The tax implications of SB 9 and 10
The Legislature has gone into summer recess leaving a lot of unfinished business.
When they return, among the most controversial proposals left unresolved are bills addressing the state housing crisis.
While no one disputes the need for more housing, the broader policy issue is whether state micromanaging of local land use decisions is in the public interest.
There are several bills circulating in the capitol, but the two that have drawn the most public wrath are Senate Bills 9 and 10. Taxpayer advocates and neighbor associations oppose both SB9 and SB10 because of the potential loss of local control and higher taxes.
Senate Bill 9 permits “by right the development of two units on single-family lots” and allows “[subdivision of] a parcel that is zoned for single-family residential use;” that “in conjunction with the two-unit provision” could “result in a total of four units on the lot.” This is a reintroduction of last session’s SB 1120.
Senate Bill 10 would “authorize a local government to adopt an ordinance to zone any parcel for up to 10 units of residential density per parcel, at a height specified in the ordinance, if the parcel is located in a transit-rich area or an urban infill site.” It would override HOA agreements and voter initiatives that prohibited or limited such development in those areas. Last year’s version of this bill was SB 902.
Although not obvious, there are property tax implications with these proposals.
While owner-occupied single-family residences in single-family residential zoning will likely not see any reassessment from SB 9 and SB 10 thanks to Proposition 13, there’s a possibility that a tenant-occupied home would not have this protection. It’s also possible that an owner-occupied single-family residence that is not located in single-family residential zoning could similarly face a challenge to the valuation when it is sold.
And, while the right of the people to have a say in their community is sometimes abused by those who wish to oppose all development, the solution is not to cut the people, especially property owners, out of the process and restrict homeowners from their ability to enter into agreements with their neighbors to protect the low-density character of their communities.
Supporters of these bills claim that this is all about “creating equity.” They assert that single-family zoning is unfair and must be done away with because it favors existing homeowners. Some go so far as to say single-family homeownership, a longstanding path into the middle class for people of all races and ethnicities, is racist. This absurd assertion would be humorous were it not for it being taken seriously by some in the capitol. It is also reminiscent of the arguments made against Prop. 13 that culminated in the U.S. Supreme Court’s ruling in Nordlinger v. Hahn in 1992.
In Nordlinger, a homeowner claimed that Prop. 13 was unfair because, as a new homeowner, her property tax was based on the purchase price, which meant that her taxes were higher than her neighbors who had lived in their homes for much longer. The court rejected her claim that the system the violated Equal Protection Clause and, notably, much of its reasoning is instructive to the current debate over the housing bills.
The court found that the state has “a legitimate interest in local neighborhood preservation, continuity, and stability,” and that Prop. 13 restructured the state’s tax system to one that discouraged “rapid turnover in ownership of homes and businesses, for example, in order to inhibit displacement of lower income families by the forces of gentrification or of established, ‘mom-and-pop’ businesses by newer chain operations.”
Of course, today’s lawmakers have the option of tossing aside that legitimate interest. They can pass legislation that results in longtime residents being displaced in favor of gentrified, luxury apartments. They have the power to pass SB 9 and SB 10, turning single-family neighborhoods into targets of opportunity for developers, robbing cities of local control and residents of their peaceful, low-density residential streets.
They can do it, but they may pay a political price for doing so.
Jon Coupal is president of the Howard Jarvis Taxpayer Association.