Boomer Parents-to-Children Transfers

Daytrip sent in this article (link below) on baby boomer sales, and how the transfer of homes from parents to children are likely to dampen the supply of homes for sale – and somewhat limit the property-tax receipts:


But then I went to the actual report for more info and graphs:


They do expect more boomer sales – it looks like a growing trend as more boomers get into their mid-70s:

Home Sales Likely to Pick Up as Homeowners Get Older. Although the aging of California’s homeowners has depressed home sales in past years, this pattern is likely to reverse in the future.

As California’s homeowners continue to age—transitioning from the 55 to 75 age group to the over 75 age group—more and more will begin to downsize, move into assisted living or with family, or die. When this occurs, home sales are likely to rise.

Between 2003 and 2013, over two-thirds of homes in California with owners 75 or older were sold to a new owner, compared to less than one-third of homes with owners ages 55 to 75.

Different Rules Apply to Homes Passed From Parents to Children. In general, when a home is transferred to a new owner, its taxable value is reset to its purchase price.

California voters, however, passed Proposition 58 in 1986, which amended the California Constitution to exempt transfers between parents and children (and later grandparents and grandchildren under certain circumstances under Proposition 193 [1996]) from revaluation. This allows a child to inherit their parent’s lower taxable property value.

The report shows the parent-to-child transfers to be around 10% over the total homes sales over the last decade, but it should be going higher, especially in the higher-cost coastal counties!

Parent-to-Child Exclusions Have Had a Notable Impact on Revenues. Over the past decade, around 10 percent of property transfers have taken advantage of the parent-to-child exclusion to prevent an increase in property tax payments. Figure 6 shows how many of these exclusions have been used each year during the past decade.


San Diego County is the second most populated county in the state, so no surprise we’re #2 on list at $133,000,000 in estimated reduced taxes.  Those are a substantial number of homes being transferred within the family!

If the average tax savings was $10,000 per house sold, it would mean 13,300 homes transferred from parent to child – and this is from 2014-2015.  We had 35,382 homes sold on the MLS in the same period.  Add the FSBOs and new-home sales and we might have had 40,000 to 45,000 total homes transferred in fiscal 2014-2015.

The parent-to-child transfers could be as many as 25% of the homes moved! (40,000+13,300 = 53,300.  13,300/53,300 = 25%)

Their $133,000,000 estimate could be a tad off, but we probably have 10% to 20% of the potential supply of homes for sale being transferred within the family.  No wonder the public supply is so limited.

It is a trend that probably started to increase in 2013 as prices took off.  Parents realized that with the low tax basis, a child would be better off moving into the family homestead, rather than buying a resale home and paying full boat on the property taxes!


Amend Prop 13?

In spite of healthy property-tax increases on every property sold these days, the attack on Prop 13 continues.  If we have such a problem with affordable housing, can we re-purpose or sell old government properties and use them instead? H/T daytrip:


A state policy expert offered an unexpected solution to California’s housing affordability crisis: Amend Prop. 13.

Chris Hoene, executive director of the California Budget and Policy Center in Sacramento, said at a California Association of Realtors conference in Los Angeles Tuesday that local governments need to boost local property taxes to gain flexibility to address housing costs in their areas.

Because of Prop. 13, the voter-backed measure that limits tax hikes on properties until they’re sold, local governments have to raise money from development fees, which discourages homebuilding, Hoene said.

Prop. 13 also limits the local government’s ability to finance affordable housing projects while discouraging existing homeowners from making improvements such as building more units on their properties, he said.

Without saying specifically how to change the property tax measure, Hoene nonetheless said it needs to be addressed to increase local revenue.

“The obvious place to do something is on the property tax,” Hoene said. “ … It doesn’t mean that Prop. 13 isn’t the third rail of politics. It still can be the third rail of politics. But it doesn’t make sense for people to scream and yell about an affordability crisis and not take on the single biggest financing mechanism problem in the state.”


‘Anti-Speculation Tax’

The attack on Prop 13 should be next….from the sfgate.com:


Supervisor Eric Mar and tenant activists unveiled a ballot measure Tuesday that would impose a steep tax on investors who sell an apartment building within five years of buying it, a proposal they said is aimed at reigning in real estate speculators who are helping to drive up housing prices by flipping rental properties.

The “anti-speculation” tax, which would apply solely to smaller, rent-controlled, multi-unit buildings, will join several other housing measures on an already-crowded November ballot. It asks voters to approve a graduated tax that decreases the longer an owner holds onto a property – starting at 24 percent of the selling price if a building is sold within a year of purchase, falling to 14 percent at five years and disappearing in the sixth year.

