YES on Proposition 5
Proposition 5 is the "Property Tax Fairness" initiative and would remove the "moving penalty" from California's property tax system. It would allow seniors, the severely disabled, and victims of natural disasters (think California wildfires) to transfer their existing low property tax base value when purchasing another home located anywhere in California. These people would be permitted to purchase a more expensive property if needed and pay a blended rate that incorporates a slight property tax increase from the difference in value from the home sold and the home purchased.
There are several seniors I have talked to over my 13 years in real estate who would love to sell their current home, but they'd suffer a "moving penalty" and cannot afford to sell. Huh? Let me explain. One such Sacramento couple has lived in their home for 30+ years, their children long ago moved out, and both are retired and living on fixed incomes. They own their home free and clear but no longer can maintain it. They no longer need the quarter acre yard where their children once played, and what used to be manicured lawn and gardens is now mostly overgrown weeds. The wife has mobility issues and has not been upstairs in a few years - because she physically can't get up the stairs. There a couple of empty bedrooms. The house needs a new roof. The home is drafty and grossly energy inefficient, and needs those improvements and other cosmetic updates. The expense of making those repairs would more than wipe out their savings. They would love to move to a newer single level condo in Alameda County, near their adult children and grandchildren, with no yard to maintain and that requires little upkeep. Their current property tax bill for their paid-for Sacramento home is roughly $1200 per year, kept low by Proposition 13 from 1978, which bases property tax on the home's acquisition value. Their home is worth about $400,000. The type of condo they'd like to buy is about $500,000. Current law allows for one-time property tax base transfers and within the same California county (or to few other counties that allow incoming transfers), and only to purchase a lower priced home. Purchasing a new condo for a higher price in another county would quadruple their annual property tax to $5,000 per year (over $400/month). This is an expense they cannot afford. And because of this, they stay in their home even though it no longer meets their needs. Moving from their current home would also free it up to allow another family to come in buy it, and renovate the property, better maintain the yard, and use the home's full bedroom capacity.
Because I see this scenario first hand everyday, I want to support helping homeowners like this couple avoid the moving penalty and be able to purchase a more suitable home in a different area. The elderly couple I described would pay $1200 plus another $1000 (the value of property tax for the difference between their $400,000 sale and $500,000 purchase). The new owner of the home they sold would pay $4000 of annual property tax instead of the $1200 the sellers paid.
The social benefits of this proposition are many - parents can be closer to adult children. Adult children nearby can help care for aging parents. Conversely, grandparents can help care for their grandchildren instead of hired babysitters or daycare. The positive economic spillover effects of these moves are also many. The buyer of the sold home will likely spend money to renovate the home, hiring local contractors. They will spend money at Home Depot and other local suppliers. Their kids again will attend the local schools. They will eat at local restaurants and spend money in other local stores. They will infuse new capital and economic activity into the local area.
I could enumerate many other examples of other people who are locked into their homes by the low property tax base. These people need to sell and cannot afford the moving penalty. This is why I am voting YES on Proposition 5 - to help these people afford to move and to free up their existing home for another more suitable buyer.
NO on Proposition 10
Proposition 10 is a repeal of the Costa-Hawkins Rental Housing Act. The California Legislature enacted Costa-Hawkins in 1995 to place parameters on how local governments can apply rent control ordinances. The parameters imposed by Costa-Hawkins prevent rent control from being imposed on new construction (rental units built after 1995 when the legislation went into effect). It prevents rent control from being applied to single family homes and condos. It also allows for "vacancy decontrol", such that when a rent-controlled unit is vacated by a tenant, a landlord can charge a new incoming tenant market rent. That market rent would be the new baseline for the rent control pricing. Proposition 10 remove these parameters, thus enabling the wild west of rent control ordinances.
Oh gosh, where do I begin to describe how devastating Proposition 10 would be to housing in California? It's such a bad idea that both Gavin Newsom and John Cox, candidates for California Governor, are opposed to Proposition 10. The California Legislature defeated a bill to repeal Costa-Hawkins earlier this year. And a vast majority of economists agree rent control is bad for renters having the opposite effects intended.
First, Proposition 10 would allow rent control to be applied to new construction. At a time where the California Department of Housing and Community Development reports we need at least 180,000 new housing units constructed each year -- an annual number California has been far behind already for a decade -- Proposition 10 would gut every effort to construct new units. We need builders to build in California. Builders in turn need to be profitable. If Proposition 10 passed, what builders in their right minds would build rental housing in California knowing at any time their profitability could be threatened by rent control? They would take their resources to other states and build there. We already have a severe housing shortage in California and this would exacerbate the housing shortage.
Second, Proposition 10 would allow rent control to be applied to single family homes and condos. This could result in rent control applying to homeowners who rent rooms in their own residences. It could allow bureaucrats the ability to mandate homeowners pay a fee to take their own home off the rental market. Why would voters want to handcuff the use of their own homes? Further, I know a lot about Homeowners Associations (HOAs - my masters thesis topic actually), and nearly one quarter of Californians live in properties governed by HOAs. Private associations have the ability to limit or restrict an owner's ability to rent out their units. If Proposition 10 is passed, HOA's are likely to respond by passing rules cease the rental of properties in their neighborhoods. This will further limit how owners can use their properties, and prevent homes and condos that might be turned into rental units from doing so. This again would limit the availability of units for rent and result in curbing owners' private property rights.
Third, Proposition 10 would eliminate vacancy decontrol, where landlords can increase the rent of a unit to the current market rent when a tenant moves out. If landlords must continue to charge the same low rent to subsequent tenants in rent-controlled property, this would further constrain ability of landlords to make any profit on their rentals. MOST landlords in California are mom-and-pop owners whose rental properties are part of their long-term retirement portfolio. Making rent-controlled units perpetually price-fixed for eternity is extremely unfair to landlords who already are burdened by increasing maintenance and utility costs, and rent price ceilings. It would likely result in decreased property values as well as create a perverse incentive for landlords not to maintain or improve their units for new tenants because they will just not be able to afford it.
There are many other negative implications to the repeal of Costa Hawkins as well, but I think you get the idea. At a time when California desperately needs more housing units, this is NOT a way to increase the supply of housing. This does not help renters. There are about 15 cities in California that have some form of rent control. Recent studies from Stanford have linked the current rent control ordinances in San Francisco with as much as a 15% reduction in available rental housing units. The results of not constructing new housing units and pillaging the property rights of owners will make a bad problem worse. This is why I am voting NO on Proposition 10.
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