Losing Prop 13 and property rights
The news seldom paints a positive picture, but it is always good to get the entire story on the matter. There is another side to every story, but these three recent stories conjured up negative feelings in me that were difficult to counteract.
Elimination of Proposition 13
The 1978 property tax cut proposition has had tremendous staying power, but that could change in November 2020.
Currently, property tax in California is one percent on the purchase price plus an annual increase of no more than two percent. The savings have had a positive effect for many homeowners, businesses, and investors.
Under the proposed initiative county assessors would split the tax rolls separating residential and commercial real estate. Residential real estate would still fall under Proposition 13 protection while commercial real estate with a few exceptions would keep the same tax rate, but would be reassessed every three years to market value.
Reassessing commercial real estate would have a substantial negative impact on businesses, investors, consumers, and renters.
For example, one of my clients owns a commercial property with an assessed value of $600,000 and an annual property tax of $6,000 plus special assessments because she has owned it for decades. If the proposed initiative were to pass the property would be reassessed at approximately $10 million with an annual tax of $100,000 plus special assessments.
What property rights do we indeed have?
A restaurateur, Tom Messina, in Denver is looking to retire after operating his restaurant, Tom’s Place, for several years.
Tom purchased the circa 1960’s style diner back in 2004 for $800,000. Since opening his restaurant, Denver has experienced tremendous growth over the years, and now Tom finds his property is worth close to $5 million.
Securing a condo developer with interest in purchasing the site for $4.8 million Tom soon discovered a group of residents applied with the city to declare Tom’s Place a historic landmark.
Doing so would eliminate the site for any potential development and would hinder growth for the restaurant itself because of restrictions. Tom is fighting the application with the city council deciding the outcome in the next month.
More loss of property rights caused by vacation rentals
Sedona, Arizona is experiencing the outcome of a two-year old state law that restricts how cities and towns can regulate short-term home rentals advertised on websites such as Airbnb or VRBO.
Advocates and investors of the law are touting the fact that they have a right to offer their homes to vacationers of Sedona.
However, this has come at a price with homeowners of 20 plus years frustrated. They are in jeopardy of losing their rights and property values plummeting because of noise, partying tourists, high-traffic, lack of safety, and no sense of community because of the loss of long-term neighbors.
Knowing a "hotel" will never be developed next door to my home is the reason we have zoning ordinances. Yes, there are occasions where a house is adjacent to a commercially-zoned area, but this is usually known at the time of the purchase.
Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or email@example.com. Sign up for his email newsletter at BurtPolson.com.