Column: A tax on high-end real estate sales is gaining momentum


The modest South Pasadena home was put on the market at just under $1.2 million and sold for a hair above $2.5 million, and when I talked about it the last month, I was not surprised by the reaction.

I suggested that with Southern California’s crazy bidding wars, all-cash transactions and bids well above asking price, there should be a small equity tax on windfall gains . Put that money into education, I said, and into housing for those who are excluded from this market.

A lot of readers didn’t like my idea very much.

“The seller of the house… paid an ‘equity tax’… and it was not a small one,” said one. “It’s called state and federal capital gains taxes.”

Another reader made the same point and told me to ‘stop whining about income inequality’, saying that emerging victorious can come down to ‘nothing more than ambition and attitude’ .

Okay, it’s a bit more complicated than that, but let’s move on.

Yes, I know a home seller pays capital gains on their profits, and that’s a big hit. There is also a much more modest real estate transfer tax.

But this idea, which I’ve been pitching for several years, isn’t as far-fetched as some might think.

In Los Angeles, a coalition of funders and activists has just filed signatures for a proposal that could end up in the November ballot. The United to House LA initiative would impose an additional tax on property sales over $5 million and reinvest those revenues into housing and homelessness prevention.

In Santa Monica, Mayor Susan Himmelrich is collecting signatures for a similar proposal to fund housing and schools.

And in this state of both fantastic wealth and the highest poverty rate in the country (taking into account the cost of living and housing), other cities are using what some have called a luxury tax to bolster municipal services.

“The Bay Area has about a dozen high transfer tax cities,” including San Francisco and Berkeley, said Shane Phillips, who manages UCLA’s Randall Lewis Housing Initiative and is the author of ” The Affordable City: Strategies for Putting Housing Within”. Reach (and hold it there).

Cities use different formulas for the tax and don’t necessarily direct revenue to housing. In Culver City, where voters approved an additional transfer tax in 2020, the $6 million annual revenue projection has already been exceeded, with money going to deferred street and park maintenance, after-school programs and homeless services, among others.

Listen, I get aversion to tax increases. I also get the argument that the government should do more with what we already pay, especially in a high-tax state like California.

But home equity has soared here and in much of the rest of the country, well into the trillions of dollars. Phillips said that in Los Angeles County, estimated residential and commercial property values ​​are increasing by about $100 billion a year.

But while millions are becoming millionaires, on paper millions of working people cannot afford the median Los Angeles home price of $800,000 and are paying ever-increasing rent. Thousands more are homeless. And it doesn’t help that companies are taking over homes and turning them into rentals, squeezing out potential buyers.

If you’re one of the lucky ones whose home has become a commodity rather than a place to sleep, it’s partly because of the luck of the moment and federal, state and local government policies that favor those who can afford to live. buy a house at the expense of those who can’t.

You can deduct mortgage financing costs.

Depending on when you bought in California, Proposition 13 kept your property taxes low while your new neighbors pay a lot more, essentially subsidizing those with artificially low taxes. And commercial properties received an even greater benefit from Proposition 13 by using legal maneuvers to avoid reappraisal at the time of sale.

Plus, because much of the state has been zoned for single-family homes — with widespread landlord opposition to cheaper, higher-density housing — the value of the three-bedroom ranch keeps rising. In the case of the South Pasadena seller, he bought the house in 1983 for $155,000 and sold it this spring for $2.5 million.

He and the other sellers deserve their good fortune, and I’m not asking them to shell out all the profits. I suggest that at the time of sale, a tiny fraction of their government-sponsored profits could be used in a way to help nurses, teachers, drivers, domestic helpers, landscapers, retail workers and others who are essential to the economy but locked in long commutes and rising rents that increasingly eat into their paychecks.

“We built Santa Monica on the backs of these people and now we just can’t house them,” Himmelrich said. She said she and her husband — like her, a lawyer — expect to take about $200,000 out of their own pockets trying to qualify a ballot measure that would add a 5% tax on residential and commercial properties. that sell for $8 million or more.

Himmelrich hopes to raise $50 million a year from the additional tax and use the money for housing assistance, homelessness prevention, affordable housing and schools.

In Culver City, transfer taxes went from 0.45% to 1.5% on homes sold for $1.5 million. The tax is 3% on sales between $3 million and $10 million and 4% on sales above that mark.

It is easier to pass proposals that add a tax only to high-end sales, because only the very wealthy suffer. But Culver City Councilman Alex Fisch pushed for the $1.5 million threshold as a matter of principle. He said he wanted more people “to have their skin in the game” rather than imposing a big tax only on the wealthiest residents.

“I feel like my constituents believe in Culver City and believe in each other,” Fisch said.

As part of the United to House LA initiative, the current 0.45% transfer tax would increase to 4% on property sales over $5 million and 5.5% on sales over $10 million of dollars.

Laura Raymond, one of the leaders of the coalition, told me that the tax would only apply to 3% of all sales in the city, but would generate more than $800 million in revenue each year. The coalition says it will use the money to build 26,000 affordable homes over 10 years and provide housing stability for 475,000 tenants each year.

“We are creating a tale of two very different cities and now is the time to do something really bold,” Raymond said, calling the struggles of the homeless, overburdened elderly and resource-strapped tenants a humanitarian crisis. .

There have been and there will be more rejections of these kinds of proposals in Santa Monica, Los Angeles and elsewhere. A representative of the real estate industry argued in December that the increase in real estate transaction taxes “sends the wrong message because it further increases the already high cost of housing in the region without addressing the central problem – that we are still in a crisis in housing production and affordability.”

But Michael Manville, associate professor of urban planning at UCLA, has a different view.

“If your home’s value doubled, it’s not because you did a killer kitchen renovation. It’s because the Los Angeles economy took off like a rocket. Did you personally start the LA economy? Impressive as you are, you probably haven’t,” Manville said.

“The community as a whole has created this value, and there’s no particular reason for you to mop up much of it while someone renting is being punished for it, just because you were lucky enough to own a house while this happened.”

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