California Realtors Hope Ballot Initiative Will Put More Homes on Market

A ballot measure to enable older homeowners in California, particularly empty nesters, to downsize without losing their tax benefits granted to them by the 1978 Proposition 13, has qualified for the November ballot.

5 minute read

June 22, 2018, 12:00 PM PDT

By Irvin Dawid


Home For Sale Signs

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[Updated June 29, 2018] The Proposition 13 Tax Transfer Initiative, a combined initiated constitutional amendment and state statute, qualified for the November 6 ballot in California last month. [See related post on June 20: "40 Years of Prop 13".]

The measure would "allow homeowners 55 and older to take a portion of their Proposition 13 property tax benefits with them when they move to a new California home," reports Liam Dillon for the Los Angeles Times on May 17. 

The sponsor of the measure, the California Association of Realtorshas argued that such a change would encourage home sales and free up properties for more buyers.

"As homeowners age, there is often a desire to downsize; however, if the homeowner sold their home to purchase another home, their tax basis would increase to the market value of the new home," wrote David Anderson for Coldwell Banker Residential Brokerage on Jan. 21.

To many on a fixed income, it often means paying significantly higher taxes, for which they could not afford. The end result is the homeowners’ decision not to place their home on the market for fear of higher taxes.

A post last December on the initiative provides an example:

Alex Creel, a lobbyist for the California Association of Realtors, is quoted directly in [The Mercury News] article explaining the state of the market: "A lot of older people — and I’m one of those older people, by the way — are feeling locked into their properties....They’re holding onto their property not because they like their house, but because they like their taxes."

Dillon explains how Prop. 13 saves money for those who have owned their homes for a long time, and how the measure would encourage them to consider moving while not sacrificing their considerable property tax savings.

Proposition 13 limits property tax rates to 1% of a home’s value and caps values at which homes are assessed to 2% annual increases, no matter how much a property’s market value goes up. Under the initiative, elderly homeowners would be able to blend the value of their prior home with their new one to pay lower property taxes [explained with two examples below]. Currently, elderly residents are allowed to do so only on a more limited basis in certain counties.

This will be the third time a proposition has gone to voters to loosen restrictions on home sales for those benefiting from Prop. 13.

"In 1986 and 1988 respectively, Proposition 60 and 90 was passed that allowed older homeowners a ‘one-time transfer’ of their low Proposition 13 taxes to a new home of equal or lesser value, as long as they were age 55 or over or were disabled," wrote Anderson of Coldwell Banker. 

Prop. 60 restricted the homeowner to move to a home in the same county, and Prop. 90 broadened the number of counties the homeowner could move to, as long as both counties participated in the tax-sharing program.

Anderson explains how the property tax benefits would be transferred, or blended, to the new property, which depends on whether the new home is pricier or less costly than the home being sold:

  • More expensive: Say a couple owned a home for 30 years and its current assessed value is $75,000, meaning they pay $750 in annual property taxes (1% of $75,000). They then sell the home for $600,000 and buy a new one for $700,000. Their new tax assessment would be $75,000 plus $100,000 (the difference between the old home’s sales price and the new home’s sales price). Their new property tax would be $1,750.
  • Less expensive: Say the same couple sold their old home for $600,000, then paid $500,000 for a condo. Since the condo’s price is 83 percent of the old home’s sales price, the new assessment would be 83 percent of the old, or $62,500. Their new property tax would be $625.

Cost to the local governments and schools

"The nonpartisan Legislative Analyst’s Office [LAO] has estimated the change would cost local governments and schools a combined $300 million a year, with costs rising to $2 billion annually over time," notes Dillon.

Should the measure pass, the tax benefit in the new home will be transferable to the seniors' children, just as it would be with the owners' original home, according to an email from the California Association of Realtors.

More criticism

This proposition only continues the problems created by the original Proposition, opines Ed Kilgore for New York Magazine on May 18. "California’s Realtors are not challenging Prop 13, but instead fighting to expand it..."

“This seems like, ‘Let’s solve Prop. 13 by having more of it,’ ” said Laura Clark, executive director of San Francisco-based YIMBY Action, a pro-development, millennial-led group that has joined others in calling for reforms of the decades-old property tax law. “We’re talking about, once again, another tax giveaway to people who are wealthy.”

Two other housing initiatives have also qualified for the November ballot:

Dillon notes that two other housing measures may also appear on the ballot:

As posted earlier this month, an initiative to split the state into "three Californias" has also qualified.

[Corrected to with a statement from the California Association of Realtors about the transferability of the tax cap for children's homes.]

Thursday, May 17, 2018 in Los Angeles Times

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