California Proposition 19 is a recent ballot measure that was approved by voters in the state of California during the November 2020 general election. The proposition is aimed at making changes to the state’s property tax laws, which have been in place since the passage of Proposition 13 in 1978. Proposition 19 has been hailed by some as a way to increase revenue for the state and provide greater flexibility for homeowners, while others have expressed concern over its potential impact on the real estate market.
One area where California Proposition 19 is expected to have a significant impact is the Los Angeles real estate market. As one of the largest and most dynamic real estate markets in the country, Los Angeles is home to a diverse range of properties, from luxury homes to affordable apartments. With the passage of Proposition 19, there are likely to be significant changes in the way that these properties are bought and sold, as well as in the way that property taxes are assessed and collected.
California Proposition 19, which went into effect on February 16, 2021, made significant changes to the state’s property tax laws, affecting how properties are assessed, inherited, and transferred. The new law has several provisions that could have a substantial impact on the Los Angeles real estate market. In this section, we will discuss some of the most notable changes brought about by Proposition 19 and their potential impact on the local real estate landscape.
Changes in Property Tax Assessments
One of the most notable changes brought about by California Proposition 19 is the way that properties are assessed for property tax purposes. Under the previous law, the assessed value of a property was typically based on its purchase price, and the annual increase in property taxes was limited to 2%. This meant that long-time homeowners could end up paying much lower property taxes than newer homeowners who purchased homes at higher prices.
Under Proposition 19, however, eligible homeowners who are 55 years or older, severely disabled, or who are victims of natural disasters can now transfer the assessed value of their existing home to a new home anywhere in the state up to three times. This allows them to maintain the lower property tax rate that they enjoyed on their previous home, even if the new home they purchase is more expensive. The new assessed value of the property is calculated as the original assessed value of the previous home plus an inflation factor, which is based on the change in the California Consumer Price Index.
This change could have a significant impact on the Los Angeles real estate market, particularly in areas where property values have risen sharply in recent years. Older homeowners who have been hesitant to sell their homes due to the prospect of higher property taxes on a new purchase may now be more likely to move to a new home that better meets their needs, without the added financial burden of a higher property tax bill.
However, it is worth noting that this change in property tax assessments could also have unintended consequences. For example, it could lead to a decrease in the supply of affordable housing in certain areas, as older homeowners may be more likely to purchase more expensive homes, leaving fewer affordable homes on the market. Additionally, since the change in assessments only applies to eligible homeowners, it may exacerbate existing disparities in property tax rates and access to affordable housing. Nonetheless, the change in property tax assessments under California Proposition 19 is likely to have a significant impact on the Los Angeles real estate market in the coming years.
Increase in Home Sales
The changes in property tax assessments brought about by California Proposition 19 are also expected to lead to an increase in home sales in Los Angeles. Since older homeowners can now transfer the assessed value of their existing homes to a new home anywhere in the state, up to three times, without being subject to higher property taxes, they may be more inclined to sell their homes and purchase new ones.
This change in property tax assessments could lead to an increase in the number of homes available for sale, as older homeowners who may have been hesitant to sell their homes due to the prospect of higher property taxes on a new purchase are now more likely to move. This increase in the supply of homes for sale could lead to a more dynamic real estate market in Los Angeles, as potential buyers have more options to choose from.
Additionally, the increase in home sales could benefit both buyers and sellers. Buyers may be able to take advantage of lower interest rates and more favorable financing options, while sellers may be able to command higher prices for their homes due to the increased demand.
However, it is worth noting that the impact of the increase in home sales on the Los Angeles real estate market may not be uniform across all neighborhoods and price points. Certain neighborhoods may be more attractive to buyers than others, and certain price points may be more in demand than others. Nonetheless, the increase in home sales brought about by California Proposition 19 is likely to have a significant impact on the Los Angeles real estate market in the coming years.
Impact on Inherited Properties
California Proposition 19 also has implications for inherited properties. Under the previous law, inherited properties were exempt from property tax reassessment, regardless of their market value. However, under the new law, inherited properties are only exempt from property tax reassessment if the new owner uses the property as their primary residence. This change could lead to an increase in the number of inherited properties that are put on the market, as heirs may not be able to afford the increased property taxes if they do not live in the property themselves.
Potential for Increased Revenue
California Proposition 19 also has the potential to generate increased revenue for the state of California through property tax assessments. While the new law allows eligible homeowners to transfer the assessed value of their existing homes to a new home anywhere in the state, up to three times, it also eliminates a tax break for certain types of property transfers that were previously available to families.
Under the previous law, parents and grandparents could transfer property to their children or grandchildren without triggering a reassessment of the property’s value for property tax purposes. This meant that the new owners would pay property taxes based on the original assessed value of the property, even if the property had significantly increased in value since the previous assessment.
California Proposition 19 eliminates this tax break, except for transfers of primary residences to children or grandchildren who continue to use the property as their primary residence. This means that transfers of second homes, investment properties, and commercial properties to children or grandchildren will now trigger a reassessment of the property’s value for property tax purposes.
This change in the law could lead to an increase in property tax revenue for the state of California, as more properties are reassessed at their current market value. This additional revenue could be used to fund a variety of state programs and services.
However, it is worth noting that this change in the law could also have unintended consequences, particularly for families who have inherited property and may not be able to afford the increased property tax bills that come with the reassessment. Additionally, the elimination of the tax break for certain property transfers could make it more difficult for families to pass down property to future generations, particularly if they are unable to afford the increased property taxes.
Nonetheless, the potential for increased revenue from property tax assessments under Proposition 19 is likely to have a significant impact on the Los Angeles real estate market in the coming years.
Concerns about Impact on Low-Income Homeowners
While there are potential benefits to California Proposition 19, some critics have expressed concerns about its impact on low-income homeowners. Under the new law, low-income seniors, who are defined as those with an annual income of $75,000 or less, will no longer be able to transfer their property tax assessments to a new home. This change could make it more difficult for low-income seniors to purchase new homes and may lead to a decrease in the number of affordable housing options in Los Angeles.