The measure exempts single-family homes, condos, owner-occupied tenancies in common, properties not being sold at a profit, new construction, properties being turned into affordable housing, and buildings with more than 30 units.

“This is a serious situation we are in – the unstable housing costs in the city, even the average cost of a rental unit is so out of whack right now and it’s driven … by wealthy, powerful interests who are flipping apartment buildings and making a lot of money quickly,” said Mar. “This will slow down or stop the flipping by greedy speculators, help ensure more of a balance of housing in the city, and hopefully address the out-of-whack, super increase in apartment rental prices right now.”


Policy on Raising Property Taxes

Once home values started declining, the San Diego County tax assessor started revising downward the assessed values of properties bought during the peak era.

Many were a results of requests made by homeowners, but the assessor’s staff also revised some voluntarily.  Now that it appears that the market has bottomed, are the tax-assessed values being raised?

A generous reader offered the following:

The properties that were not re-assessed downward under (the other) Prop 8 continue to creep up every year by either 2% or California CPI, whichever is lower. That’s basically every home bought prior to the bubble, and they only got a break when CCPI was negative for the first time since Prop 13 and every property got a shave.

Those that were adjusted downward under Prop 8 are re-evaluated every year and can jump up to whatever the tax assessor says they are worth until they get restored to their original assessed value plus annual increase (which they also track). When those properties get back to where they would have otherwise been but for the recession, then they increase annually like all other properties.

The Assessor says they are cautiously restoring AV on those that his office reset because they don’t want to fight appeals and in many areas they just don’t have sufficient volume of comps to justify higher AV yet.

Glad to hear that the tax assessor is ‘cautiously restoring’.

More on Prop 13

From Richard Rider, a local pot-stirrer – HT to DOB:

When it comes to gathering sufficient property taxes, Prop 13 is no problem at all – except for profligate spenders.

Look at the history of my San Diego County – a history which pretty much reflects the history of property taxes in the urban/suburban counties that hold over 85% of California’s population.

According to the SD County Tax Assessor, in 1977 – the year BEFORE Prop 13 took effect (when everything was working great, according to Prop 13 critics) – our countywide property tax revenue was about $639 million.

In the 2011-2012 fiscal year, our county assessor reported real estate property tax revenues of $4.550 BILLION.

For every property tax dollar collected in 1977, the county in 2011-12 collected $7.12.

And BTW, according to the County Assessor, since Prop 13 passed, 97% of the pre-Prop 13 county owner-occupied homes has changed hands (and been reassessed) at least once.

During that time frame, our county population has grown about 85%, and inflation has gone up about 253%. Hence property tax revenues today are substantially higher than the bloated PRE-Prop 13 year, even after adjusting for inflation and population growth.

Read more here:

Prop 13 Threshold to 55%?

Hat tip to DOB for sending this in:

howardjarvistheheroThe pro-tax politicians in the Legislature continue to threaten Prop. 13, homeowners and small businesses.

Today at least 7 bills that would directly undercut various provisions of Prop. 13 will be heard in committee. If approved, these bills could cost every property owner thousands of dollars.

There are seven bills pertaining to Proposition 13 that are up in the Senate Governance and Finance Committee.  Six of these bills directly undercut various provisions of Proposition 13.

The bills are: SCA 3, 4, 7, 8, 9 and 11.


Senate Constitutional Amendment 3 (SCA 3), Mark Leno (D—San Francisco): Lowers the threshold for school district per-parcel property taxes from two-thirds to 55%. This is a direct assault on Proposition 13 because it makes it easier to increase property taxes above Proposition 13?s one percent cap.

Senate Constitutional Amendment 4 (SCA 4), Carol Liu (D—La Canada) and Senate Constitutional Amendment 8 (SCA 8), Ellen Corbett (D—San Leandro): Lowers the threshold for the imposition, extension or increase of local transportation special taxes from the Proposition 13-mandated two-thirds vote to 55%. Most transportation special tax increases consist of very regressive sales tax hikes. These add to the burden of California taxpayers who already pay the highest state sales tax in the nation.

Senate Constitutional Amendment 7 (SCA 7), Lois Wolk (D—Davis): Lowers the threshold from two-thirds to 55% in order to approve a bond to fund public library facilities. Lowering the threshold for school facilities to 55% has already resulted in billions of dollars of additional property tax payments that otherwise would not have been approved by voters.

