In case you did not realize, starting this fall, something good is coming your way: free education. This is what most residents in most counties have wished for. Considering all the burdens you get, from workplace, homes…and the list goes on and on, perhaps getting education freely, is some sort of a relief.
How exactly will San Francisco raise the funds to cater for this move?
By raising taxes! Taxes on the wealthy, to be more precise, or raising the transfer tax rate on real estate properties that sell for more than $5 million. Now at this point, do not let your judgment be clouded by any political influences; just keep an open mind.
Looking at the situation from a different angle, it might seem simple on the upper surface; but what lies at the bottom is one “thick” question, that I have been asking myself: Taxing the rich more to pay for more resources for the poor – is that really fair?
How the classical model in San Francisco will work
Taking a step back, last fall, the residents of this county went to the ballot and approved the move to raise real estate taxes on properties that were selling over $5 million. The transfer taxes rose from 2% to 2.25% for properties that were sold between $5-10 million. For properties that were sold between $10-25 million, the taxes rose from 2.5% to 2.75%, and from 2.5% to 3% for properties that were selling for over $25 million.
This would see the county earning an extra $45 million each year. This is the kind of money that the city administrators could use however they wish, but as a promise in order to sell the hike in tax in this county, the city had promised to offer college education freely. Of the $45 million made in a year, $5.4 million would go to the city college.
To sweeten the initiative, the city pledged to pay lower incomes to students who attend the college. Each year, a student would receive $500 to cover auxiliary expenses.
What makes the deal even sweeter
You have to be a city dweller for just one year; that is, residents who have lived in the city for a period of one year will have access to this program freely. This would mean further that even illegal immigrants to the U.S. would be aided by this program. But this trend is not only in San Francisco; it is a trend that is growing in recognition. Some may say it is just a political gesture, with other cities like New York on the verge of following the same suit.
Where it all began
You may have realized that college education in the past ten years has risen a great deal. Each and every day, education costs are skyrocketing, which is a little alarming. In just ten years, college tuition and fees have risen to about 63 percent, and textbook costs have risen by almost 88 percent.
No matter the political move, and despite all the efforts by the city administration, we can all agree that college costs have risen way beyond what we could have expected. But what has created this problem? Even though some speculations have been voiced, they cannot all explain the main source of college education rising so much.
Some rumors have pointed out that the states have pulled back on funding state-owned universities. But if you look at the statistics today, you will realize that nowadays, the state funds are even higher than they were in the 1960s. Students are paying more for a college education simply because they want to! That’s the root and the source of the college education rising at a steady clip.
Impact of this move on real estate
One of the cities with quite a story, San Francisco offers plentiful high-skilled and high-paying jobs without enough lower-skilled and lower-paying jobs. What San Francisco is experiencing is a case of rapid gentrification – well, that depends on who you ask. It is a city where there is rapid housing appreciation.
Whatever the case, the real estate market in San Francisco seems to have overheated. In just 2016 alone, the rents in the area dropped 5 percent in direct contrasted with 2014’s 4.5 percent growth rate. Sales in San Francisco within the nine months of 2016 fell by 13 percent. However, none of these numbers have to do with the tax rate hike on higher-end homes.
Given that the city has a very high potential of tech growth, mild weather, attractive beaches and mountains, and favorable agricultural potential, this makes the city one of the best places to live. Though there is need to raise concerns for gentrification in the city, the city council has not minded the increased tax revenue; if anything, this has created a better chance for the council to spend more money.
Jobs in San Francisco will soon become better; even though this campaign to make the education free is raising heated concerns and gaining support, there is a time that will come when jobs and the housing market will draw much attention by becoming better and better everyday. What is seen today is inequality, but a time is coming when opportunities will equalize, calling for a draw in the tax hikes. When this happens, let us hope that the city will have improved the job prospects for lower-income residents.
Eric Lawrence Frazier, MBA
President and CEO
NMLS #461807 CalBRE #01143484
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