Realtors say Prop 5 would unlock housing market: Experts disagree
In a state with a persistent housing shortage, some believe older homeowners could provide some relief.
After all, Californians 55 and older own more than half of all owner-occupied homes. According to the California Association of Realtors, many want out of their large single-family houses but instead are “locked” in, unable or unwilling to pay the sharply higher property taxes that would accompany a new purchase, as dictated by the rules established 40 years ago under Proposition 13.
As a solution, the Realtors are pitching Proposition 5, which would let seniors move and carry their low property tax payments to any home, anywhere in the state, as many times as they like. The trade group, which has raised $13 million to support the measure, promises it will “unlock the housing market” and free up much needed inventory for young families.
“The utilization of the housing stock, it’s not necessarily efficient,” economist Jordan Levine of the Realtors group said. “You have a lot of folks in homes that don’t necessarily work for them.”
But, according to multiple outside housing experts, the measure is unlikely to unlock much of anything. Some data indicate that California seniors actually move more frequently than those elsewhere. And experts said it’s not clear a significant number of seniors, many of whom are wealthy, are ready to move only if they could keep their low property taxes.
“There are a lot of reasons people move or don’t,” said Christopher Thornberg, founding partner with Beacon Economics. Some never want to leave a longtime home, while others get an itch to downsize or be nearer to grandkids. “Property tax really isn’t that big of a deal.”
The measure, if it passes in November, may even contribute to rising prices, some experts said, as older households that would’ve sold anyway get a break and gain more buying power. Critics point out it’s expected to also reduce municipal tax revenues.
When Proposition 13 was approved in 1978, property values were soaring. Californians, particularly seniors on fixed incomes, worried they couldn’t keep pace with each new assessment.
So to provide stability, voters limited property tax to 1 percent of a home’s taxable value and capped how fast the valuation could rise, at 2 percent annually. That means the longer someone lives in a home, the more likely their taxes will be far below what someone would pay if they purchased the same house today.
After passage of other propositions in the 1980s, homeowners 55 or older can, once in their lifetimes, sell their home and transfer their under-market tax payments. But to qualify, the new home must be the same price or cheaper than the sales price of the old home — and, in most cases, must be in the same county. Only 11 counties, including Los Angeles and Orange, allow for inter-county transfers.
That’s what Dave Schmalz, 68, did. With the kids gone, he wanted out of the 3,669-square-foot house in Mount Washington that he and his now-ex-wife built in 1994. So two years ago, Schmalz sold the house — valued for tax purposes at about $650,000 — for $1.3 million. He split it with his exwife and, with his girlfriend, purchased a Glendale home half the size for $885,000. Under current rules, his $650,000 tax valuation came with him.
“That didn’t have anything to do with our decision to leave or stay,” he said. “It was just like, ‘Oh great, I can take advantage of this, so I will.’”
If Proposition 5 passes, seniors could use the benefit as many times as they want and there would be no restrictions on price or location of the new home. Like the current benefit, disaster victims and the severely disabled could also take advantage.
New property tax payments would be based on a mixture of the old valuation and new purchase price. If seniors purchased a less expensive home, the valuation would drop slightly. If they purchased a more expensive home, the valuation would rise slightly, but still be below — in some cases far below — what they purchased their new home for.
Asked for evidence that many seniors want to move but can’t afford a jump in property taxes, Levine of the Realtors group pointed out that seniors make up the majority of California homeowners and said his analysis shows single-family homes here sell less frequently than in the nation as a whole.
But other experts said different, more detailed data tell the opposite story. If property tax lock-in was keeping many older Californians from moving, they should move less frequently than seniors elsewhere, they said. But according to a Zillow analysis of Census Bureau data conducted for the Los Angeles Times, older Californians actually move more frequently than those elsewhere in the country.
In 2016, 3.5 percent of California homeowners 55 and older had moved from another place in California that year and purchased a house or condo within the state. Nationwide, the share of older homeowners who did the same thing within their state was 3.1 percent. When removing from the data California and Florida, which has a similar property tax system, the national number fell to 2.9 percent.
Similar differences existed in 2011, 2006 and 2001, Zillow said. A similar analysis from Beacon Economics found older California homeowners are about as likely to move as those in Texas, which doesn’t have Proposition 13-like restrictions.
Richard Green, director of the USC Lusk Center for Real Estate, theorized that California move rates weren’t lower in the Zillow data because many seniors are wealthy and can afford higher property taxes if they want to move. The median household income for potential Proposition 5 beneficiaries is $77,000, nearly 15 percent higher than the statewide median, according to the California Budget and Policy Center, a nonprofit that advocates for low-income residents.