Exploring California's Propositions 15 and 21
There are two propositions on the November 2020 California Ballot that will directly impact the commercial real estate industry: Propositions 15 and 21.
As a 30-year multi-family and commercial property investor, I have studied the various nuances that both of these propositions entail and the history behind each. The goal of this letter is to illustrate these for you, including what a yes vote means, what a no vote means, what the two sides are saying in their advertising, who is in support and who is opposed, and, ultimately, my opinion of each. I hope that by inspecting all sides that you can then formulate your own decision. Let's explore...
Proposition 15:
Prop 15 is a constitutional amendment initiative that increases funding sources for public schools, community colleges and local government services by changing tax assessment of commercial and industrial property.
What does a yes or no vote mean on Prop 15?
A YES vote on Prop 15: Changes the way commercial properties with a market value of $3,000,000 or more are calculated for property taxes.
A NO vote on Prop 15: Keeps the current rate of property taxes for all property in California
Who Supports a YES vote on Prop 15:
Proposition 15 is supported by the California Teachers Union, the California State Employees Pension Fund, California Governor Gavin Newsom, and the owners of Facebook via the Zuckerberg Foundation
Who Supports a NO vote on Prop 15:
Proposition 15 is opposed by landlord protection organizations, Howard Jarvis Tax Payers Association, the California Small Business Association, Californians to Stop Higher Property Taxes and the California Taxpayers Association
What the two sides are saying in their advertisements/posts?
The Yes on 15 argument is that “Large Corporations” receive a “Tax Loophole” where they save millions of dollars in “unpaid” taxes. The lack of property tax revenue is causing the crisis in adequate funding for public education, infrastructure, etc.
The No on 15 argument is that there is no “loophole.” Proposition 13 dictates that ALL property in California is charged property taxes at the same exact rate. Also, most properties in California are not owned by “large corporations” but rather real estate investors who will pass along the increase in taxes to their tenants, thus driving up rent and the cost of doing business, hence raising prices on goods and services to consumers.
Why I am voting “No” on Prop 15: Prop 13 is applied equally to all property in California. Prop 13 has been blamed for California being in the lowest 5% of per pupil funding for public education. But this is the reason California operates the California Lotto. It is believed that Prop 15 is the first step to the complete repeal of Prop 13. Next will be multifamily, then right on to homeowners.
Proposition 21:
Proposition 21 is an initiative statute that would expand local governments' authority to enact rent control on residential property.
What does a Yes or No vote mean on Prop 21?
A YES vote on Prop 21: Allows local government to expand rent control protections.
A NO vote on Prop 21: Keeps the current rent control laws in place.
Who supports a Yes vote on Prop 21:
Bernie Sanders, California Democratic Party, Michael Weinstein (the proposition's main benefactor)
Who support a No vote on Prop 21:
Gavin Newsom, California Republican Party, large multifamily landlords such as Avalon Bay, Essex Property Trust, NAACP, Veteran’s associations.
What are the two sides saying in their ads/posts:
The Yes on 21 stance is that AB1492 did not go far enough and tenants are still at risk of losing their housing due to the rising cost of rent in California. Proposition 21 removes the Costa Hawkins provision that when a rental unit comes vacant, market can be charged to the new tenant.
The No on 21 stance is that we already have rent control, and restricting the ability of landlords to increase cash flow will mean a cease to all development in California, thus there would be no low income housing built, adding more pressure to a state where there is limited housing and severe limitations to affordable housing. Prop 21 also eliminates the “15 year old” rule of buildings not having to abide by AB1492 until they exceed 15 years old and also eliminates the protection of single family home rental and condominiums from having to abide by AB1492.
Why I am voting “NO” on Prop 21: Two years ago, California soundly defeated Prop 10. Prop 21 is Prop 10 all over again. Attorney and political consultant Michael Weinstein bankrolled the failed Prop 10 and is now bankrolling Prop 21. Proposition 21 does nothing to protect current tenants who have AB1492 rent control protections. What Prop 21 does is keep the same rent level that the old tenant was paying and has that amount (plus a small calculation for slight increase) for a new tenant. How does that keep people in their homes? Rent Control, and especially a repeal of Costa Hawkins means low rent offered to tenants; but who will those tenants be? We will have a repeat of the old Santa Monica rent control where wealthy people with perfect credit rented cheap apartments then turned around and sub-leased units for profit. Prop 21 hurts affordability, not enhances it.
We are here for you. To learn more about our services and how we can help you navigate this challenging and unique time, please feel free to give us a call at 424-220-6064.
Sincerely,
Neil Cadman
CEO & Founder
Urban Advisors