The 2018 midterm elections are just around the corner, and we’ve been keeping our eye on three California propositions that could directly affect property ownership and opportunities in San Diego. We’ll keep our opinions to ourselves, but wanted to share what some of the practical effects might be. The information below references California’s Official Voter Information Guide, which presents nonpartisan analysis from the Legislative Analyst’s Office (LAO), with arguments and rebuttals from interested parties.
“Authorizes $4 billion in general obligation bonds for existing affordable housing programs for low-income residents, veterans, farmworkers, manufactured and mobile homes, infill, and transit-oriented housing.”
Proposition 1 is of particular interest to developers, veterans, and first-time buyers, among others. Like similar programs before, the measure seeks to raise money for a package of housing programs designed to ease homeownership for certain groups and create more affordable housing.
California’s Legislative Analyst’s Office (LAO) projects that this measure will subsidize loans to build approximately 37,500 new households. The bulk of the bond proceeds “would be awarded to program applicants—local governments, nonprofit organizations, and private developers—through a competitive process administered by the state” for affordable multifamily housing programs, infrastructure programs, homeownership programs, and a farmworker housing program. This would manifest mainly as low-interest loans to developers and some low-interest loans or grants to individuals. An additional $1 billion would be designated as home loan assistance for veterans.
In Prop 1’s Arguments and Rebuttals, those in favor of the measure claim it will ease the housing shortage and help some classes of homebuyers without raising taxes. Those opposed point out that the proposition will repay bondholders for the $4 billion price tag but incur an additional $2.9 billion interest over the next 35 years, a cost not provided for and therefore externalized onto California’s General Fund (i.e., taxpayers).
It won’t be clear how exactly the funds will be allocated or awarded until after the measure passes. If it does, we’ll be watching closely to see how potential benefits will filter down to the general public.
“Removes certain transfer requirements for homeowners over 55, severely disabled homeowners, and contaminated or disaster-destroyed property.”
According to the PRO argument, Prop 5 “eliminates the ‘moving penalty’ that currently hurts seniors (55+) and severely disabled Californians,” allowing these groups to carry their existing tax base into a new property anywhere in the state (rather than only to same-county homes of equal or lesser value). Under current law,
…the market value of most homes (what they could be sold for) grows faster than 2 percent annually. This means the taxable value of most homes is less than their market value. Because of this, when a homeowner buys a different home, the purchase price of the new home often exceeds the taxable value of the buyer’s prior home (even when the homes have similar market values). This leads to a higher property tax bill for the home buyer.
This is especially true for those who have owned their property for a long time, including many seniors who may own their home outright but might struggle to pay the property taxes even on a much smaller home. But Prop 5 would:
- Allow moves anywhere in the state
- Allow the purchase of a more expensive home
- Reduce taxes for newly-purchased homes that are less expensive
- Remove limits on how many times a homeowner can use the special rules
The Legislative Analyst’s Office projects this tax break would spark a wave of turnovers among eligible homeowners, potentially increasing the number of movers by a few tens of thousands, boosting home prices, and accelerating new home building. According to the CON argument, this may result in a net loss of state tax revenue, creating an additional burden on the state’s General Fund.
Because these special rules already apply in a limited way to some homeowners, our Seniors Real Estate Specialists® are already familiar with navigating these benefits. Right now they’re looking at ways the new freedom of Prop 5 could help seniors who want to downsize or move closer to family, but who might have worried they’d be underwater with the shift in property tax.
Check back with us after the ballots are counted, or contact us now to see if you already qualify under existing special rules.
“Repeals state law that currently restricts the scope of rent control policies that cities and other local jurisdictions may impose on residential property.”
Prop 10 would open the door to new local rent control laws, so it’s being watched closely by property owners who rent or lease homes to others. Currently, state law limits the extent to which local governments can control rent, and specifies types of structures that are exempt altogether.
On the surface, new rent control policies are designed to benefit renters. The PRO argument says the measure will protect tenants from rapidly rising rents. But the LAO projects a mixed bag of fiscal effects that over time might create even less desirable circumstances for renters on the whole. According to their analysis, the most likely effects include:
- To avoid rent regulation, some landlords would sell their rental housing to new owners who would live there.
- The value of rental housing would decline because potential landlords would not want to pay as much for these properties.
- Some renters would spend less on rent and some landlords would receive less rental income.
- Some renters would move less often.
The LAO also projects a drop in state revenues. Opponents of the measure believe it will backfire, reducing the number of available rental units and making affordable housing even more scarce. Owners of income-generating properties might be concerned that new local regulations could limit how much they’re able to raise the rent between tenants, which might keep their property value artificially low even if other nearby residential values jump.
While passage of this proposition doesn’t guarantee an expansion of rent control, “voters in some communities have proposed expanding rent control if this measure passes.” In the short run, San Diego doesn’t have any local rent control measures on the ballot, but the very existence of such legislation may have a distorting effect on the market.
Ascent’s specialists will be studying these outcomes and changes closely.
What will these California propositions mean for you?
Your best source of information for California propositions is the voter info guide. We wouldn’t presume to sway your opinion on the complex choices voters face on November 6, so you’ll have to make your own decisions.
But in the meantime, we’ll be hard at work researching and analyzing how the propositions would affect San Diego real estate. As always, we will keep our staff and agents up to date on the changing legal landscape, and train them how best to serve our clients’ interests.
Whether these propositions are inked or junked, Ascent will be ready to help you make the best of your property goals. Contact us to learn more about how any of these propositions could affect your real estate goals.