A slim majority of California residents voted in favor of Proposition 19 on Election Day, green-lighting a motion that gives new property tax breaks to older homeowners while increasing property taxes for those inheriting their parents’ or grandparents’ properties.
The latter is a big deal for the roughly 650,000 Californians who, since 2010, have received a tax break allowing them to maintain their relatives’ low property taxes when they inherit the home. Now, heirs will pay market value in taxes.
On the flip side, the measure may also free up much-needed inventory in the state, as it protects senior homeowners who want to sell their current home and downsize, but have been afraid of much higher taxes. As reported by the Mercury News, Prop 19 also provides some tax benefits to severely disabled residents and homeowners who have had their property ruined by a natural disaster or other catastrophe.
The measure, which was supported by the California Association of Realtors (to the tune of $35.7 million), the National Association of Realtors and California Professional Firefighters, will add up to $2 billion annually to California’s coffers, per data gathered by Yeson19.vote, a pro-Prop 19 website.
“Prop 19 will deliver needed funding for cities, counties, and school districts when they need it most,” according to the site. “It will generate hundreds of millions in annual revenue for fire protection, affordable housing, homeless programs, safe drinking water, and other local services and dedicated revenue for fire districts in rural and urban communities to fix inequities that threaten life-saving response times to wildfires and medical emergencies.”
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What does the passage of Prop 19 mean for the general housing market in one of the nation’s more expensive states to live in? Although the state itself will experience a windfall, blue collar workers looking to remain in state may find it increasingly unaffordable.
“We’re definitely going to see property taxes rise,” said Nick Solis, a Realtor with One80 Reality and current director of Political Activities Fund for the California Association of Realtors. “California is one of those places where blue collar workers usually pass down homes to kids and other family members. Those homes are now going to be taxed at a much higher rate. Proposition 13 in California put a yearly cap on how much property taxes could be raised, so it’s never really caught up. When Proposition 19 kicks in, those property taxes are going to go up substantially.”
A large portion of Solis’s clientele, he said, were already getting into homes by the “skin of their teeth,” and with property taxes expected to now go up, a different demographic of homebuyers will be looking to purchase.
“I’m not worried about selling homes – we’re not going to see a drop off in primary occupants in residential areas,” he said. “Research shows this will open up more inventory. But we’re going to see a different demographic. We were already seeing a major push of people who were blue collar, that could afford a home in places like the Bay area, they are moving into the central valley or other affordable places because they just feel too uncomfortable living in their current homes. Now taxes are going to be even higher.”
Monique Bryher, a broker-associate and realtor in California. pointed out that, with the higher property taxes, keeping homes as rental properties may become unprofitable.
“Estate-planning attorneys are going to be very busy, as this new law may cause many people to decide to sell properties that they intended to pass on to their heirs,” she said.
Millennials and other young generations are sure to be affected as well, Solis said. For one, college-aged kids in California may choose to leave the state and not return, a change in past years where the state was a hotbed for younger homeowners. Now, those same adults are looking for the most affordable place to live following college – even if it means leaving the state altogether.
“It’s a game-changer,” Bryher said. “Both in terms of properties being sold that would have been passed on through a family trust, or by the beneficiaries who decide they either can’t afford to pay property taxes based on a current assessed value, or just don’t want to pay the higher property taxes. The state’s going to make a lot of money.”
Higher property taxes or not, California will always have appeal.
“People are always going to want to live in California, but I can see life getting more expensive here a lot faster than I expected,” Solis said.
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