The barriers to homeownership for Black and Latinx buyers

Throughout the country, Black homeowners pay an average of 13% higher property taxes than White homeowners. This is because of assessed values, which are on average 10% higher in Black and Latinx neighborhoods relative to the sale price. Local governments use higher property tax rates to push for gentrification, which they know new white owners can pay but the minority families already living there cannot. White buyers are also more easily able to appeal their property tax assessment.

The problem is worse in California, where Prop 13 is limiting property tax rates on unsold homes by basing property tax assessments on the value at time of sale. The proposition is designed to protect older residents who are on a fixed income and could otherwise lose their homes. But there are some negative consequences for low-income buyers. As soon as the home is sold, the new buyer is potentially facing significantly higher property taxes than the previous owner was, which prices out some people who are otherwise able to afford the purchase itself. And in the meantime, local government has less revenue from property taxes, so they have to make up the difference elsewhere. This often comes in the form of sales tax, which, because the rate is identical regardless of the buyer’s income, is proportionally a larger burden for Black and Latinx indivduals who tend to be lower-income earners.

Taxes aren’t the only issue Black and Latinx people face, though. When the economy crashed in 2007-2009, minorities were disproportionately affected because of discriminatory lending practices. Lenders would statistically charge higher fees to minorities with equal qualification as whites, or steer minorities towards subprime loans regardless of credit history. This meant they were less likely to be able to pay their mortgages after the crash. With all these barriers to homeownership, Black and Latinx individuals lose out on one of the largest sources of wealth, owning a home.

Photo by Masaaki Komori on Unsplash


Are Changes Coming to Prop 13 in November?

Last December, an initiative was circulated for an amendment to Proposition 13. With voters concerned about rising property taxes, Proposition 13 passed in 1978, limiting property taxes to 1% of a property’s value at the time of purchase and mandating a maximum 2% yearly increase. Now the League of Women Voters and multiple nonprofit groups want to modify that law to create a split-roll system.

This proposed split-roll would make it such that the Prop 13 limitations would only apply to residential property, not to commercial or industrial property.  Unforeseen by those who drafted Prop 13, commercial and industrial property seldom changes ownership, which resulted in windfall profits from tax avoidance for owners of such property.  The changes would have commercial property taxed based on fair market value, with exemptions for small businesses and commercial agricultural property. The proposed amendment would allocate 60% of the revenue to local governments and 40% to schools. This initiative is currently pending official review before it can be added to the November 2018 ballot.

The estimated effect of the amendment ranges from approximately $6 billion to $11 billion of new tax revenue per year, depending on the market that year. Teachers are in favor of the increased funding for schools, especially after Prop 13 moved some funding and control from local school systems to the state government. As expected, business owners and anti-tax groups are opposed. Governor Jerry Brown, who was also governor when he signed the proposition back in 1978, asserts that it’s too late to try to propose a new ballot measure to lower the threshold for more taxes. Proponents, while lacking funding, believe that they have grassroots support.