Real Estate Round-Up: When is enough, enough?

I just spent two days in Los Angeles, with the California Association of Realtors, Strategic Planning and Finance Committee. I am one of 18 directors across the state that gets read in on upcoming issues and challenges for real estate in California.

I wish I could say that it was an exhilarating two days, but quite honestly, if you are a property owner or a “hope to be some day” property owner, there is not much to be excited about.

California has a $250 billion unfunded employee pension and benefits plan, so despite the great reserves I reported previously of $20.59 billion and an operating surplus of $22 billion, a true balance sheet would reflect a much different picture of a state that is not financially sound.

So how will that impact property owners or future property owners? Taxes and fees will be imposed on anything available that can increase the coffers of California’s general fund. California’s homeless problem continues to grow. California’s housing shortage is not getting any smaller. California’s infrastructure desperately needs improvement.

Let’s look at the housing shortage as it relates to workforce housing. SB 2 was passed in 2018. It imposed a $75 fee up to a maximum of $225 on all recording documents related to the changes of title on property, excluding sales of property. So, if you put your property into a trust, there is a fee for the documents required to record that change of $75 per document.

If you give your property to your child, and the title changes from your name into theirs, the same fees apply. Those funds were supposed to be put into a fund to provide for workforce and low-income housing. To the best of the collective knowledge of everyone at the SPF meeting, there has been no substantial impact on building those homes. This was a new fee, with promises made, but has only provided more revenue to the general fund.

Split-roll tax on commercial property is on the docket for the 2020 legislature. It will assess commercial property differently than residential, so that reassessments occur every three years as well as at the time of sale and is strictly based on assessed value, not necessarily on the new purchase price.

Commercial property owners will have to pay higher taxes based on adjusted valuations. Buildings owned and operated by the same person will have to build in the additional tax to their bottom line, by increasing the cost of their product or service.

Buildings occupied by tenants, will find their rents increased which will cause those businesses to increase their fees. The additional tax will discourage companies from having a business in California.

This is not just a tax on “wealthy” commercial property owners. New fees or taxes always impact everyone because of how they trickle down to the consumer; think food, housing supplies, baby products, gasoline.

The greater concern if split-roll becomes law is the potential for new attacks on Prop 13. Legislators are already discussing the “unfairness” of Prop 13. It has a greater benefit to senior homeowners than middle or younger homeowners.

For Californian’s who have owned their primary residence for 20 years or longer, the tax savings has a major impact on their ability to continue to own a home in California, while on a fixed retirement income. For more recent purchasers, the savings appears to be less, until you consider what 20 years may do to the recent value.

For renters, it has absolutely no benefit, until you consider that it is an incentive to become a homeowner. If history serves, despite the ups and downs of real estate prices, the overall direction of value has continued to rise, so the tax savings becomes greater, as does the equity it provides in retirement.

Just like the gas tax that was imposed on everyone who drives a vehicle, in a state that has the highest gas taxes, it was an available commodity to target that would generate additional revenue for to the general fund.

What happens when we all drive electric cars? I’m pretty sure there will be an excessive tax on electricity. Property is the next target. Afterall, it’s not fair that some people are able to own a home and others aren’t right? The money grab is going to impact everyone who has anything, in the name of providing for those that have less.

Every tax is a tax on you and me, even if it appears that it’s on someone or something that only impacts a segment of the population. Don’t be fooled. Be informed. Read the initiatives closely. March 2020 will be here before you know it!

Next week I will provide you with an update to the SOS initiative, also scheduled for the March 2020 ballot.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.