Amid Rising Home Prices, Voters Split on Property Tax Reductions

Ballot measures in California and Louisiana sought to protect homeowners from huge property tax spikes.
by | November 7, 2018
For Sale sign outside of a home.
(Shutterstock)

For results of the most important ballot measures, click here.

Amid rising home prices, voters split on two ballot proposals meant to reduce property taxes for homeowners.

A proposal in California to expand a controversial property tax break to seniors and the disabled was defeated by a healthy margin, despite a well-funded campaign supporting it.

And in Louisiana, voters easily approved a proposal that will phase in higher property tax payments for homeowners facing huge increases in appraisal values.

The two efforts to reduce rising property taxes were spurred by rising home prices. In the past five years, they have risen by 40 percent nationwide. The increase is blamed largely on a housing shortage, which has been especially acute in California. In Louisiana, meanwhile, skyrocketing home prices in New Orleans has been blamed in part by the booming market there for property rentals.

California's Proposition 5 would have allowed homebuyers who are seniors, disabled or homeless as the result of a natural disaster to pay taxes on only a portion of their new home's market value. The proposal was controversial because it expands the state’s existing constitutional limit on property taxes. That limit, which was established by Prop. 13, has been in place for 40 years and only allows homes to be taxed at their market value when they were last sold. It means that those who live in their homes for a long time ultimately pay artificially low taxes.

With 86 percent of precenct reporting Wednesday morning, Prop. 5 was behind 58 percent to 42 percent.

The California Association of Realtors, which poured more than $10 million into promoting the measure, argued that long-term homeowners who eventually sell their homes pay a “moving penalty” because they have to adjust to a far higher tax bill -- even if their new home is worth less than their old one. That, said spokeswoman Lotus Lou, discourages people from selling their homes.

But opponents said the expansion of Prop 13 could be devastating for local governments. According to research from the independent California Legislative Analyst’s Office, it would have meant the loss of $150 million in total revenue for schools and local governments across the state in the first year alone. That figure was likely to increase over time to reach between $1 billion and a few billion dollars per year.

“It’s terrible tax policy,” Quarles & Brady’s state and local tax law expert, David Brunori, told Governing recently. “But it’s good politics because people 55 and over vote.”

Unlike California, Louisiana’s proposal, which won by more than 57 percent, was largely controversy-free. Amendment 6 is expected to ease the shock of rapidly increasing home values by phasing in homeowners’ new property taxes over four years. It will offer relief to homeowners who haven’t made any significant improvements to their property but whose houses have been reassessed at a value at least 50 percent higher.

Phasing in property tax increases is already a fairly common practice. Louisiana's measure was developed in response to a plan by the state tax commission to tax short-term rental properties in New Orleans by an average of 50 percent more. The city is seeing an exodus of residents amid a shortage of affordable housing -- a problem many blame on housing being eaten up by Airbnb and short-term rental companies.

For results of the most important ballot measures, click here.

*CORRECTION: A previous version of this mischaracterized Lotus Lou as a man and misidentified Prop. 5 as Prop. 2.