Proposition 5 would give homeowners who move a property tax break

By Steve White, Special to CALmatters

Housing construction in California hasn’t kept up with the robust demand in recent years. As a result, qualified buyers struggle to find homes to buy. That undertaking is complicated by the shortage of housing stock and prices that push potential homeowners out of the market.

The squeeze is especially acute for Baby Boomers who want to downsize or move closer to children or grandchildren. If they sell their home, they face a “moving penalty” in the form of a sharply higher property tax bill. So boomers stay put, which means fewer single-family homes are available to meet the growing demand of young families.

Voters can address these problems and eliminate California’s property tax moving penalty by voting yes on Proposition 5, the Property Tax Fairness Initiative.

Proposition 5 would protect people 55 years and older by letting them take their property tax protections with them when they move. The initiative would give them the flexibility to move to more suitable homes closer to loved ones or healthcare facilities.

Seniors aren’t the only ones who would be helped. Proposition 5’s protections would extend to the severely disabled and to victims of natural disasters.

This measure was carefully written to ensure that people still pay their fair share of property taxes.

Let’s say a person’s original home was assessed at $150,000 and sells for $400,000. He or she then buys a new home for $600,000. The new tax base would be $350,000, reached by adding the original tax assessment to the difference between the two sales prices.

So the new property tax bill would increase from $1,500 per year to $3,500 per year. That’s significant but fair. Without Proposition 5 protections, the new property tax bill would be $6,000 per year, four times the original bill and a sum that would dissuade many people from moving.

Proposition 5 would help ease the state’s shortage of housing by encouraging more turnover of single-family homes in existing neighborhoods. It would give young families a greater chance to buy homes, providing stability to neighborhoods, and reinforcing enrollment in local schools.

Other ballot measures passed in recent years allow residents to keep their assessment, as long as their new home’s value is the same or less than their old residence. They can use this exemption once, but only if they stay in the same county or move to one of 10 counties that expressly allow such transactions.

Proposition 5 would clean up that confusing law by allowing people who are eligible to move anywhere in California’s 58 counties as many times as they wish.

California’s Legislative Analyst has opined that these changes would lead to substantial property tax revenue losses to local government.  But the LAO did not take into account the broader picture.

More home sales, at a higher assessed value, would generate more revenue and offset projected losses. There would be other economic boosts, such as payment of transfer and escrow fees and spending on housing renovations and furnishings which would generate sales and income tax revenue.

Seniors, disabled people, and natural disaster victims should not be penalized by an unfair, outdated tax system that keeps them from making the housing choices that are best for them. We should fix a flawed system and eliminate the moving penalty by approving Proposition 5.

Steve White is president of the California Association of Realtors and lives in Los Angeles, [email protected] He wrote this commentary for CALmatters.

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