By Michael Repka, Esq.
It is easy to tell when an election is coming up—just watch the countless television commercials paid for by special interest groups. However, every proposition seems to be either the greatest idea ever or pure evil, depending on which side’s ad happens to be on at the moment. Here are some of the real estate related proposals that voters will consider in November.
Proposition 5—Property Tax Transfer Initiative
Since Prop 13 was approved in June 1978, California property owners have paid property tax at a rate of 1% of the purchase price, which can then be increased annually to account for inflation, but not more than 2% per year. Thus, long term property owners pay far less in property taxes because the average increase in property values has significantly exceeded 2% per year. Additionally, taxpayers pay fees to service voter-approved debt.
In an effort to allow people over 55 years of age to downsize without losing this tax benefit, voters approved propositions 60 (1986) and 90 (1988). Under these rules, taxpayers can make a once in a lifetime election to transfer their property tax to a replacement property provided that: (1) the taxpayer is 55 years of age or older; (2) they have never taken advantage of this rule before; (3) the replacement property is less expensive than the property sold (there is an exception); and (4) the replacement property is in the same county (Prop 60) or in a limited number of enumerated counties around the state (Prop 90). Although the list periodically changes, the counties that currently allow Prop 90 transfers are:
- El Dorado (ending participation as of Nov 7, 2018).
- Los Angeles
- San Bernardino
- San Diego
- San Mateo
- Santa Clara
- Tuolumne; and
The New Proposal—Prop 5
On November 6th, taxpayers will vote on Proposition 5, which would make this property tax transfer permissible to homeowners 55 years of age or older state-wide. Additionally, it would allow for the transfer to a more expensive property. When the replacement property is more expensive than the original property, the taxpayer would merely pay the same tax plus tax on the difference between the values of the two properties at the current rate. Further, it would allow taxpayers to utilize this transfer multiple times over the course of their lifetime.
This could encourage people to move, thus making more homes available, and possibly more affordable due to the increase in supply. The proposal would likely result in more real estate transactions and, not surprisingly, it is strongly supported by the California Association of Realtors®.
There will be an overall reduction in revenue from property taxes, which the Legislative Analyst’s Office estimated could be as much as $1 billion. This would have a negative impact on local governments and schools. The proposal is strongly opposed by the California Association of Counties.
Proposition 10—Allows the Expansion of Rent Control
In 1995, California enacted the Costa-Hawkins Rental Housing Act (“Costa-Hawkins”), which imposed limitations on municipal governments’ ability to enact new rent control ordinances. In particular, Costa-Hawkins prohibits municipalities from imposing rent control on single family homes, condos and newly-constructed housing units. Additionally, Costa-Hawkins prohibits restrictions on what a landlord can charge to new renters moving in.
Prop 10, which is on the ballot on November 6th, would repeal Costa Hawkins. Although it would not, in and of itself, result in any new rent control ordinances, it would pave the way for local municipalities to enact new rent control ordinances. However, any new rent control laws would have to allow the landlord to make a “fair rate of return.”
Many more municipalities would likely impose rent control ordinances, which would keep rental units affordable. Housing prices may drop, which would be good for people looking to buy their first home.
Prop 10 would limit property owner’s use of their property. It would likely discourage investment in rental property, and construction of new rental property, which could exacerbate the rental housing shortage. Housing prices may drop, which would be bad for homeowners that have much of their wealth in real estate.
Measure C—Los Altos
Measure C was placed on the ballot via a citizen’s petition initiative. If this measure is approved by a majority of Los Altos voters, then any changes to the use of land currently designated as “parks,” “other open spaces,” or “public and institutional” would require specific voter approval.