Senate Constitutional Amendment 9 (SCA 9), Ellen Corbett (D—San Leandro): Lowers the threshold from two-thirds to 55% to increase special taxes to fund community and economic development projects.

Senate Constitutional Amendment 11 (SCA 11), Loni Hancock (D—Berkeley): Lowers the threshold to 55% to allow for voters representing ANY local government entity to approve a special tax for ANY purpose. This is far and away the broadest application, and thus the most egregious, of these constitutional amendments.

Assembly Constitutional Amendment 8 (ACA 8), Bob Blumenfield (D—Woodland Hills): Lowers the threshold to 55% for city and county voters to approve a local bond measure in order to fund emergency service facilities projects.

One supportive bill, Senate Constitutional Resolution 25 (sponsored by State Senator Mark Wyland, R—Escondido) is also up in the committee today and honors Proposition 13 on its upcoming 35th anniversary.

Stay tuned: Two additional bills, Assembly Constitutional Amendments 3 and 8 also diminish Proposition 13’s protections. These will head to hearing soon.


Changing Prop 13, Door-To-Door

Thanks to DOB for sending in this article about how Prop 13 is being challenged :

Nancy Feidelman wasn’t interested in a political discussion when she saw a solicitor on her Oakland doorstep as she was preparing dinner.

But after canvasser Erica Bleicher started explaining her organization’s campaign to roll back a provision of Proposition 13 that benefits corporate commercial interests, Feidelman opened the door, cut a check and wrote a letter to her Assembly representative.

Bleicher’s nearly 2-year-old, Bay Area grassroots organization, Evolve, is getting unusual traction going door-to-door talking about something that has been unmentionable upon penalty of political death for three decades: repealing parts of Prop. 13, the 1978 ballot measure that capped property taxes and set high thresholds for how government can raise taxes.

There’s no doubt how liberal this Grand Lake neighborhood is. “Obamanos” is written across one home’s living room window; a sign saying “We are the 99 percent” sticks in the front yard of another. But across the state, many other Californians – even some Republicans – are ready to talk about changing Prop. 13.

“This has been an issue that has upset the community for years, and the Oakland public schools are suffering,” Feidelman said. Nodding toward Bleicher, she said, “This seems like an immediate, local, direct way to do something about it.”

Evolve, as do some other groups, wants to close a provision of the law that deals with how commercial properties are taxed.

Under the law, an assessment is triggered only if a single entity owns more than 50 percent of the property – a loophole that many corporations easily circumvent, robbing the state of billions of dollars in tax revenue.

Over the years, politicians including former state Sen. Quentin Kopp, an independent from San Francisco, and Assemblyman Tom Ammiano, D-San Francisco, have tried to close this loophole. Ammiano intends to try again.

Today, the atmosphere may be more receptive. The presidential campaign brought a more intense focus on wealth inequities in the United States, education funding continues to drop in California, and the state’s voters are seemingly open to tinkering with the tax structure after approving Proposition 30 in November, which raised taxes.

“I don’t think the public is ready to go crazy on this, but they’re ready to listen to arguments that they wouldn’t have a few years ago,” said Mike Herald, a legislative advocate for the Western Center on Law and Poverty, which advocates for the state’s poorest residents.

“And if anything is going to happen, it is going to have to come from the public,” Herald said. “The Legislature and the governor are not going to be in front on this. They’re going to wait and see where the public is going.”

In addition to Ammiano’s move on commercial property, state Sen. Mark Leno, D-San Francisco, introduced a bill that would lower the majority required in local elections to raise parcel taxes to fund schools from two-thirds to 55 percent.

That measure would have to pass both chambers by a two-thirds majority and be signed by Gov. Jerry Brown before it could be put before voters on a statewide ballot in the fall of 2014.

That will give organizations like Bleicher’s some time to rally supporters in areas of the state less liberal than Oakland. Evolve organizers believe they’re there.

Read more: http://www.sfgate.com/politics/joegarofoli/article/Prop-13-revision-efforts-pick-up-steam-4144515.php

Prop 13 and Corporations

Hat tip to DOB for sending this article written by Willie Brown from sfgate.com:

It’s good to see lawmakers moving to fix one of Proposition 13’s biggest inequities – the tax break that treats corporations differently from homeowners.  That break is one of the most unfair parts of the state’s tax code. And I should know – I helped write it.

