San Francisco is getting cheaper, but it’s not because of policies that expand housing supply or artificially keep rent prices lower. There’s an exodus of residents from the city driving down rental prices and tax revenue right along with them.

According to San Francisco’s Chief Economist Ted Egan, sales tax revenue fell 43 percent from April to June compared to the same time a year ago. The catalyst for this precipitous decline is the coronavirus pandemic, but as restrictions and lockdowns have eased economic activity has still not returned. 

The businesses hardest hit were brick and mortar stores, hotels, restaurants, and gas stations. As a result, reportedly only 62,000 jobs of the 175,000 jobs (35 percent) lost during the pandemic have been recovered. Job losses were concentrated in service, hospitality, entertainment, and recreation sectors. 

Of the possible reasons for this decline in revenue, Egan rules out declining incomes and spending compared to other municipalities and honed in on urban flight:

That leads to the other answer, which is there aren’t as many people in San Francisco. The sales tax data is just a warning sign for small businesses that don’t have the resources to take a long-term shutdown or recession.

At the same time, rental prices have fallen in San Francisco faster than other cities. One real estate website found a decline of 20.3 percent in median rent prices this month, among the largest yearly decline they have ever recorded. For the first time, a one-bedroom apartment has fallen below $3,000 a month in San Francisco.

Declining tax revenue will put pressure on the city’s budget and if protracted could eventually force the city to make tough fiscal decisions such as layoffs, service cutbacks, defunding social programs, and reducing services for residents. 

Perhaps the city will be forced to reassess and prioritize spending. Let’s not forget that San Francisco is already struggling to address its surging homelessness problem.    

While tax revenues may rebound as the economy gets back to normal, the shift to virtual work and emptying of office buildings for the long-term or indefinitely will mean some revenue may never recover. There’s a clear ripple effect on the businesses that serve those workers such as restaurants, coffee shops, bars, and dry cleaners as the financial impacts of lockdowns and business closures continue.

San Francisco is not alone as major cities, including New York, Boston, Los Angeles, and Washington, D.C., grapple with the short-term effects of the pandemic and the long-term changes that an increasingly virtual workforce will bring.  

Now is the time to make policy changes that encourage work, reduce taxes, and make cities attractive for businesses and residents. 

For lawmakers in the state of California, a good place to start is with nudging their colleagues in the state’s legislature to repeal the job-killing bill, AB5.