Ballot Initiative Could Help California's Real Estate Inventory

 

A proposed ballot initiative in California could encourage older homeowners with larger homes to downsize and move to other counties, freeing homes for younger families and potentially easing the state's chronic housing shortage. The real estate industry is leading the charge to qualify the measure for the Nov. 6 election ballot and has already raised about $6.7 million for the effort. Monday is the deadline for proponents of the measure to turn in signatures to qualify the measure for the November ballot. A state analysis of the proposed initiative, however, said the measure could end up costing local governments more than $2 billion annually in lost revenue and have a fiscal impact on the state itself.

The proposed voter measure would allow homeowners age 55 and older to sell their primary home in one county and move anywhere else in California without a significant property tax hit, assuming the new property is valued the same or less. If the replacement property is higher value, though, there are still incentives under the portability measure since it keeps property tax benefits under the citizen-led Proposition 13 tax rate rollback passed in the 1970s.

 

Eliminates 'disincentive' to sell "
Right now there's a disincentive for older Californians who may be in bigger houses than they need to move out because they've got that Prop 13 base," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, one of the original groups that backed Prop 13 and now supports the portability tax measure. Under Prop 13, taxes on California homes are capped to 1 percent of the property's acquisition value and usually limited to just 2 percent annual increases, assuming the homeowner stays. The sale of a home triggers a reassessment on the property for the new owners. Previously, California voters approved allowing the tax break within counties or reciprocity agreements between counties to transfer the property tax burden. But fewer than a dozen of the state's 58 counties accept the so-called inter-county transfers so it leaves out a huge swath of the state. Coupal said passage of the measure could encourage older homeowners and empty nesters with larger homes to perhaps downsize and move to another county, thereby freeing up the house they're leaving to younger families with kids. He said it's not a panacea for the housing problem in the state but it can help.

Avoiding giant tax bite
"Many seniors live in homes that no longer fit their needs because their homes are now too big or too far away from their families," said Steve White, president of the California Association of Realtors, the group behind the proposal. "If they want to downsize or move closer to their children, they could face property tax increases of 100 percent, 200 percent or even 300 percent." The real estate industry has already raised just under $7 million for the initiative. Earlier reports suggested the industry is prepared to spend up to $50 million on the campaign. Proponents need at least 585,407 valid signatures to qualify for the ballot. As of Thursday, White claimed they were on track to reach nearly 1 million signatures. White said the Prop 13 tax portability initiative also could benefit older people in counties where recent natural disasters occurred, whether the wine country wildfires in Sonoma or Napa or mudslides in the Santa Barbara area, by freeing them of "a moving penalty if they choose to move outside of their disaster-torn county." The proposed tax portability initiative also is available to "severely disabled people," according to White.

Local government impacts
Meanwhile, some groups representing local governments have previously expressed reservations about such initiatives because they see tax breaks on property tax as reducing the increase in property tax revenues that would would normally come from the sale of a home. Indeed, the official fiscal analysis done by the state's Legislative Analyst's Office estimates there would be losses in property tax revenues. According to the nonpartisan office, the first few years could result in property tax losses for schools and local governments of about $150 million apiece annually. It estimates those losses could only grow over time, and result in schools and local governments each losing $1 billion or more annually. Also, it said there could be costs to the state for school and community college in some years due to the fiscal impacts at the local level and state laws that guarantee some public education funding levels. Eva Spiegel, a spokesperson for the League of California Cities, said the group has not taken a formal position on the measure but indicated in the past they "opposed similar legislative proposals." The league, a lobbying group representing cities around the state, estimated in March 2017 that about 78 percent of the counties in California had less property tax revenue than in 2008, when adjusting for the impact of inflation and population. On the other hand, proponents dispute the impact of lower property tax revenues from the measure and insist the reduction in property taxes could be offset somewhat by economic activity elsewhere.

For example, they say with neighborhoods repopulated with young families there could be more spending in the community on such things as household furnishings, renovations and other economic activity. And in the case of renovations, it can raise the home's value and result in a higher assessed value for property taxes. In recent years, 350,000 to 450,000 homes have sold in the California market annually, according to the Legislative Analyst's Office. It estimates that the proposed measure has the potential to increase that number "by as much as tens of thousands per year." Finally, the California Chamber of Commerce supports the voter measure and says the state has "a massive housing shortage and needs at least 100,000 additional new units a year to meet demand." It also believes the initiative "could help ease the shortage by freeing up modest-priced homes and move-up housing for young families.

Are California Home Prices Ready for a Correction?

 

California housing looks overvalued with overall price appreciation exceeding the market’s economic foundation, according to one new analysis.

But the chance that housing losses will occur in the state is minimal, says another industry report.

