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    Breaking Down CA Propositions that will Affect South Bay Real Estate

    October 16, 2020

    By: Richard Haynes
    South Bay Real Estate

    On this week’s blog, I am going to break down the California propositions that will affect real estate here in the South Bay, and throughout the state.

    I will not give my opinion on which way I am voting, but I will try to give you a summary of Proposition 15, 19, and 21 so that you can decide for yourself.

    That said, if you are curious to know which way I am leaning, then you are more than welcome to DM or email me and I am happy to discuss.

    The California Association of Realtors (C.A.R.) gives their recommendations to our local associations on the newly upcoming propositions. You might be surprised that I have never completely voted based on their recommendations.

    I try to analyze both sides of the issue as best as I can, and always welcome any further conversations to find the best way to vote.

    These are extremely important Propositions that will have wide- and long-ranging affects on real estate in California. Be sure to do your homework, consider all factors, and most importantly, get out and vote.

    Proposition 15: Commercial Property Tax Assessment for Schools/Local Gov’t

    Currently, all real estate property owners in California are generally protected from reassessment thanks to the famous Proposition 13 passed way back in 1978.

    Proposition 15 attempts to revise that 42-year old assessment protection for certain types of property. In exchange for the elimination of assessment protections, it would raise tax revenues on those properties and that new money would be allocated towards funding schools and local government budgets.

    What types of property would it affect?

    • Commercial Property
    • Industrial Property

    These property types would lose their assessment protections under Proposition 13 and be reassessed once every three years.

    What types of property would be exempt?

    • Any commercial or industrial property worth less than $3 million
    • Single-family homes, condos, and town homes
    • Multi-family apartment buildings

    As a California real estate salesperson, we are taught that the laws in California dictate that a property is considered commercial when it is comprised of five apartment units or more.

    I specifically asked if apartment buildings were considered “commercial” in this legislation because apartment buildings of five units or more have a legal definition of commercial per California law. Our Government Affairs Director from the South Bay Association of Realtors, Julie Tran, confidently stated that apartment buildings of 5+ where NOT considered commercial in this legislation and would be exempt.

    How would the money be used?

    The money will be used for additional funding towards schools and local governments.

    According to the L.A. Times, “perhaps as much as $12.5 billion a year under one nonpartisan analysis” would be raised to support those programs.

    Proposition 19: Tax Portability & Intergenerational Tax Transfer Reform

    There are two very distinct parts to Proposition 19.

    Part 1: Tax Portability

    This law allows for certain individuals to transfer their property tax basis anywhere in California at any price. Additionally, the transfer of the property tax basis could be done up to three times.

    Which individuals qualify?

    • Homeowners over 55 years old
    • Homeowners with severe disabilities
    • Victims of a natural disaster (this would only be allowed once)

    Remember, the current law (from Proposition 60) allows for persons older than 55 to transfer their property tax base to a home of equal or lesser value. Additionally, this transfer is sometimes limited to your current county or only 10 of the 58 counties that allow for intercounty transfer options (via Proposition 90).

    Part 2: Intergenerational Tax Transfer Reform

    As the law stands now, a child or grandchild can inherit real estate (home or investment property) and keep their parent or grandparent’s current property tax assessment.

    This law would require that inherited homes must be used as a primary residence in order to qualify for the old tax basis. Additionally, heirs can keep the tax basis and another $1 million in increased value…and, after that, the higher difference would still be reassessed.

    Any property not used as a primary residence, such as secondary homes, investment property, etc. would be subject to reassessment.

    How will lost revenue be recovered and new tax revenue be used?

    This part is still tough for me to fully figure out, but I will try.

    Please, please, please do your homework on it.

    First off, the measure would create the California Fire Response Fund (CFRF) which would use the money to fight fires here in California. Another fund would be set up as well called the County Revenue Protection Fund (CRPF).

    • New revenue created from intergenerational tax reform would fund a large portion of the CA Fire Response Fund and provide money for the County Revenue Protection Fund.
    • Revenue lost from tax portability changes to counties would then be reimbursed to local counties from the County Revenue Protection Fund.
    • I believe there will still be tax revenue left over that will also go to schools and local governments.

    This part is hazy, so again, please dive deeper into this and make sure I am correct.

    Proposition 21: Local Rent Control Initiative

    This proposition would replace the 25-year-old Costa Hawkins Act that was passed in 1995.

    Costa Hawkins limits the power of local governments to enact rent-control polices. It specifically protects property from local rent control regulation on buildings constructed after February 1, 1995, as well as condos, town homes, and single-family homes.

    Additionally, Costa Hawkins allows landlords to charge market rate when a tenant vacates a unit.

    What would Proposition 21 change?

    • Essentially, it replaces Costa Hawkins.
    • Local governments would have the power to enact rent control beyond the newly passed state rent control law known as the “Tenant Protection Act of 2019.”
    • Single-family residences, condos, and town homes could be subject to rent control.
    • Vacancy control could be enacted, where landlords would not be able to raise rent to market rates on vacant units. They would be limited to a 15% increase over the first three years of a tenancy.

    Who would be exempt?

    • Property owners of two or fewer units
    • Buildings that are newly constructed within the last 15 years

    The long and the short of this proposition is you either:

    • Support further rent control restrictions, or
    • Oppose further rent control restrictions

    There you have it!

    These are the three main Propositions that will affect real estate in the South Bay and throughout the state of California.

    Email me, DM me, or give me a call to chat further on the legislation.

    Make your voice heard. Get out and vote!

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