What Is Prop 5: Property Tax Transfer Initiative Explained

LOS ANGELES, CA — Proposition 5 is a tax measure that would allow seniors and people with disabilities to avoid paying full-value property tax rates when they move homes even if they buy a more expensive home. In a nutshell, it allows them to take their existing Prop. 13 tax break with them when they move.

Proposition 13 was the 1978 measure that allowed home buyers to keep using their homes’ 1970s property value to calculate their property tax bill no matter how much home values increased over successive years. But currently, when taxpayers sell a home and buy a new one, their new property tax bill is measured by the property value of their new home at the time of the sale. Under Prop. 7, someone who buys a new house would no longer be required to pay property taxes based on the full market value of that new home. Their new tax rate would only increase by the difference in market price between the new and old home, explains CalMatters. And if the new home is valued at less than their current home, their property tax bill would actually go down.

The state's nonpartisan Legislative Analyst’s Office estimates cities, counties and school districts would lose a combined $2 billion a year in lost tax revenue if the measure passes.

The primary support for the measure comes from the real estate industry, namely the California Association of Realtors. It also boasts the support of the California Chamber of Commerce.

Proponents argue that fewer older people move or downsize because they can’t afford to pay higher property taxes, shrinking the housing supply for buyers. However, opponents argue it would make the housing crisis worse while creating further advantages for wealthy homeowners who don’t need the break. They argue that it would only shortchange schools of tax revenue while making housing even more unaffordable for people already priced out of the market.

According to the official ballot statement against the measure, “Prop. 5 will further raise the cost of housing. Prop. 5 gives a huge tax break to wealthy Californians. Prop. 5 gives a huge windfall to the real estate industry, the ONLY sponsor of the initiative.”

The measures supporters, on the other hand, say it will help seniors struggling to navigate the housing crisis.

“Millions of California seniors live in homes that are inadequate for their needs—whether too big, too many stairs, or simply too far away from their family and loved ones. Under PROP. 5, senior homeowners (age 55+) would be able to transfer their home’s current taxable value, no matter where in the state they might choose to move,” reads the official ballot statement supporting the measure. “Seniors and the severely disabled are often on fixed incomes and can’t afford large property tax increases. But if they choose to move to a new home, their “tax base” will often increase dramatically due to the rise in home prices over the past several decades. PROP. 5 protects these Californians from this “moving penalty” by allowing them to keep a lower, fairer tax base.”

Supporters have raised more than $13 million for the measure’s passage with the vast majority of the money coming from the real estate industry. Opponents have raised just under $2 million for the measure.

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