Updated: Jun 9, 2019
Prop.13 protects them, too.
California is currently in the middle of a housing crisis. A crisis so severe, that Gov. Gavin Newsom is committed to building 3.5 million homes in the next seven years. Sadly, though, one of the byproducts of the housing crisis is the demonization of Proposition 13.
“ Without Prop. 13 in place it would be very difficult for the average taxpayer to be able to afford to purchase a house and become a homeowner at all."
There are many reasons why we have found ourselves in this crisis; Prop. 13 is not one of them. A common complaint we hear from millennials and younger residents is that Prop. 13 is a 40-year-old relic that does nothing to help them attain home ownership. Unfortunately, this is a talking point usually perpetuated by special interest groups whose aim is to ultimately dismantle Prop. 13 and reap even more tax revenue from property owners. In fact, Prop. 13 has not only helped make homeownership affordable in California, it has helped taxpayers even if they are not homeowners at all.
Without Prop. 13 in place it would be very difficult for the average taxpayer to be able to afford to purchase a house and become a homeowner at all. When it was passed in 1978 the average tax rate in place in California was 2.6 percent, almost three times the 1 percent initial tax rate set by Prop. 13. The median Orange County home value at the end of 2018 was $795,000. Without Prop 13 in place instead of paying an initial property tax of $7,950, the new homeowner would be saddled with a $20,670 property tax bill, a difference of $12,720. Most homeowners certainly could not afford a yearly property tax bill that size.
“According to the Orange County Workforce Investment Board, the average rental rate for an apartment in Orange County was just over $2,100 a month in 2018. If you think rent costs are high now, just imagine what they would be without Prop. 13."
Proposition 13 also helps keep new homeowners in their home by capping the annual property tax increases to no more than 2 percent. Why is this relevant to younger property seekers? Because the housing crisis itself has forced Orange County home values to rise by 24 percent in the last five years. Without Prop. 13 protection — a protection that all California homeowners enjoy regardless of when they purchased their house — annual assessments would grow at a similar rate and dramatically increase annual property tax bills. You might be able to afford to pay that first property tax bill, however subsequent years would bankrupt homeowners. And for those who cannot afford to purchase or would rather rent? One can only imagine the increased rent prices as apartment owners pass along their ever-increasing property tax bills to their tenants. According to the Orange County Workforce Investment Board, the average rental rate for an apartment in Orange County was just over $2,100 a month in 2018. If you think rent costs are high now, just imagine what they would be without Prop. 13.
Millennials will also find themselves priced out of shopping or attending sporting events and concerts in California if the initiative slated for the November 2020 ballot is passed. Titled, “The California Schools and Local Communities Funding Act,” this ballot initiative is an $11 billion tax increase on anyone who shops or uses services in California. A split-roll property tax system, which assesses properties differently depending on their use, will not be limited to large corporations. Lease costs to all businesses will rise because of higher property taxes, and will undoubtedly be passed on to consumers. When you think about every business you walk into every day the thought is staggering: grocery stores, medical offices, movie theaters, restaurants, nail salons, convenience stores, concert venue … all these businesses will pass this tax increase on to you.
“ The main point for millennials is that being able to afford to purchase a home is just one part of the battle. Prop. 13 helps you to be able to afford to keep your home and be able to live in California."
The one crisis California is not struggling with at the moment is a lack of tax revenue flowing into Sacramento. The proposed 2019-2020 California general fund budget is $144 billion, an increase of almost 12 percent in the last two years. We’re not sure that Sacramento will ever get enough of our hard-earned dollars.
The main point for millennials is that being able to afford to purchase a home is just one part of the battle. Prop. 13 helps you to be able to afford to keep your home and be able to live in California.
The rise in California home values and general cost of living should be a concern for Orange County and our state, however, Prop. 13 is doing far more to keep you in the ballgame than most critics are willing to admit publicly. Millennials need not be hoodwinked into believing a false narrative that could have an enormous impact on their futures.
Article first appeared in the Orange County Register.