Business license tax increase not a viable solution to affordable housing problems

The Berkeley Rental Housing Coalition is deeply invested in the outcome of City Council’s current discussions about how best to generate new revenue in an effort to fund affordable housing units.

The coalition agrees with Councilmembers Laurie Capitelli and Jesse Arreguin that Berkeley needs a viable strategy and sustainable revenue stream for below-market-rate housing units. The challenges our community members face in securing a home to rent, or even to own, threaten our city’s economic diversity and civic fabric. Housing needs are a community-wide problem that require a community-wide solution. Property owners want to be a part of identifying a long-term solution that works.

City Council is currently weighing the option to increase the business license tax on housing providers from its current 1.081 percent to almost 3.88 percent. The justification offered is the “windfall gain” attributable to the Bay Area’s buoyant market conditions. Unfortunately, the proposal looks to a small group of rental housing providers as the sole funders of affordable housing, and it positions them as the only recipients of increased rents.

In this era of prosperity for many — though not all — giving back should elicit broad support from our community. Everyone who owns a home in Berkeley has benefitted from the current median home price of $1 million. Rents charged in new construction can exceed $3,000 per month and are an enormous incentive for the financing of new construction, yet the proposal suggests developers should keep their tax rate at just 1.081 percent. Even commercial properties have benefitted from the economic growth, but they, too, are exempt under the current proposal. These market gains have raised all boats, yet the proposal requires only a few to participate.

Data show that the rental housing providers currently slated for the increase in the business license tax have units that rented an average in 2014 that was 102 percent less than those in new construction. Even units that have had the opportunity to convert to market-rate in recent years under vacancy decontrol have on average remained some of the more affordable options in the city. Taxing the rental housing providers offering the most affordable units runs the risk of inhibiting the incentive to maintain and upgrade that housing. It can even make property owners more likely to bring their units to market rate upon vacancy because they will seek to cover the increased tax costs. We should be making it easier for rental property owners to invest in upkeep and hold the line on rent increases in an effort to provide more affordable housing options.

We therefore propose alternatives that secure more substantial tax revenues from all property owners — homeowners, commercial property owners and rental property owners alike.

A first alternative is to tax those who own property based on a square footage calculation. This is a progressive tax, which means that those who own more property will pay more.

A second option would be to expand the tax base to anyone that is in the rental business. Currently, not everyone who receives rental income pays city tax on income. If we were to expand the tax to 1.5 percent from the current 1.081 percent and have all who receive rental income pay into affordable housing, we would have an opportunity to fund some very important housing projects. Both these alternatives have the ability to raise revenue in the millions of dollars for affordable housing.

For maximum effectiveness, the Berkeley Finance Department should collect the tax and the funds should be disbursed to qualified nonprofit developers.

Berkeley property owners and the coalition are interested in remaining at the table and broadening the discussion. We hope the council and other stakeholders will meet us halfway so we can find a revenue approach that works.

Krista Gulbransen is the executive director of the Berkeley Rental Housing Coalition, www.thebhrc.org.

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