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Bob Silvestri
The Experts Have It Wrong: Vote "YES" on Prop. 5
As is customary around elections, we are bombarded with opinions and flyers urging us to vote for or against one thing or another. Typically, as Election Day draws near the volume is turned up and everything is reduced to soundbites that are black and white, good vs. bad.
Proposition 5 is one of the victims of this. Its opponents, who are mostly part of the uber-progressive movement have buried its merits by labeling it "unfair" and by saying it's backed by "realtors" and "Howard Jarvis," which is supposed to mean it's evil and being promoted by those "rich" people who don't what to do their "fair share." Other supporters and publications have relied solely on the superficial analysis of the supposedly unbiased state Legislative Analyst, which claims it will cost the state money and, of course, hurt schools - the hot button for most voters.
The state's Legislative Analyst writes with alarm about how "it allows people to move anywhere in the state" and "it allows the purchase of a more expensive home" and "it reduces taxes," and so on. They claim it will cost the state "one billion dollars!" But, they fail to provide data based on facts or historical evidence to back up that outlandish number, or dig deeper into the market dynamics it will set in motion.
So, what is true and what isn't?
Prop. 5 simply makes a provision in the tax law, which has been implemented within many counties, permanent and applicable to all counties in California. For example, Marin County allows an elderly or disabled person(s) to take their real estate tax basis with them if they sell their home and move to another home in Marin. I've never seen any real evidence this hurt our tax base -- which continues to rise rapidly (and continues to offset the voracious demands of unfunded pension and benefits liabilities).
But, the question then is, will it cost the state money? Its opponents claims it allows people to avoid paying higher property taxes when they move and that this will cost money. But, does that match up with reality?
Will the people who will benefit most from this law really avoid taxes? Will the state "lose" revenue when those people move? The answers are not likely and no absolutely. The odds are that Prop. 5 will increase market sales and therefore increase the overall taxable basis in the San Francisco Bay Area.
If we disregard for a moment the red herring about how Prop 5 benefits the "rich" (who in reality don't make housing decisions based on taxes anyway), here's how things really are right now.
Since 2009, the average person in California is staying in their home twice as long as they did in years prior. The fact is that the housing market has locked up and become illiquid and homeowners are increasingly immobile. This is a combination of the unevenness of our economic recovery and our aging population and our affordability issues. In other words, the rich can still buy and sell whatever they want but regular, elderly people are increasingly stuck in their homes. They have no place to go that they can afford unless they want to move far away.
It would be of great benefit to our housing "crisis" if the market was more liquid and more robust and those homes could come on the market. Consider for a moment also that the velocity of homes sales is the single greatest contributor to tax revenue increases, with or without Prop 13.
Market activity is a good thing for the state's coffers. This is why many people who do this for a living, such as realtors, support Prop. 5. Because they know that it will increase the velocity of sales.
The truth is that elderly people are the most likely to live on fixed incomes and so they are also the most likely to not sell their homes until they must, and then will only buy what they can afford. In addition, the most important factor to consider is that when the elderly sell their homes, the vast majority (particularly over 65) will move down in size and price, not up. They will not be scamming the system to buy larger, more expensive homes to avoid taxes. There is zero statistical evidence that the majority of people over 65 move up in house size and price.
Elderly people down-size. Elderly people are also the most likely to move out of large homes and more expensive metropolitan areas to other parts of the state or out of the state altogether. And when they do move laterally, it's typically from a single family home to a smaller condo. Upkeep and maintenance are also major drivers of those decisions.
The opposition groups and the Legislative Analyst's office harp on a negative perspective and entirely miss how markets work. In a "market," there is always a buyer for every seller.
For every elderly
person selling a larger home there is a new buyer, who is paying top dollar for that home and
starting with a new, very high tax basis. The dynamics and historical
statistical data would predict then that overall this will be a net gain for areas such as
the San Francisco Bay Area, and a "push" for more remote areas to the
north and south, where existing home prices are much lower. In fact, a person moving from Marin to Humboldt County or inland will probably not even be able to use their old tax basis to save money.
Anyone who has lived in an average neighborhood in Marin for the past twenty years has watched this predictable and steady turnover of property from the elderly to new families. And that turn over has been good news for state and county tax revenues.
Vote YES on Prop. 5