Real Estate Measures

“The supporters of this measure went the extra mile to practice psychological word play on the voters…”

Impact and Results of Key Real Estate-Related Ballot Measures

The voters saw more measures than usual on the ballot in the 2020 General Election affecting commercial, industrial and residential real estate.

The ballot, this year, proved that a fight against a progressive agenda remains relevant and special interest groups have no intent on relenting the push for more taxes and higher taxes or further restrictions on the residents in California. An intent that should motivate the residential rental industry to oppose a government stronghold.

The three major real estate-related ballot measures in 2020 were Propositions 15, 19 and 21.

Proposition 15 was put on the ballot by petition signatures and taxes properties based on the current market value, instead of the property’s purchase price; and as of 11-10-2020, 51.7 percent of the vote (7,720,152 votes) are against the passing of this bill.1

It was not marketed as a massive tax increase by proponents. It was pushed by the sponsors as “Schools and Communities First.” It was claimed as “Thousands of progressives and leaders across California and the country have said it’s time to close corporate tax loopholes so we can invest in what we all value: strong schools and healthy communities.”

It was a strategic approach to put this measure on the ballot due to the political climate in 2020 in that the supporters knew there would be more voter turnout than in the primary election that would favor a change to Proposition 13. But what the supporters failed to realize is that voters are also business owners with commercial properties who are struggling to even meet their personal financial goals based on the economic climate.

Supporters spent 10 million dollars educating voters because it projected a revenue exceeding 10 billion dollars (a number that does not sit well with commercial property owners—especially because the market value rate continues to increase in California).

This bill ought to be a learning lesson to voters in the State of California because the language of this proposition was masterfully crafted by a myriad of experts to test words and phrases. The supporters of this measure went the extra mile to practice psychological word play on the voters to determine how it will more easily bait voters in subsequent elections with contentions the claims are good for schools and teachers.

The saving grace for commercial property owners, this year, has been the impact of COVID-19 on the citizens of California to maintain a sense of financial stability and ability to meet obligations. However, heed the warning that a similar measure will undoubtedly be on the ballot again in the near future based on the shear amount of financial backing of this issue, especially by teachers and their union.

Proposition 19 was put on the ballot by the Legislature and generally allows homeowners who are 55 years of age, disabled or wildfire/disaster victims to transfer primary residence’s tax base to replacement residents and it changes taxation of family-property transfers; and as of 11-10-2020, 51.2 percent of the vote (7,477,507 votes) are for the passing of this bill.2

If property is inherited by an heir through testate but does not use the property as the heir’s domicile (primary residence), then the property taxes will be based on the fair market value of the property at the time of transfer. This was the Legislature’s last-ditch effort during the 2020-2021 Legislative Session to amend a bill, which seeks to modify Proposition 13’s right of inheritance.

The money raised as a result of the change in State law is alleged to partially assist the government in maintaining wildfire management and control. The California Association of REALTORS® sponsored the measure and spent over $40 million to ultimately assure passage.

Proposition 21 was put on the ballot by petition signatures (led by Michael Weinstein) and permits local governments to establish rental control on residential properties over 15 years old.

Proposition 21 was a third attempt by California tenants’ rights groups and California’s government in two years to establish statewide rent control.

The first attempt made to establish rent control laws was through Proposition 10, which was also put on the ballot by petition signatures in the November 2018 General Election. Its purpose was to repeal state law that restricted the scope of rent control policies that cities and other local jurisdictions may impose on residential property. Proposition 10 was defeated with 59.43 percent of the vote (7,251,443 votes).3

The second attempt made to establish rent control succeeded during the 2019-2020 Legislative Session through the Legislature and finally with Governor Newsom’s signature with the passing of AB 1482, which is defined in Civil Code Section 1947.12. AB 1482 provides that residential real property in California shall not increase the rental rate for that property in an amount that is greater than five percent more than the lowest rental rate in effect for the preceding 12 months, plus the percentage change in the cost of living—and shall not exceed ten percent rate increase within any 12-month period. These restrictions, however, are subject to exceptions and one such exception is the prohibition of Section 1947.12 on residential rental units over 15 years old.

The third attempt made to further rent control restrictions through Proposition 21 defined an intent to “plug” a “hole” left in the language of AB 1482 as it pertains to residential rental units over 15 years old; it sought to end vacancy decontrol, which is extremely important in residential rental housing; and the language of the measure imposed severe caps and permits market rate rental rates, while remaining empathetic to the low-income tenant, which does not raise rent.

As of 11-10-2020, 59.6 percent of the vote (8,77,627 votes)4 are against this passing of Proposition 21, but if the rental housing industry focused on this issue, it could have a major impact on the industry and create an even bigger voter gap in any subsequent efforts made to increase the government’s control on residential rental units. It is worth noting that the City and County of San Francisco voters were the only electoral to approve the ballot measure.

At this juncture, the tenant groups are making the loudest noise—but we all know what is meant by the old adage, “the squeaky wheel get the grease,” meaning if the industry does not make a better attempt to fight against the tenants, the rental housing industry is likely to collapse based on the inability to pay its mortgages, or a more deleterious prospect could be on the horizon—state-run housing. Let’s take, for example, the passing of AB 3088, which forces a landlord to permit a tenant to live effectively rent-free from March 1, 2020, through January 31, 2021, if that tenant was adversely affected by COVID-19—with some notable exceptions. What would happen if this type of measure passes sometime in the future?

Based on this measure’s failure, almost back-to-back failures with Proposition 10—there is a hope that this issue will not be headed to the ballots in the near future. However, if the pendulum does not begin to swing the other way to rebalance equality between tenants and landlords, at what point does statewide rent control run amuck?
“If you don’t stand for something
then you will stand for anything.”

Ron may be reached at Ron@CalStrategic.com