Realtors’ initiative could boost home sales, limit property taxes

SACRAMENTO – 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 [email protected]

8 comments

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  1. Michael
    Michael 2 December, 2017, 15:36

    This article should be titled “Realtors initiative to boost falling sales”. I am sure that’s their only interest

    Reply this comment
    • eck
      eck 2 December, 2017, 19:45

      Maybe that’s there only interest. But so what? It’s mainly about keeping the state from screwing (mostly) seniors.

      Reply this comment
  2. Phil
    Phil 2 December, 2017, 16:52

    I’ve got a better idea. Cap property taxes but get rid of Prop 13 beneficiaries. It violates the equal treatment clause of the constitution to have two side-by-side neighbors paying radically different real estate taxes. I can’t think of anything more unfair in America.

    Reply this comment
    • ken
      ken 7 December, 2017, 03:58

      Cal is full of govmnt agencies and oversite boards and commissions that not only not do their jobs but make what they were supposed to fix worse. Ex:

      They werent just friendly with, but the PUC were partying with PGE when they blew up San Bruno. And now they made wine country look like the land of mordor. Between the 2 incidents 0 jail time and no mention of Firing PGE and putting the contract out to bid.

      Reply this comment
  3. eck
    eck 2 December, 2017, 19:42

    “the equal treatment clause of the constitution”. You obviously don’t have a clue as to the Constitution. It’s not about a pays more than b. It’s about the rules of who pays what.

    Reply this comment
  4. Ulysses Uhaul
    Ulysses Uhaul 2 December, 2017, 21:57

    Biggest real estate earthquake is every town building a mall…..cities get part of the sales taxes. Now we have tons of junk property wanting for customers. Sales tax collections waning…..commercial blight just around the corner…..

    Special credits or incentives run amok and now give seniors a tax break……ugly.

    Reply this comment
  5. Dallas
    Dallas 3 December, 2017, 06:08

    A diversion of the state-sanctioned real estate monopoly at a time when the absurdity of taking a 6% commission on a transaction that should cost 1% or less with the increase in housing inflation.

    They have legal control over the listing and can effectively block competition from cutting the buy/sell spread. All the competition is getting listings and customers and none is in reducing transaction costs.

    Reply this comment
    • Ulysses Uhaul
      Ulysses Uhaul 3 December, 2017, 09:41

      Tech improvements have made real estate marketing more relevant for consumers…..buyers and sellers should be able to negotiate costs of marketing, transaction nuances and misc third party obscene fees……the real estate kabal needs fresh air and price cuts galore…

      Reply this comment

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Steven Greenhut

Steven Greenhut

Steven Greenhut is CalWatchdog’s contributing editor. Greenhut was deputy editor and columnist for The Orange County Register for 11 years. He is author of the new book, “Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.”

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