Could This Big Incentive Make A Big Difference In The Housing Crisis?

It’s the word that strikes fear in the hearts of buyers… eye rolls in the heads of agents and angst in the mouths of the media: INVENTORY. While it’s nothing new here in the Bay Area, it sure is getting old! Buyers are exhausted, renters feel hopeless and employers have the draw of jobs but no confidence that the employees can find roofs over their heads. If you’ve been following our blog and general news coverage, then you know that new construction isn’t likely to solve the problem, and local job creation is only going to worsen it. Is there another answer on the way?

Maybe. Look out for the Property Tax Fairness Initiative hitting the ballot in November. If approved by voters, this California initiative could drastically add to the number of homes on the market by making it much more affordable for homeowners aged 55 and over to move within the state. Older sellers (or those who are disabled or in natural disaster-ravaged communities) could sell their home and buy another without facing the HUGE increase in property taxes that has served as a stopping block - up until now.

But isn’t that system already in place…? Nope. As stated by the California Association of Realtors: homeowners 55 years of age or older can transfer their Prop. 13 property tax base – only once – to a replacement home located in the same county (Prop. 60), and only if the purchase price for the replacement home is equal or less than the sale price of the original residence. Prop. 90 extends that possibility to another county, but only applies to 11 of the state’s 58 counties IF approved and IF the home meets the designated price criteria.

If the Property Tax Fairness Initiative passes, then homeowners aged 55 or older could transfer their Prop. 13 tax base to a home of any county, of any price, anywhere in the state without facing the detrimental property tax rise that makes moving unaffordable to most. (See more on buying up or buying down below.)

Will it really make a difference? It’s definitely likely to help! Nearly 75% of homeowners aged 55 and older have not moved since the year 2000. With so many of our parents and grandparents fearing having to pay 1% property taxes on the value of a new home (a substantial increase from the taxes on their current home that are capped by Prop. 13) many have felt ‘locked-in’ to their homes.

Buying up or buying down? If a homeowner buys a more expensive home than what their original home sells for, the difference between the sale of their old home and the purchase of their new home is added to the original Prop. 13 tax base. Thus, the buyer is still paying what the initiative’s proponents call a ‘fair share’ of taxes – but not hindered by an unattainable tax figure to make the move.

If the homeowner buys a less expensive home, the property taxes will be calculated at a rate that is proportionally the same as the original home. CAR explains that “if the tax base was one-third of the sale price, the new property tax would be one-third of the new sale price”.

What’s the downside? Opponents of the ballot initiative cite two potential issues. One, less local tax revenue means potentially fewer services (other measures could account for this loss in dollars but that is a whole other topic!). The other issue is that our market’s greatest need is for starter homes, and most older homeowners who may be incentivized to sell are more likely to have what is considered a ‘move-up’ home.

Stay tuned… this will not be the last you hear about this hot topic which is only going to get hotter as fall approaches. If you are a homeowner aged 55 or older – we’d love to hear your thoughts on how this ballot measure could impact your decision to sell!

All our best,

Mark & Jason

Resources Used:

Realtor®

CAR®

PR Newswire