Chris Hoene, executive director of the California Budget and Policy Center in Sacramento, says local governments need to boost property taxes so they’ll have the flexibility to address housing costs in their areas. Shown here is construction on homes in the Cypress Village development near the Great Park in Irvine in November 2016. (File photo by Matt Masin, Orange County Register, SCNG)
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.”
Tuesday’s conference was the second in a series the state Realtor association held to address the growing bite that housing takes out of California household budgets.
California is rapidly becoming a renter majority state, with 54 percent of households owning their own homes, the second-lowest homeownership rate in the nation. Because fewer renters can afford to buy a home, they are trapped in housing with rapidly escalating rents.
Panelists in Tuesday’s forum addressed a number of possible solutions to the housing shortage that’s driving up home prices: Reduced local regulation of homebuilders, limiting environmental lawsuits that hold up development and building livable, attractive high-density developments that increase the housing supply.
But Prop. 13 reform stirred the most debate.
Business leader Rob Lapsley, president of the California Business Roundtable, opposed any reform of Prop. 13 without taking a comprehensive look at the state’s tax structure. In particular, he opposed measures that would create a split-level tax roll with differing rules for residential and commercial properties.
But Lapsley said his group has vigorously backed a bill to close a loophole in Prop. 13 that allows commercial property owners to avoid a reassessment to current market values when a property is sold.
Since properties don’t technically change owners under Prop. 13 unless a single individual acquires more than a 50 percent stake, some commercial property buyers have masked their purchases by dividing ownership stakes among several people.
The most notorious example occurred when billionaire Michael Dell bought a beachfront Santa Monica hotel for $200 million in 2006, but kept the 1999 taxable value of $86 million, saving $1 million in property taxes annually, according to a Los Angeles Times report.
Versions of a bill seeking to fix that loophole – drafted in consultation with tax attorneys, the Board of Equalization, Realtors and the Howard Jarvis Taxpayers Association – have failed twice to win passage in recent years. But backers plan to reintroduce it again, probably next January, Lapsley said.
“If the tax laws are being abused, we are the first ones to want to fix it,” he said.
Los Angeles City Controller Ron Galperin, a former journalist and a real estate attorney, noted that since Prop. 13 took effect in the late 1970s, the property tax burden has shifted in the state from commercial to residential properties.
The CAR discussion, streamed on FaceBook, drew jeers from some commenting on the site.
“More people will flood out of California if they touch Prop. 13,” Mechelle Reasoner said in one post.
“Leave Prop. 13 alone,” added Cherryl Weaver.
Galperin noted, however, that solutions to galloping rents and home prices require a multifaceted approach.
“There is so much more than just looking at density issues,” he said. “The question is how do we get more quality communities? How do we get better construction? How do we get more walkable communities?
“ … We have to create communities that are nourishing to people, that give you a sense of beauty, that give you a sense of wonder, that give you a sense of whimsy. That’s what people really want.”