Prying Seniors Out of Their Homes

A proposed property tax break aims to free up more housing by encouraging seniors to downsize. But at what cost?


Photo by Lance Yamamoto

California is in the midst of an unprecedented housing crisis. The state witnessed the nation’s largest jump in homelessness last year, a 13.7 percent increase from the year prior, and is home to an estimated 134,278 homeless people — the largest homeless population in the country. In the Bay Area, home prices continue to climb to record highs. The median home price in the Bay Area is now around $900,000.

One major factor contributing to the crisis is the lack of available homes. The state just hasn’t built enough new housing to meet demand.

Now, the real estate industry believes it has a solution — getting seniors to move.

A powerful real estate agents’ association has placed an initiative on the November ballot that would allow California senior homeowners to continue paying lower property taxes after selling their homes and buying new ones.

The Property Tax Fairness Initiative, sponsored by the 185,000-member California Association of Realtors, would expand Proposition 13, a state constitutional amendment that has kept homeowners’ property taxes artificially low for decades. The initiative would allow people over 55 (as well as those who are disabled and those who have lost their home to a natural disaster) to retain lower taxes no matter how many times they sell and move within the state.

The association says its initiative would address the state’s housing crisis by freeing up large homes currently occupied by empty-nester seniors for young families and other would-be homeowners.

“Seventy-one percent of homeowners 55 years of age or older have not moved from their properties since 2000,” said Alex Creel, lobbyist for the association. This further constricts the scant number of houses available for purchase in the East Bay and the state, he said.

“They would like to move, but they love their property taxes,” Creel said. The prospect of a property tax increase of 100, 200, or even 300 percent has “locked them in,” he said.

Steve White, president of the association, describes the initiative as “a historic effort to address California’s unprecedented housing supply crisis as well as to increase homeownership opportunities for Californians.”

But there are critics of the initiative.

Assemblyman David Chiu, D-San Francisco, who has sponsored numerous bills aimed at increasing California’s housing supply, said the initiative “does nothing to address the most intense housing crisis our state has ever experienced.” According to Chiu, the proposed legislation won’t bring additional homeownership opportunities claimed by the real estate agents’ association.

“Under this proposal, first-time homebuyers will continue to bear the high cost of ownership while longtime homeowners are locked into an artificially low property tax rate that does not reflect the true value of their home,” Chiu said. “Instead of addressing that imbalance, this initiative seeks to expand it.”

The assemblyman also said the initiative would make it harder for cities and counties to pay for schools, infrastructure, and public safety “to the tune of $2 billion.”

The $2 billion figure comes from a report by the California Legislative Analyst’s Office, a nonpartisan government agency that has provided fiscal and policy advice to the California Legislature for decades.

The analyst’s office predicted that the fiscal impact of the initiative would be twofold.

Annual property tax losses for cities, counties, and special districts would be around $150 million in the near term, growing over time to $1 billion or more per year in today’s dollars, according to the analyst’s office.

Annual property tax losses for schools would be around $150 million per year in the near term, growing over time to $2 billion or more per year in today’s dollars. There would be an increase in state costs for schools of an equivalent amount in most years, the analyst’s office estimated.

“This clearly helps some people and hurts others, so it is about weighing those values,” said Thad Kousser, department chair and professor of political science at UC San Diego.

“It allows people 55 and older to move and still pay lower property taxes,” Kousser said.

California homeowners’ property tax bills are based on the assessed value of their homes. Under Proposition 13, a home is assessed at its purchase price when it is sold. In between the purchase and the next sale, the assessed value can go up by no more than 2 percent per year, plus the value of additions or major improvements.

This means that many people who have owned their home for a long time are paying property tax bills that are minuscule compared to what they would have to pay if they bought a new house in today’s expensive market. The Legislative Analyst’s Office said research suggests that this discourages people from moving.

There are already a couple of breaks for those over 55 who want to sell and move. Passed after Prop. 13, Propositions 60 and 90 allow these homeowners to transfer their property tax assessment to a replacement home of equal or lesser value, on a one-time basis.

In 2014, California homeowners who were 55 years old were around 20 percent more likely to move than 54-year-old homeowners.

The catch is that the home must be in the same county, or in one of only 11 California counties that allow the homeowner to transfer their property tax. In the Bay Area, that includes Alameda, San Mateo, and Santa Clara counties.

The real estate association’s proposed initiative would allow homeowners 55 and older to transfer their tax assessment to a replacement home of any price in any California county an unlimited number of times. If homeowners were to buy more expensive homes than their existing homes, the difference in price would be added to their new assessment. If homeowners were to buy less expensive homes, their assessed value would be proportionately reduced.

Kousser said among the winners and losers, real estate agents and homeowners over 55 are the ones who would benefit.

“If you are an empty nester looking to move closer to a city or someone over 55 who is looking to move up, that is a big advantage for you and it’s also a big advantage for anyone who is in the business of buying and selling homes — so it clearly delivers an advantage to California real estate agents,” Kousser said.

The Legislative Analyst’s Office report estimated that the number of home sales would increase by as much as tens of thousands annually.

“This extends the protection of Proposition 13, which was designed to let people stay in their homes as they aged and their incomes didn’t go up but their home grew in value. It protected people from having higher and higher property taxes,” Kousser said.

Who would stand to lose from the Realtor initiative?

“It hurts the people who rely on property taxes. Anyone who depends on the services provided by local and state governments will lose,” Kousser said.

This includes people on Medi-Cal and other state services, the University of California system, and the public schools, he said.

Creel said his association disagrees with the Legislative Analyst’s estimate of the number of transactions per year. The association’s economist, Leslie Appleton-Young, has estimated the number at 40,000, Creel said.

The association also disagrees with the Legislative Analyst’s fiscal analysis.

“They look at it and say the property you’re transferring is at a lesser property tax base than it would be if you bought it and didn’t change bases, so you are losing money,” Creel said. However, “the thing that is more telling is what about the property that has been sitting with a 2001 property tax base for 15 years and now it’s going to pop to full market value.”

The Legislative Analyst’s Office report acknowledges that the increase in home sales would partially offset the losses in property taxes, but that the net amount of property taxes would still decrease. It also notes that the increase in home sales would likely boost property transfer taxes collected by cities and counties by tens of millions of dollars per year.

An East Bay real estate agent said the initiative won’t just help his industry.

“I think it’s a great idea simply because it allows for business to happen, and when real estate transactions take place, multiple industries benefit,” said Michael O’Brien, a Contra Costa County real estate agent. “Everyone from the title business to general contractors to termite inspectors.”

One 30-year East Bay homeowner had a different perspective.

“If you are living in a house worth $800,000 and you paid $80,000 for it and you have been enjoying very low property taxes all these years and you buy a new house, you can use your profit on that $800,000 to pay your new property taxes,” said Ellen Seskin, who lives with her husband and son in Richmond.

“I don’t think the state should subsidize people who can afford [the taxes],” the homeowner said.

Seskin would qualify for the tax break if the initiative passed, but she doesn’t support it.

“Property taxes pay for schools and all kinds of good things. I don’t mind paying higher taxes to benefit my fellow citizens,” she said.

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