Credit-rating agency Fitch’s is far more antsy about the state’s housing values than what mortgage insurer Arch MI found in its recent housing-risk study. But both reviews, comparing house-price trends with underlying economic patterns, showed other parts of the nation with dicier real estate than California.

Fitch found the typical U.S. home was 3 percent overvalued in the fourth quarter with 17 percent of all housing 10 percent or more too pricey.

“Fast home-price growth in some regions — California, Florida and Texas — appears to be exceeding the supporting economic fundamentals,” Fitch wrote.

California is one of nine states with housing that’s overvalued by 5-9 percent. The others: Colorado, Florida, Louisiana, South Dakota, Utah, Washington, Wisconsin and Wyoming.

Yet four states are slightly more overvalued than California by 10-14 percent: Arizona, Hawaii, Oregon and Texas. And the most-overvalued states, with housing 15-19 percent too pricey, by Fitch’s calculations? Idaho, North Dakota and Nevada.

 

Arch MI, using third quarter 2017 data, sees California with only a “minimal” 3 percent risk of home prices falling in the next two years. These analysts found 18 state markets were more vulnerable with a 5 percent chance of nationwide depreciation.

Alaska, North Dakota and Wyoming had the biggest chances of price declines, between 31-37 percent. Six states were between 11-25 percent: Connecticut, Louisiana, New Mexico, Oklahoma, Texas and West Virginia. And another nine state had “minimal” but higher risks than California.

Regionally, Fitch studied 20 major U.S. markets and found the region of Los Angeles and Orange counties “overvalued” by 5-9 percent in the fourth quarter, unchanged vs. the end of 2016. Overvalued by 15-19 percent was Dallas-Fort Worth; Las Vegas and Portland. Overvalued by 10-14 percent was Phoenix.

Arch Mi found Orange County to be Southern California’s riskiest housing market but with only a “minimal” 8 percent chance of price declines in two years. Los Angeles County and the Inland Empire were rated as having a 2 percent chance of declines.

The riskiest market among the nation’s 50 largest tracked by Arch Mi was Houston with a 32 percent chance of price declines. Then came 20 markets with “low” risk, 11-25 percent chance of loss.

“It’s premature to worry about a housing bubble,” Arch MI analysts stated in their report. “The typical warning signs – excessive debt levels, poor-quality loans, exponentially increasing home prices, rising vacancy rates and/or poor affordability compared to the past, and a high number of internet searches on house flipping – are not present.”

Bay Area Rents on the Rise Again After Brief "Cooling Off" Period

 

A real estate analytics firm has some good news for Bay Area landlords — and bad news for tenants: Rents began rising again last year after a brief “cooling off period” in late 2016.

“The Bay Area region should register one of its best rent performances since at least mid-2016,” the Texas real estate analytics firm RealPage wrote in a new report for the real estate industry.

In a trend likely to fuel an already supercharged fight over rent control in California, landlords in San Jose, San Francisco and Oakland began raising asking prices again last spring and continued to increase rents in lease renewals for existing tenants. Monthly lease transaction data show “improved momentum” for apartment operators and investors, according to the report, echoing predictions of an upswing last month by the real estate data firm Yardi Matrix.

But for tenants unable to keep up with escalating rents, the conditions feel anything but improved.

 

“It’s totally backwards,” said Charitie Bolling-Tosuner, a third-generation San Franciscan whose family faces eviction from the two-bedroom Bayview area rental house they have lived in for more than a dozen years — and once hoped to buy — because they can’t afford the $5,700 rent. Bolling-Tosuner is a member of Alliance of Californians for Community Empowerment, one of the groups behind the rent control ballot initiative.

“For us, for people who actually work small-paying jobs and are trying to work here in the city, it’s hard for us,” she said.

San Jose is leading the nation in rent hikes, with a jaw-dropping 52.4 percent increase since 2010, according to the firm. Oakland and San Francisco were close behind, with increases of 51.1 percent and 48.6 percent, respectively, during that time period. The report found that the current uptick will be more modest than in previous years, but that low unemployment and continued job growth will keep rents high.

Rent for an average one-bedroom apartment costs $2,460 in the San Jose metropolitan area, $3,400 in San Francisco, and $2,100 in Oakland, according to a recent analysis by the real estate website Zumper.

 

California lawmakers and pro-housing activist groups have been pushing for more housing development as a way to shore up supply and lower the costs for renters. But the new inventory — while double the Bay Area’s average rate in recent years — is not expected to be great enough to have much of an effect on the market, RealPage concluded.

 

Meanwhile, rent-control proponents are gathering signatures for a November ballot initiative to repeal Costa Hawkins, a statewide law banning certain types of local rent control, such as price controls for condominiums, single-family rentals and apartments built after 1995, when the law was passed.

Democratic lawmakers have also proposed bills this year to expand renter protections, such as giving tenants more time to challenge evictions and creating a statewide law establishing a set of valid reasons that can be used to evict tenants.