A shortage of affordable housing is not just a local issue here in Santa Cruz County; people around the state are under immense pressure to find affordable housing. As a result, Californians will be voting on more ballot propositions related to housing than ever before according to Ballotpedia’s catalog of housing-related ballot measures. There will be four housing related propositions on the statewide ballot alone.
On a statewide level, Proposition 1 authorize $4 billion in general obligation bonds for housing-related programs, loans, grants, and projects and housing loans for veterans. You can see a breakdown of planned-use for these funds here.
According to the California Legislative Analyst’s’ office, the cost to taxpayers to repay the bonds would average about $170 million annually for 35 years—totaling $5.9 billion to pay off both the principal ($3 billion) and interest ($2.9 billion). This amount is about one-tenth of 1 percent of the state’s current General Fund budget.
In total, the bond funds would provide annual subsidies for up to 30,000 multifamily and 7,500 farmworker households. The funds also would provide down payment assistance to about 15,000 homebuyers and home loans to about 3,000 veterans.
Prop 2 will allow the state to use existing county mental health funds to pay for housing for those with mental illness and experiencing homelessness. In January of 2016, Senator Kevin de León proposed a $2-billion bond as apart of the “No Place Like Home Initiative” to finance new and rehabilitated housing for mentally ill people living on the streets. Money to repay the loan would come from revenue generated by Proposition 63, a 1% income tax surcharge on millionaires passed in 2004 that funds mental health services. The debate at hand is whether state agencies should be allowed to allocate these funds towards housing for the homeless or if their use should be restricted to paying for mental health services.
De León and other supporters argued building housing for chronically homeless people with mental illness met the intent of Prop 63. This argument is inline with the “housing first” philosophy and line of research: studies suggest that housing a homeless person first is an important step for full recovery and rehabilitation. Gov. Jerry Brown signed a pair of bills authorizing the bond in summer 2016, but Mary Ann Bernard, an attorney from Sacramento, said the proposal is illegal. The California Constitution typically requires voter approval for all bond measures, and Proposition 63 didn’t specify financing housing construction as one of the ways money could be spent.
Therefore, the question is being brought to voters: should the state be allowed to use revenue generated from Prop 63 to finance the construction of housing for the mentally ill living on the streets?
Before Prop 13, there were no limits on increases for the property-tax rate. Some properties were reassessed 50% to 100% in just one year and their owners’ property tax bills increased accordingly. Clearly, these kinds of increases make financial planning very difficult.
Under the Proposition 13 tax reform, property tax value was rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold. Once sold, the property was assessed at 1% of the sale price, and the 2% yearly cap would be applicable in future years.
This allowed property owners to estimate their future property taxes by determining the maximum amount taxes could increase as long as one owned the property.
Since 2012, California home prices have been climbing towards and in some markets, beyond, pre-Recession heights. This puts empty nesters in a difficult situation, unable to downsize because of the high property tax cost associated with purchasing a new home. This incentivizes people to stay in their homes longer than they would otherwise, reducing supply and creating an inefficiency in the market.
As a result, Proposition 60 (Prop 60) was passed by the voters on November 6, 1986. Prop 60 allows homebuyers over 55 years of age to transfer their tax assessments from their prior home to their new home if the new home’s market value is equal to or less than the prior home’s value.
However, Prop 60 is restrictive: homeowners can only transfer their tax base once in their lifetime. Furthermore, counties, not the state, decide whether tax assessments can be transferred across county lines or at all.
To help increase the options available to these homeowners and reduce these restrictions, the California Association of Realtors has proposed the California Proposition 13 Tax Transfer Initiative, which would allow homeowners over 55 years of age and those who are severely disabled to keep those lower tax obligations for life. In other word, those who are eligible will be able to transfer their tax base when purchasing a new property, regardless of where in California they move or how many times. Supporters say that this change will encourage more homeowners to move. In turn, this can help ease the state’s housing crisis by increasing inventory.
If passed, all Californians 55 years and older and others who are eligible will gain a major real estate tax-advantage.
Learn more about the California Proposition 13 Tax Transfer Initiative click here.
The Costa Hawkins Act (Costa-Hawkins) allows cities to implement local rent control laws, but within specific parameters: housing constructed after 1995, single-family homes and condominiums are exempt from local rent control regulations. Additionally, Costa-Hawkins allows rental property owners to establish their own rates at the time of a change in tenancy.
A proposed ballot initiative entitled the “Affordable Housing Act for the California November 2018 Ballot”, or Prop 10, would repeal Costa-Hawkins and allow counties to implement unrestricted rent control.
Why is this important?
Measure M, a local ballot measure applicable to the City of Santa Cruz, may implement rent control laws and reduce property rights for real estate owners in city limits. The Costa Hawkins act protects the groups mentioned above from the rent control portion of this ballot initiative, however if repealed, single family home-, condo-, and new home-owners will not receive an exemption. Additionally, if rent control laws are proposed in other areas of the county in the future, these same types of property owners will be affected.
As a current or potential rental property owner, these changes would affect you directly. Additionally, they would likely have a negative impact on the Santa Cruz housing market in the long run. There are other predictable negative statewide consequences of repealing Costa Hawkins that you can read about here.