If you want to know why businesses flee the state, and why the rest of the nation think SF is a city of fascist morons, look no further than the just passed Prop D. This is a vacancy tax that penalizes landlords for the inability to find tenants for their storefronts, after the city has made it harder to find tenants for their storefronts.
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SF has done the following:
- (a) increased the cost of employment (minimum wages, work rules, benefits)
- (b) encourages shoplifting by decriminalizing theft
- (c) allows homeless encampments and disturbed crazies and druggies outside storefronts (homelessness, public defecation, open drug use)
- (d) is one of the worst cities for permits and licenses (time, terms, costs and appeals)
- (e) they block chains/franchises ("formula retail") from many neighborhoods.
- And now (f) if a business can’t find renters in that artificially hostile market, they will tax, lien, and then seize the property to divide up amongst the cronies.
And a supermajority of SF voters thought Seizing private property and the means of production was a good idea?
Think about that, not just a plurality, or a majority, but a super majority of the cities brightest tech workers, illegals and deep thinkers thought this was a good idea? If that doesn’t foretell California becoming the next Detroit, you aren’t paying attention.
The only upside is that progressives never understand cause and effect, or when taking a bad idea too far will bite them in the ass. I suspect this will result in a class action lawsuit that will eventually get to the Supreme Court and have them decide how much fascism is allowed, and FDRs programs that were a fraction this fascist (State controlling private businesses through hyper legislation/regulation) were struck down. So after a long and expensive legal battle that converts small retail into residential or industrial space and enriches corrupt lawyers and corrupt politicians, this should go down in flames as a bridge too far.
Short versus long term
In the SHORT TERM, it does put pressure on them to rent faster and cheaper. And the marxists will sensationalize those minor and short term victories as, "See it works". (Like Minimum Wage : if you ignore all the people unemployed and automated out of a job, it's great).
But in the LONG TERM, it does the exact opposite. (People adapt to new rules and game systems).
If you ran that business on thin margins, it tells you:
- The prices have to carry the new regulatory costs and risks associated with this law, or there's no way to be successful in that market. If you aren't making more because of the new burdens/risks you're not going to be in business.
- It will tell many that it's time to convert the property from low margin and high pain retail, to something else. Which increases scarcity and scarcity increases the prices. But again, the market adapts to the new burdens and not in the way the dim-witted socialists imagine. (If they could imagine cause and effect, they wouldn't be dim-witted socialists).
- Landlords are incentivized to have short term rents on the cheap... but recoup those artificially low costs by either raising rents all the time, or by leasing it out from under the cheapest tenants and driving them out with obnoxious fine print or other clauses, or just harassing them out. They can't both rent it under market, and stay in business -- so they have to figure out ways to get fast tenants in to keep it rented, and then drive out those tempt folks for full market prices.
- But rent controls with stop the latter you say? Well they generally don't apply to retail -- but if they do, then that discourages improvements. You let the property deteriorate because any improvements will not result in higher returns -- so to keep your margins up, you have to let the property go to crap and make it back on depreciation.
- Many will just move their retail rental businesses to other markets that don't have brain-dead asshats for city managers/voters. Which means investment leaves -- and thus your city gets shittier.
There's almost no way the city can intelligently balance these things -- and they never have in the long term in the past.
- If you charge enough that the punishments/consequences are high -- then businesses leave, they convert to other use, and the inventory declines.
- If you don't charge enough to ruin people who don't comply -- then the cost/returns are such that I'd rather sit on a vacancy and pay the tax while finding the right tenant, than lose money on the wrong one. Which means it drives UP costs (as a business of real-estate has to pass these costs on to their tenants or they go out of business).
In the end:
- the city will acquire some properties (usually the worst) because of it -- and then assuming that a socialist city that passed these moronic laws can run a business better than businessmen can, and that's never ever ever ever worked in the real world over the long term. It's the Venezuela/Cuba/North Korean model.
- the city will make it harder to be a small business and starting out, because they put them more at odds with landlords than before -- and the landlords will have to pass on their higher/costs and risks to those small businesses.
- This makes it harder to run a real-estate businesses and increases their costs and decreases their margins -- but the risk-reward ratio that drives all businesses means they either pass those costs on, or they go out of business. And if you decrease the returns then you decrease the incentives in investments and improvements. And the balance sheets need to balance. It'l come out of one or the other side of that equation (or a bit of both). But it will balance.
What it really results in is things like a guy who is getting ruined, figuring that if the building accidentally burns down, it's worth more to him than keeping it vacant, and there's a bunch of vagrants around that will throw a molitov cocktail through the window for a bottle of whiskey or enough to buy their next score of heroine. And then when there's a lot of burned out husks, the city will have to figure out how to punish people for not rebuilding them faster. But a ton of the old landlords will have taken the insurance money and sold the buildings for scrap. When a government decides it can steal from individuals, it's not long before the individuals try to steal back. The choice between being legally ruined, or illegal success, will result in more criminality or revenge.