California Prop 5 would have helped unplug the pipeline of older homeowners stuck in their homes which prevented younger homeowners from moving in
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Some California empty-nesters feel trapped in oversize homes because their property taxes — relatively low if they’ve owned the home for decades — could rise substantially if they move.
A state ballot measure seeks to change that. Proposition 5 would greatly expand the ways people 55 and older, the severely disabled and disaster victims can sell their primary residence and transfer its property tax assessment to a replacement home, thus avoiding a potentially steep tax increase.
Proponents, led by the California Association of Realtors, say it could put a dent in the housing crisis, by freeing up homes for larger families and encouraging developers to build more senior communities.
Opponents, including counties and labor unions, say the November ballot measure would rob schools and local governments of much-needed tax revenue while doing little to ease the housing crunch.
The Realtors association, which gathered enough signatures to place it on the ballot, and its national counterpart together have raised $13.2 million to support Prop. 5, according to an analysis by the secretary of state. It will lead to “more efficient use of our existing housing stock,” said Christopher Carlisle, a lobbyist for the association.
That far exceeds the $2.7 million raised by opponents, which include the California Association of Counties and unions representing teachers, firefighters, service and government workers. The Service Employees International Union called it “a boon to the real estate industry that comes at the cost of massive cuts to schools and local services communities value.”
The Legislative Analyst’s Office estimated that public schools and local governments each could lose more than $100 million annually in property taxes in the early years, growing over time to about $1 billion each per year. The state’s general fund would replace whatever revenue most school districts would lose under the proposition.
Under Proposition 13, passed by voters in 1978, property in California is generally reassessed at market value only when it is sold. In between sales, the assessed value can go up by no more than 2 percent per year, plus the value of additions or major improvements. This is known variously as the base-year, Prop. 13 or assessed value.
Property taxes are 1 percent of assessed value, plus voter-approved local taxes, bringing the statewide average to about 1.1 percent.
Many long-term homeowners are paying a fraction of what their new neighbors are — and what they themselves would pay — in property tax if they sold their home and bought a comparable or even cheaper one.
To ease the pain of downsizing, voters subsequently passed Propositions 60, 90 and 110. These give California homeowners who are at least 55 or severely disabled a once-in-a-lifetime chance to sell their primary residence and transfer its assessed value to a replacement home of equal or lesser value. The replacement home must be in the same county or in one of 11 counties that accept transfers.
If Prop. 5 passes, seniors and disabled homeowners could transfer their assessed value to a replacement home in any California county an unlimited number of times. They could also transfer it to a more expensive home, although the difference in price between their old and new homes would be added to their assessed value.
If they bought a less expensive home, their property taxes would actually drop. Suppose their existing home is assessed at $500,000, they sell it for $1 million and buy a new one for $800,000. Because the old home’s assessment was half its market value, the new home would be assessed at only $400,000, or half its market value. That $100,000 drop in assessed value wouldn’t happen today.
Prop. 5 would extend these benefits to people who lose their homes in a governor-declared disaster and buy or rebuild elsewhere. These owners are already entitled to other types of property tax relief, which generally would be replaced by Prop. 5, according to the California Board of Equalization.
Carole Robie, 79, would like to sell her two-story, four-bedroom home in Alameda and buy a single-level home in an adult community in Alameda or Contra Costa County. But given today’s prices, she’d probably have to pay slightly more than her home is worth, thereby losing her low property tax base. “It’s what’s keeping me in my home. I do not have any desire to be paying significantly larger property taxes,” she said in March. But as a retired educator, she said, “I understand the dilemma for counties, schools, firefighters. They count on the tax base to provide services to the community.”
In 2016-17, only 5,730 senior and disabled homeowners statewide got permission to transfer their assessed value to a replacement home, according to the equalization board.
The Legislative Analyst’s Office estimated that each year, about 85,000 California homeowners over 55 move to another home without receiving a tax break. “Most of these movers end up paying higher property taxes. Under the measure, their property taxes would be much lower,” it said.
It acknowledged that the measure could increase home sales by “a few tens of thousands” per year. That would “have some effect on home prices and home building,” leading to “more property tax revenue.” However, it concluded that “the revenue losses from people who would have moved anyway would be bigger than the gains from higher home prices and home building.”
Higher turnover would also increase state income taxes (from homeowners with taxable capital gains) and real estate transfer taxes. The analyst’s office did not estimate these additional tax revenues or factor them into its cost estimate. “That being said, the increases in income and transfer taxes are about the same magnitude as the margin of error around the property tax estimates,” said Brian Uhler of the analyst’s office.
Prop. 5 would “absolutely” increase sales of homes at Rossmoor, the sprawling over-55 community in Walnut Creek, said Chuck Lamb, general manager of Rossmoor Realty. “Almost once a week, we lose a sale” when prospective buyers who have “fallen in love” with the lifestyle there realize their property tax would stay the same or go up, even though they are downsizing.
Opponents point out that property taxes are only one thing keeping seniors in their too-big homes. Many long-term owners in high-cost areas would face steep capital gains taxes if they sold. The emotional and physical ordeal of downsizing is another deterrent.
Napa County Supervisor Diane Dillon said she opposes Prop. 5, mainly because it would “cause this huge deficit in local finances.” Secondarily, it “really doesn’t help our housing crisis at all.”
As a former estate-planning attorney, Dillon knows that Prop. 5 may sound appealing to some constituents. “The problem with propositions (is that) they are fixed in stone. Maybe a solution or answer could be crafted that wouldn’t have all these detrimental effects.”
If Prop. 5 fails, the California Association of Realtors plans to sponsor a proposition for the November 2020 ballot that would do the same thing, but pay for it by cutting back on the benefits of Proposition 58. This state law lets parents transfer a primary residence of any value, plus a generous amount of other property, to their children without it being reassessed at market value. The number of properties that get this tax break far exceeds the number that get transferred under Props. 60, 90 and 110.
Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender
**https://www.sfchronicle.com/business/networth/article/California-Prop-5-would-help-some-homeowners-but-13300888.php?utm_campaign=sfgate&utm_source=article&utm_medium=https%3A%2F%2Fwww.sfgate.com%2Fpolitics%2Farticle%2FCalifornia-Props-5-8-11-12-Chickens-13369302.php%3Ft%3Dd704e046cd
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