Fewer home and office sales in SF cause 64% drop in transfer taxes

Transfer taxes reaped from slowing residential and commercial sales in San Francisco have nosedived to levels not seen since the Great Recession.

Transfer tax revenue for the 2022-23 fiscal year that ended June 30 was $186 million, 64 percent less than the $520 million the city collected in fiscal year 2021-22, the San Francisco Business Times reported, citing Chief Economist Ted Egan.

Egan said the city didn’t know how much transfer tax revenue came from commercial versus residential sales.

The tax haul wasn’t this bad since the last recession, when in 2010-11 the city collected $135 million.

The number of deals of more than $10 million over the past year fell to 60 sales, 58 percent fewer than the average 143 transactions in 2018-19, before the pandemic, according to the city’s Office of the Controller’s Budget & Analysis Division.

Big office deals that generate big tax dollars continue to decline because of rising interest rates and work-from-home policies, making sales of commercial real estate difficult, according to the Office of the Controller.

Home sales are also declining as interest rates rise. A red-hot housing market in 2021 blazed into spring of last year, when sales and the resulting tax transfers fell.

Last year, 5,617 homes sold in San Francisco, compared to 7,476 home sales in 2021, according to the San Francisco Association of Realtors. During the first half of the year, 2,419 homes sold in the city, 35 percent fewer than the same period last year.

The last fiscal year began when the housing market began to cool because of rising interest rates. Last week, the average 30-year fixed rate mortgage was 7.09 percent, the highest in more than 20 years.

The $186 million in transfer taxes collected in 2022-2023 makes up 1 percent of the city’s $13.85 billion budget. The $520 million in taxes last year made up 3.5 percent of that year’s $13.95 billion budget.

San Francisco charges a transfer tax on each commercial and residential property sold, equal to a percentage of the property’s sale price. The tax rate ranges from 0.5 percent to 2.5 percent, according to the Business Times.

— Dana Bartholomew

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