Assemblyman Chris Ward (Photo: lgbtqcaucus.legislature.ca)
Bill To Tax to House Flippers and Speculators 25% Moves To Assembly Committee
‘There’s a lot more to go after if you really want to reduce investors from buying properties if you know where to look’
By Evan Symon, March 10, 2022 4:34 pm
A bill that would massively tax house flippers and speculators who buy and sell a house within three years was moved to the Assembly Committee on Revenue and Taxation earlier this week.
Assembly Bill 1771, authored by Assemblyman Chris Ward (D-San Diego), would impose a 25% tax on all net capital gain from the sale or exchange of homes or properties. While the tax may be reduced if significant time has passed, those qualified taxpayers who buy and sell a house within 3 years would need to pay the tax. All revenue from the tax would go to the Speculation Recapture Community Reinvestment Fund.
The bill, also known as the California Housing Speculation Act, would also take effect immediately as a tax levy for all taxable years beginning in 2023. As AB 1771 would result in a tax change, 2/3rds of each house would need to approve for passage.
Assemblyman Ward wrote the bill to specifically target short-term investors who buy homes and other properties, keep them for some time, then sell them at a profit a short time later. This includes house flippers, who renovate properties to sell back, speculators, who often outbid other buyers in the hopes that home prices rise significantly, and cash-only buyers.
“Speculators are taking gobs of tens of millions of dollars out of our community through the cumulative effect of all these transactions. That’s not fair either because the people that are left struggling are people who get outbid 30 times trying to get into their home,” said Assemblyman Ward this week. “It would be an additional income tax on the profit gain from a sale that occurred within three years of the previous sale. But we’ve also seen this influx of short-term investors trying to get into the market, outbid San Diegans and Californians with all-cash offers, and drive the prices up for everyone. So, if somebody’s trying to go in there, fix up a fixer-upper and then sell it for record profits, that is distorting the market because somebody else could have gone in there, done the same and kept the home.”
A bill that targets housing speculators, house flippers
Ward also cites the California Association of Realtors’ quarterly index, who found that California’s median price for a single-family home increased 17 percent to $814,580 in the third quarter of 2021, while near-record lows of 42 percent of Californians could meet home-buying qualification standards. At the same time, investor-buyers accounted for 51% of all sales in Southern California.
Ward also charges that investor-buyers have depleted the market and increased demand for housing, have caused home prices to go up, and have pushed out many middle-income buyers.
While the bill has yet to receive significant support in the Assembly yet, many investors and those in real estate have come out in opposition to the bill, arguing that many cash buyers are not investors, that many house flippers renovate properties that would have otherwise made them unmarketable, and that local investors would be pushed out for larger investing firms who could easily take the 25% tax if passed, decreasing the housing supply even further.
“It gets rid of mom and pop house flipping companies that renovate for generally smaller profits and allows only the large firms to come in and sit on the properties,” Michelle Corning, a real estate agent in Southern California told the Globe Thursday. “If you really want change, either make it an open market or just ban all companies and people associated with housing investment firms to buy houses.”
“Seriously though, the real solution is just to build more homes and reduce vacation rentals. If you pass a law stopping all vacation rentals in beach-side areas, the market will be flooded with new homes overnight. Not ideal. But a reduction would spur more to be on the market.”
“But it’s not only the number of houses either. Investors get tax write offs from mortgage interest and property taxes. That’s where you can really get investors. Or from depreciation. An added tax is the simple knee-jerk solution. There’s a lot more to go after if you really want to reduce investors from buying properties if you know where to look.”
If passed, AB 771 would come into effect next year.
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House flippers typically buy houses that are uninhabitable and fix them up. If you want to reduce the housing supply and drive up housing prices this bill is the way to go. They will also kill tens of thousands of construction jobs.
We have a $35million dollar surplus, and the kooks in the Capitol want to throw another tax out there.
Why dont you change the ridiculous building laws that make it harder to build in California. California is expensive to build and has so many regulations thats why is hard to build i am converting a garage into an adu and is mot easy.
What a dumb idea. Taking something not in good shape, fixing it up and selling it is a normal human thing to do. It’s not just houses. Its cars, furniture, software, airplanes, tools, boats, animals, rural properties, a thousand things. The market determines the price, not the Legislature.
Exactly, Donaldw.
When the government tries to artificially restrict the free market, it generally make things worse through unintended consequences. Smart money will go to where it is treated well. Developers need incentives from local governments to build more housing to accommodate demand. This proposed bill will not stop the high bidders; they will adapt and overcome. Leave it to a liberal Democrat to make things worse.
The Sacramento DemocRAT buffoons are once again doing what they do best for CA. Destroying entrepreneurship, investment, and causing investment funds to move out of state.
Not to worry, inflation is going to ruin this and every other market in the near future…..
This will help drive more people out of California. Fewer people means that the state can show less CO2 consumption. Less CO2 consumption means that politicians can be proud that they are doing something even if it hurts millions of middle class people.
Leave the market alone. Stop the political damage that is being done to this state.
Dims have lost what was left of their minds!!! There’s already a housing shortage and this will just make things worse, just as all their rental housing regulations have made rental housing scarce. How many owner occupiers have the means, both financial and ability, to renovate a distressed house? Not many are willing to do that. It’s just another reason to get out of this ridiculous state! We’ve got our last tenant vacating in a couple of weeks and we will be fixing up and selling that house, doing a 1031 exchange for property in a more landlord friendly state. Fortunately, we’ve owned it for 19 years.
Nice job. This bill will drive the house prices even more unaffordable and make the homelessness situation worse. It’ll push the middle class to the poverty line if the proposition 13 protection was gone.
How about legislation that prevents huge corporations (like Blackrock) and foreigners (like the CCP) from buying up single family homes/condos and making them rentals? Democrats like Assemblyman Chris Ward probably gets campaign contributions/payoffs from them so that won’t happen?
Not sure how this would affect the housing Markert. But I think this would allow normal people to buy, maybe make it an even playing field. Currently, invertors, Air BNB and overseas investors are grabbing properties.
I would say only Citizens and permanent residents should be allowed to buy properties in CA
Sounds like you are propsing something very close to what CHINA does…Do you want to live a country that has the same laws as communist CHINA? I think you should go check out Beijing and tell us how well it works for the Chinese…
Yeah, let’s discourage people from selling their homes and create even more of a supply/demand imbalance. Is there a single person in the CA government that has even a basic understanding of economics? Apparently not.Keep ruining the state and driving people out with your idiotic ideas.
This home flip tax is a very bad idea and will cause real estate prices to rise even more and also lower the supply of homes for sale as well and just make things worse for the housing sector.
Home flippers often buy troubled homes in an area and make the neighborhoods a safer place to live and especially so in blighted inland areas that many buyers would not even consider.
What is going on with these politicians attacking housing providers and real estate investors which has been a viable sector of out California economy for many generations and from day 1 that California became a state.
I guess none of you leaving negative comments about this have rented in a neighborhood (that I was someday hoping to buy in) where you watched every affordable house get sold, demolished, and rebuilt into a McMansion and sold for astronomical prices until there were no affordable houses left. Must be nice to complain when you’re not in the situation of competing with flippers and other developers for access to the biggest wealth generating tool that a lower middle class person like me has. Thanks a lot for not helping the rest of us out because you don’t agree on a solution. So let’s do nothing and let things keep getting worse.