After voters approved Prop. 13 in 1978, capping property taxes for landowners, we had to sit down in the Legislature and figure out how to implement it. One of the biggest questions was how and when properties could be reassessed. We decided that should happen whenever a property was “transferred.”

When you sold your home, it was transferred to someone else. The home was reassessed, and the taxes for the buyer were increased accordingly.

What we did not realize was that corporations don’t actually transfer property – they transfer the stock in the company that owns the property.

And Prop. 13 didn’t apply to stock.

The result is that corporate property that existed in 1978 is still being taxed based on 1978 assessments – even property that has changed hands time and again.

That means a disproportionate burden of California’s property taxes is falling on homeowners.

The remedy, as suggested by Assemblyman Tom Ammiano, D-San Francisco, would be to change the definition of a transfer. With Democrats now controlling two-thirds of both the Assembly and state Senate, they could do that without having to worry about no-tax Republicans.

But they’ll have to be very clever at how they go about it – and having someone like Ammiano carry the ball may not be the way to do it.

The problem is that any effort to “repeal” Prop. 13, no matter how reasonable, still has lawmakers quaking in their shoes. What the Democrats need to do is basically make a racehorse look like a donkey.

If I were in charge, I’d come up with a bill redefining that single word, “transfer.” And I wouldn’t have Ammiano or anyone else with a long history of supporting tax hikes carry the bill – I’d pick the most conservative Democrat I could find and have him do the job.

Exotic Financing for Schools

An excerpt from the Will Carless article at the Voice of San Diego – hat tip to several readers!

The Poway Unified School District may be California’s poster child for exotic school bond financing, but it is by no means alone in San Diego County.

As I detailed in my story yesterday, Poway Unified borrowed $105 million last year using a form of financing called a capital appreciation bond. The district won’t start making payments on the loan until 2033, and by the time it’s paid off in 2051, taxpayers will have paid back almost $1 billion, or almost 10 times the original loan.

As I point out in my story, capital appreciation bonds have become increasingly popular across the state, since they allow school districts to borrow money now without raising taxes on current residents. Instead, the burden for paying for the bonds is pushed to future generations, who are left on the hook for loans that are wildly more expensive than conventional bonds.

I’ve been digging through public records to try and find some other examples of these bonds in San Diego County. I haven’t come across anything quite as extreme as Poway’s deal, but I have found some bonds with very similar rates of interest and repayment schedules.

The deals elsewhere in the county mirror Poway’s deal in other ways, too. All three districts had recently passed bond measures to complete previous renovation and modernization efforts that were behind because of cost overruns and delays.

The three bond measures, passed in 2008, all made the same promise to voters: Tax rates would stay the same.

Read more here:


I think this should be considered when making a decision about homebuying!

Repeal Prop 13?

From the latimes.com:

Christopher Thornberg, the founder of Los Angeles-based Beacon Economics said his research has convinced him that Prop 13 has caused more problems than it has solved.

“Nothing is more hypocritical than Prop 13,” Thornberg said in a phone interview this week. “We’ve been told it’s a godsend to homeowners and seniors when it’s really about preserving and expanding the wealth of the old bulls of real estate…People don’t understand how they’re being taken advantage of.”

Before you join the haters flaming Thornberg, he wants you to know that 1) he doesn’t dislike old people; 2) he’s a “middle of the road,” decline-to-state voter, not a “left-leaning nutcase”; 3) he’s a homeowner, so he has skin in the game, and 4) he says that the state needs to rethink its entire tax system, not just Prop 13, to make it broader-based, less cyclical and more equitable to all.

So why does Thornberg think Prop 13 is strangling California?

  • Prop 13 is regressive. Those who have owned their properties the longest – and therefore have accumulated the most wealth in the form of home equity – are taxed the least.
  • Prop 13 has worsened housing affordability. Because property tax revenue is capped, cities looking to fund public services have an incentive to push retail and industrial development over home building.
  • Prop 13 has fueled California’s “business unfriendly” reputation by forcing lawmakers to hike sales taxes, corporate taxes and personal income taxes to make up for the property tax shortfall. Those revenue sources rise and fall with the economy, so they’ve also exacerbated boom-and-bust budgeting in state and local government.

It’s probably safe to say that Thornberg won’t be running for office anytime soon. But he’s not backing down from his criticism of Prop 13. And he said he’s gotten plenty of supportive emails for his outspoken stance.

“People are starting to get it,” Thornberg said. “This needs to change.”

To read Thornberg’s entire essay, click here.

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