How Prop 19 gutted property tax protections and is worsening California’s housing crisis

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COMMENTARY

Dave Nystrom | Contributed

Homeownership is the cornerstone of the American dream. For many Californians, however, Proposition 19 is turning that dream into a nightmare, making unaffordable housing more unaffordable.

The deceptively named “Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act,” aka Proposition 19, was on the California ballot in 2020. Voters who approved it likely had no idea they also gutted their property inheritance rights and longstanding caps on tax assessments established by Proposition 13 in 1978.

In short, all inherited property from parents or grandparents will be reassessed under Proposition 19, save for one narrow exception: move into the deceased’s principal residence within a year, but only the first $1 million in value is waived.

Case in point: In 1968, my father was in the U.S. Navy, assigned to a base in California, and he bought a modest home for $27,000. Reassigned to other duty stations, my folks eventually retired in Maryland, and I moved into the home as their tenant when offered work nearby. The home’s present value is obscene. When inherited, property taxes will skyrocket 1,500 percent, making living in it unaffordable for me and my family. Where do we go? Rentals are expensive. If we sell it, other homes cost the same or more. If we lease it out, the higher taxes offset the rent. Sadly, I cannot afford to inherit my current home and stay.

In fact, the high cost of housing is driving a California exodus and nearly half of residents are thinking of leaving. Without a dramatic increase in the supply of homes, prices will continue rising, and Proposition 19 only adds cost to the crisis. While the upper 1 percent can afford Proposition 19, the other 99 percent of us can’t.

Jeff Prang, the Los Angeles County assessor, has become one of the biggest proponents of fixing the measure, testifying for restoring protections on inherited family homes and businesses to keep them affordable. San Diego County Assessor Jordan Marks agrees: “We have a lot of communities that can’t afford to stay in the same place, and that’s leading to gentrification in many ways. And so we’re seeing these communities be broken up because they can’t afford the increased property taxes.”

Behind the “Potemkin village” of Proposition 19 was the California Association of Realtors, which spent millions lobbying and campaigning for its passage as supposed champions of homeownership and property tax equality. Their real motivation? Your money.

California properties have surged in value to where the median price is approaching an astounding $900,000, worse in cities. San Diego County officially crossed the million-dollar threshold in September 2023. Add in high property taxes and it becomes too expensive to move. Thus, Californians have the longest tenure for homeownership nationwide. Proposition 19 was devised to increase property turnover (ergo more fees to real estate agents and taxes to legislators).

Despite officials, groups and even the Los Angeles Times endorsing “No” on Proposition 19, it passed, barely, with 51 percent of the vote. Rushed into effect by Sacramento’s eager tax authorities in 90 days, the law was not limited to new owners and property transfers after the date of implementation — all prior tax protections on inherited properties, no matter when purchased, were eliminated. Living trusts do not safeguard from reassessment. A cottage industry of estate lawyers has since emerged, marketing complex and costly alternatives.

Three years on, how is Proposition 19 affecting Californians?

More seniors are on the move. Proposition 19 allows those 55 and older to sell their principal residence and apply its lower annual tax basis to the replacement property, plus the difference if more (this includes disaster victims, disabled, and disability-rated veterans). Done up to three times, their sold homes are fully reassessed, increasing taxes and ownership costs for buyers. Real estate agents profit coming and going.

While seniors gain tax breaks, families pay for it by increased property taxes on heirs. It gets worse for millions of small business owners, the backbone of California’s economy. Proposition 19 can make restaurants or other businesses owned by multiple generations of families suddenly unaffordable and uncompetitive due to higher taxes from reassessment when inherited. The result is lost family legacies, gentrification, higher rents and evicted tenants.

Bottom line: The trickle-down cost of Proposition 19 is a slow-motion train wreck deepening the unaffordable housing crisis for Californians. Hoodwinked, the working class is paying the price, losing hard-earned generational wealth to the affluent, while real estate agents, special interests and legislators get a bigger piece of the pie.

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