What Is On the Ballot?

Michael Edlen Explains Proposition 5, “Property Tax Fairness Initiative,” and Other Real Estate-Related Propositions

By MICHAEL EDLEN | Special to the Palisadian-Post

There are four propositions on the Nov. 6 ballot that pertain to housing issues.

Proposition 1 would authorize bonds for affordable housing, loans, grants and veteran loans. Proposition 2 would authorize the state to use revenue from a 1 percent tax on income over $1 million to provide funds for homelessness prevention housing.

Proposition 5 is to amend the original Proposition 13 (from 1978) to allow homeowners who are age 55 or older or severely disabled to transfer the tax-assessed value from their prior home to their new home, no matter what the new home’s market value is or where it is in the state or the number of moves the owner has made.

As of now, homeowners over 55 years of age are eligible to transfer their tax assessments from their prior home to their new home only if the new homes’ market value is equal to or less than the prior home’s value, and can only be done one time. Also, counties, not the state, decide whether tax assessments can be transferred across county lines.

If the new home has a different value than the prior home, the initiative allows for an adjusted value between the old and new values. If the new home has a higher market value than the prior home, the assessed value would be adjusted upward in proportion to the amount over the sales price of the original home, resulting in a blended tax. If the new home has a lower market value than the prior home, the assessed value would be adjusted downward.

As most homeowners know, Proposition 13, the Tax Limitations Initiative, required that properties be taxed at no more than 1 percent of their full cash value based on 1976 assessed values plus limited annual increases of assessed value to the inflation rate or 2 percent, whichever was less. When a property is transferred to new owners, however, the property is reassessed at 1 percent of its full cash value and the limit on increases to assessed value resets.

Voters approved Propositions 60 and 90 in 1986 and 1988, which amended Proposition 13 to allow homeowners over the age of 55 to transfer the taxable value of their present home to a replacement home, assuming the replacement home was of equal or lesser value, and purchased within two years of selling the original home.

The transfer can be to a replacement home in another county, provided that that county agrees to participate in the program, which most counties currently do not. If Proposition 5 is passed, homeowners 55 years and older will be able to take their property tax assessments with them to any county in the state and they may do so as many times as they wish.

Another benefit of Proposition 5 is regarding married couples who are both over 55 and getting a divorce.  If they own their original home as community property, each partner may transfer their respective portion of the tax base to their new properties, rather than them having to decide which partner would be able to use the tax carry-forward as is now the case.

Some people oppose the proposition because they feel it will result in lower property taxes that are used to fund schools, healthcare services, etc. Others point out that such critics are ignoring the fact that Proposition 5 would logically result in increases in home sales by those over age 55, which in turn would generate increased sales tax revenue, job growth related to new construction and remodeling, and a wide range of fees related to real estate transactions.

One thing is clear about the current situation: An increasing number of people in California who are ready to downsize are confronted with a moving penalty that prevents them from selling.

I have met with many local homeowners over the last few years who were eager to find a new home more appropriate to their current lifestyle, but found that their property taxes could increase three to five times what they are currently paying. Although their homes no longer fit their needs because they are too big or too far away from families, they feel stuck in place. Proposition 5 provides the solution and is fully in line with the original intent behind Proposition 13 forty years ago.

Another benefit of Proposition 5 is that to the degree that people over age 55 choose to move to other areas or smaller places from their current larger homes, there will be more home alternatives available to the younger families who are having such a difficult time finding homes that suit their growing needs.

For those who feel that this proposition is not relevant to them now, because they are much younger than age 55, perhaps consideration might be given to their future options when it will become relevant. If their parents or grandparents live in California, it may be highly relevant now to them.

Proposition 10, labeled Affordable Housing Act, has a number of drawbacks that offset most of the benefits. Voting for this bill would prevent any single state solution to affordable housing and rent control in the future.

It could result in hundreds of different types of rent rules across the state, establish new non-elected rent boards rather than elected representatives to dictate real estate rent regulations, eliminate the ability of owners to raise rents to fair market value upon tenant vacancy, and likely result in a reduction in income property values by as much as 20-30 percent in some areas.

There could also be various unintended consequences on the construction of new, multifamily housing and thus make our housing crisis even worse.

Many critics note that California is one of only four states that have rent control on specific properties and they feel the only way to solve the situation is to find ways to incentivize the building of more housing units, not the opposite. Thus they urge us to vote no on Proposition 10.

Michael Edlen has assisted more than 1,000 people in the process of selling their homes, many of whom have experienced the challenges of tax impacts and feel they are severely limited. He can be reached for complimentary consultations at 310-230-7373 or michael@edlenteam.com.