The chronic shortage of housing in California is a problem that has vexed policy makers here for years. The situation has recently reached a crisis level, and has thus become a regular subject of discussion in this blog. If the California Association of Realtors (“CAR”) has anything to say about it, however, we may soon be seeing significant changes to some aspects of Proposition 13 that could have a major impact on this state of affairs.
As you know, Proposition 13, approved by the voters in June 1978, places limits on real property taxes and assessments. Under that initiative, real property taxes were capped at 1% of a property’s assessed value, and property may be reassessed to its current market value only in the event of a transfer. Over the years, the California electorate approved three more proposals (Propositions 60, 90 and 110) modifying Proposition 13 to allow certain disabled people and persons 55 years of age and older, on a one-time basis, to transfer the assessed value of their home to a replacement home of equal or lesser value located either in the same county or in a county that has approved intra-county assessed value transfers .
While this property tax structure remains popular, and for the most part has served its intended purpose of allowing taxpayers to keep their property taxes in check, it has also had a number of unintended consequences for California’s real estate market. Specifically, there are a large number of California homeowners who might otherwise sell their current houses and purchase another one elsewhere in California who are being discouraged from doing so due to the higher property taxes that would likely result in many cases. “Before Proposition 13, the slogan was ‘I’m being taxed out of my home.’ After Proposition 13, the slogan is ‘I can’t afford to move,’” quipped Rich Benson, Marin County Assessor-Recorder.
According to Alexander Creel, CAR senior vice president for governmental affairs, a good number of folks “really would like to move on, and they’re not so in love with their house anymore. But they are in love with their property taxes.” As a result, over the past couple of years, CAR has supported several different proposals intended to expand homeowners’ ability to transfer the assessed value of their homes to replacement homes through legislative advocacy and similar public outreach. For a variety of reasons, however, including budgetary impacts and local government opposition, CAR’s efforts were not successful in getting any of those ideas enacted.
Recently, however, three voter initiatives drafted by CAR were cleared by the California Attorney General’s Office to be circulated for voter signature. The first of these initiatives would allow all homeowners regardless of age or disability to transfer their home’s assessed value to a new home anywhere in the state. The second would apply to all homeowners moving to a new home in either the same county or a county that allows intra-county assessed value transfers. The third would give homeowners 55 and older moving anywhere in the state the ability to transfer their home’s assessed value to a replacement property.
After consulting with its members, the CAR has decided to gather signatures for the third initiative, as reported by Lotus Lou, a media consultant for CAR. Under this proposal, homeowners would be able to sell their existing home and “blend” its assessed value with the assessed value of their new property. In an email, Ms. Lou gave the following example: A homeowner who paid $100,000 for a house sells that house for $300,000. Under the current system, if that homeowner were to buy a new house for $325,000, the assessed value of that new house would be $325,000. Under the CAR’s initiative, however, the assessed value of the new house would be set by first taking the assessed value of the first home ($100,000) and then adding to that amount the difference in value between the sales price of the first home ($300,000) and the purchase price of the new home ($325,000), in the amount of $25,000. This calculation would result in an assessed value for the new home of $125,000, thus saving $2,000 in property taxes in the first year.
As of the present date, there have been no announcements of any organized opposition to this initiative, although it was reported to the Santa Clara County Association of Realtors (“SCCAOR”) that Santa Clara County Assessor Larry Stone has expressed his disagreement with the measure, according to Rick Smith, president of the SCCAOR. CAR now faces a daunting task: It must gather 585,407 signatures by March 26, 2018, in order to qualify for the November 2018 ballot. As with anything relating to Proposition 13, caution is generally warranted.