Realtors’ ballot initiative could limit property taxes

property taxSACRAMENTO – Property-tax-limiting Proposition 13 has long been viewed as the “third rail” of California politics given its continued popularity among the home-owning electorate. Public-sector unions occasionally talk about sponsoring an initiative to eliminate its tax limits for commercial properties, but the latest Prop. 13-related proposal would actually expand its scope.

The influential California Association of Realtors is launching a signature drive for a November 2018 ballot measure that would greatly expand the ability of Californians who are at least 55 years old and disabled people to maintain their low-tax assessments even if they move to other counties or purchase more expensive new homes.

Prop. 13 requires counties to tax properties at 1 percent of their value (plus bonds and other special assessments), which is established at the time of sale. The owners maintain that assessment even if values increase, as they typically do in California. The proposition limits tax hikes to no more than 2 percent a year. Prop. 13 passed overwhelmingly because many people – especially seniors – were being taxed out of their homes as assessments soared during a real-estate boom.

Under current rules, people 55 and older may keep their low assessments if they move within the same county or within one of 11 counties that accept these transfers. They may do so only once in a lifetime. It enables retired people, for instance, to downsize from a big family house to a condominium without paying a stiff tax penalty.

For example, if one purchased a home in 2008 for $350,000 and that home is now worth $750,000, they may continue paying taxes at the lower assessed value even after they sell the home and purchase a smaller one. The valuation goes with them. But the newly purchased property must have a market value the same or lower than the house that has been sold.

The Realtors’ proposal would, for seniors and the disabled, tie the assessed value of any newly purchased home to the assessed value of the old home. They would be free to take that assessment with them to any of the state’s 58 counties. They could carry it with them as many times as they choose. The reduced assessments would apply even for people who purchase home with market values above the ones that they sold.

As the nonpartisan Legislative Analyst’s Office explains, if the new and prior homes have the same market values (based on sales and purchase prices), the new tax valuation would be the same as the old one. A fairly complex formula would determine the tax rate for purchases that were either higher or lower than the sales price of the prior home.

The initiative addresses a problem faced by many empty-nesters. They are living in large homes where they raised their families and would like to downsize – but to do so would mean a huge tax hit given that their new tax rate would be tied to the purchase price of the new property. In the preponderance of situations, the new purchase price for even a smaller house would be far higher than the price that the seniors paid for the homes where they currently live.

The Orange County Register reports that, if passed, the initiative could spur an additional 40,000 home sales a year. Supporters say that could ease up tight housing markets, but foes argue that the Realtors have an interest in spurring more home sales. County governments – backed by LAO projections – say that it eventually will cost them as much as much as $1 billion a year.

“By further reducing the increase in property taxes that typically accompanies home purchases by older homeowners, the measure would reduce property tax revenues for local governments,” according to that LAO analysis. “Additional property taxes created by an increase in home sales would partially offset those losses, but on net property taxes would decrease.”

The Howard Jarvis Taxpayers Association, which defends the legacy of Prop. 13, disputes the idea of large tax losses, given that younger couples would move in to the homes that older people sell, and they would pay property taxes based on the new market value. In other words, an older couple will sell a house and keep their lower tax rate.

“We believe upward portability makes a lot of sense especially as property values across California continue to rebound,” said HJTA president Jon Coupal in a statement. The statement says he believes the measure would “help California alleviate its current housing crisis by removing a financial barrier that keeps many older homeowners from selling their homes, and many millennials from entering the housing market.”

The Realtors’ association had submitted three different potential measures, including one that would expand portability for people of all ages. But the final measure applies only to seniors and disabled persons. As the saying goes, the best defense is a good offense. Supporters of Prop. 13 have learned that the best way to protect it might be by trying to expand it.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This article was originally published by CalWatchdog.com

Government Regulations Worsen California Housing Shortage

house-constructionAs housing prices continue to rise in California, a significant number of our residents are being denied access to the American dream of homeownership. Today, only about one-third of our fellow citizens can afford to buy a median-priced home in the Golden State, down from a peak of 56 percent just four years ago.

With this in mind, the CALIFORNIA ASSOCIATION OF REALTORS® convened “Housing Affordability and California’s Future,” a real estate summit held recently in Los Angeles. The summit brought together and drew on the ideas of top industry leaders from financial institutions, government agencies, academia, public policy and real estate, who shared one common goal: to explore ways to increase housing affordability in California. 

There are many reasons for the steep decline in affordability. California continues to be a destination for millions of people, and it is difficult for supply to keep up with demand. But the reasons go beyond simply lagging housing construction. In particular, government regulations worsen the problem. Restrictive environmental, land use and zoning regulations artificially constrain supply, which makes it difficult and expensive to meet demand.

These rules, regulations and road blocks have taken their toll on housing.  We are now so far behind the curve that, according to the non-partisan California Legislative Analyst’s Office, the state needs to build 100,000 new homes every year – double what’s being built now — just to catch up with current housing needs.

And the McKinsey Global Institute recently reported that California’s housing shortage is costing the state more than $140 billion per year in lost economic output because Californians spend so much of their income on housing.

Before local governments can effectively address homelessness and affordability, they must recognize that it is a supply problem. It must be defined in terms that everyone can understand. REALTORS® believe the issue is appropriately defined as a need to provide adequate and affordable workforce housing for all segments of the community.

A lack of affordable workforce housing affects communities in many ways.

  • The growth of bedroom communities far removed from job centers adds to urban sprawl and all the challenges that it brings; workers who have to find shelter in distant communities must commute longer hours to get to their jobs, increasing traffic congestion and air pollution for all the cities in between.
  • The lack of housing for workers in the community makes it harder for employers to attract workers to fill their jobs. If they can’t find workers, the employers will take their jobs, and their tax revenue, elsewhere.
  • The socio-economic balance of the community is as important as the quality of the air we breathe, the roads on which we drive, and the amount of tax revenue in our city coffers. A healthy city is one that provides housing for all segments of its workforce, not just those who can afford luxury homes. The economic viability of a community is choked off by the lack of affordable workforce housing.

Once we recognize the importance of workforce housing, we can begin the process of increasing supply. Fortunately, there are many things local governments can do to address this housing shortfall, including:

  • Embrace higher density and infill.
  • Encourage housing next to transportation hubs, like light rail.
  • Speed up permit approval times and eliminating red tape.
  • Provide incentives to developers who include affordable rental and ownership housing, like density bonuses and reduced parking requirements.
  • Choose the development of workforce housing over retail developments that generate greater sales tax revenue.
  • Resist “NIMBYism” and educate the community about the importance of workforce housing and resist the call for short-sighted and excessive environmental constraints.

The achievability of homeownership for all Californians is ultimately tied to the success of the state’s economic future, but a thorough assessment of the state’s biggest economic and real estate challenges reveals the difficulty of balancing opportunity with responsibility amidst the pressing need for solutions.

Working together with the state’s top minds and influential leaders, we can better understand the solutions we can undertake to put California back on the map for those who are looking to buy and get their piece of the homeownership dream.

Joel Singer is CEO of the CALIFORNIA ASSOCIATION OF REALTORS®

This piece was originally published by Fox and Hounds Daily