Proposition 5 and Proposition 10 raised a great deal of interest for everyone in 2018. Now, variations of both initiatives are being considered for the 2020 ballot. Since there has been so much confusion around them, we thought it would be helpful to provide a synopsis of the 2018 initiatives as well as a brief overview of what the 2020 initiatives will look like.
California’s Propositions 5 and 10
Both Prop 5 and Prop 10 measures were defeated in the November 2018 election. However, both are being considered again for 2020. Since there are strong opinions for and against both initiatives, we’ll provide a non-partisan view of them below.
Either way, both will have a major impact on California’s homebuyers, sellers, tenants, and landlords if they become law.
Proposition 5: Property Tax Transfer Initiative (2018)
According to Ballotpedia, Proposition 5 had four primary elements in 2018:
- It would have allowed some homeowners to transfer the tax-assessed value of their current home to a new one. This means that these homeowners can take their property tax savings with them when they move, regardless of whether the new home has a higher or lower market value.
- Both homes may be located anywhere within the state.
- There’s no limit as to how many times a homeowner may transfer property tax savings from their current residence.
- The above replacement value and location benefits extend to contaminated and disaster-damaged homes.
Who Would Have Been Affected by Proposition 5?
Prop 5 was aimed at three specific demographics:
- Those who are 55 years of age or above
- The severely disabled
- Victims of natural disasters
Three-quarters of homes owned by seniors haven’t been on the market since 2000, according to Alex Creel, Senior VP of the California Association of Realtors. Today, both seniors and severely disabled persons live on fixed incomes. Most would prefer to live closer to their family members. However, many can’t afford to do so. Proposition 5 would have changed this.
If it had passed, Proposition 5 would have also allowed victims of natural disasters to move out of their damaged homes.
The conclusion to draw is that the failure of Proposition 5 affected the elderly, severely infirm, and victims of natural disasters (such as forest fires, floods, and earthquakes). The failed initiatives also affected family members and indirectly, other homeowners who would have happily sold their homes to these potential buyers.
Proposition 10: Local Rent Control Initiative (2018)
According to Ballotpedia, Proposition 10 had two primary elements:
- It would have repealed the Costa-Hawkins Rental Housing Act to enable cities and counties to enact ordinances on rent control. This means that local governments would have been able to regulate how much rent a landlord could charge. The Costa-Hawkins Rental Housing Act limited rent control ordinances to properties first occupied after February 1, 1995, and it excluded condos and townhouses from these ordinances (regardless of when they were first occupied). Basically, Costa-Hawkins allowed landlords to adjust rents based on market rates when signing new tenant leases.
- Any rent control ordinances could not abridge a fair market rate of return for a landlord.
Who Would Have Been Affected by Proposition 10?
Both landlords and tenants would have been immediately affected by Proposition 10. Theoretically, rent control measures provide low-income tenants more choices in housing. On the other hand, limited rent control policies can result in marginalized tenants being kept out of more attractive neighborhoods.
The potential for lower rental income, which some said would have been the result of Prop 10, earned support from low-income tenants. However, detractors of the ballot measure argued that Prop 10 would have led to a downward trend in new construction.
This, in turn, would have the “downstream” effect of reducing jobs for workers in the construction industry. By extension, fewer new homes would have worsened any local or state-wide housing shortages, thus affecting the population as a whole.
Proposition 5: California Property Tax Transfer Initiative 2020
The 2020 Initiative basically mirrors the 2018 Proposition 5 initiative, but it also includes:
- Allowing value reassessments on inherited property, which are then to be held and used as rentals
- Reassessments when a corporation acquires a percentage ownership of a piece of property
Proposition 10: California Rent Control Initiative 2020 (aka Rental Affordability Act)
The 2020 Prop 10 initiative will, if passed, enable local government bodies to enact rent control ordinances. However, these rules will apply.
- The new policies will only apply to residential properties over 15 years old.
- Owners who have fewer than three rental units will be exempt from the new law.
- In accordance with California law, landlords have a right to a fair return. Landlords owning rent-controlled properties may, therefore, raise rents by up to 15% over three years for a new tenant.
You Can Trust Nicholas Zamonis to Keep You Updated About California Housing Laws
Propositions 5 and 10 caused much controversy back in 2018. The new initiatives will probably do the same. However, we hope the above synopsis will give everyone — sellers, homebuyers, landlords, and tenants — a better idea of the issues at stake.
I would be happy to hear your thoughts about both propositions. If you’d like to share them or if you have any other questions to do with San Diego real estate, please feel free to get in touch.