Help Save Housing Production – No “New Prop 13”
Several jurisdictions in California have passed poorly-designed tax measures that are hindering housing production while threatening to severely harm the state’s ability to fund vital services like housing, schools, public safety, and fire protection. The California legislature and Governor’s office can craft a statewide fix that prevents a collapse in housing production while preserving the ability to fund these vital government functions.
Since the passage of Prop 13 in 1978, local jurisdictions have had to identify new sources of revenue to fund vital services like police, schools, and fire protection. Among other revenues like bonds and sales taxes, most local governments in California also rely on “real estate transfer taxes” – fees charged to a property seller when their property changes hands. Most of these bonds and taxes must be approved by voters.
Transfer taxes are usually established as a percentage of the value of the property sale. In most cases, these percentages are high enough to generate meaningful revenue, but not so high that they discourage property sales altogether.
Over the past few years, several California cities have experimented with high real estate transfer taxes. The results are concerning:
Rather than achieve the stated goals of increasing revenues AND increasing the housing stock, ULA tax was set too high – and has stalled both residential sales and urgently-needed new housing construction.
Santa Monica’s 5.6% mansion tax yielded similar results – residential sales over $8M dropped from 32 to 15, and commercial sales over $8M fell from 18 to 5, while the tax brought in less than 35% of the projected revenue.
San Francisco’s Prop I, which taxes up to 6% on all sales over $25 million, has stunted housing production and sales in SF so severely that city leadership is now leading an effort to cut the tax in half.
In addition to harming local housing production, these taxes have spurred a backlash from the same anti-tax organization that wrote Prop 13 in the first place: the Howard Jarvis Taxpayer’s Association has placed a measure on the November ballot that would devastate the ability of most California jurisdictions to raise revenue.
The measure would cap transfer taxes at rates well below what’s needed to maintain local services. It would also raise the threshold for all voter-approved special taxes from 50%+1 to 66% – making it virtually impossible for most jurisdictions to raise new revenue of any kind.
The measure would also kill existing voter-approved tax measures throughout the state that provide funding for important services like fire protection, public safety, childcare, schools, and affordable housing.
Elected leaders in the Legislature, along with the Governor, can broker a legislative deal on transfer taxes. The deal could remove the Howard Jarvis measure from the ballot, fix the problems with poorly-designed taxes like ULA, and preserve the ability of local governments to fund vital government functions.
California YIMBY is pressing the state legislature to urgently pass the tax reform deal. State legislation can set simple guardrails that protect housing production and fiscal health, while preserving local tax authority. The reforms currently under discussion allow property owners to sell their properties without fear of punitive transfer taxes, while helping to restart stalled housing projects and protect local services.
If the Howard Jarvis measure is not removed from the ballot, California YIMBY will work with our allies to defeat it this fall.