’re proud that we’ve emerged as the tech capital of the globe, you have to be able to accommodate growing companies here.”

©2020 Bloomberg L.P.

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