Robust Home Sales Spur Gain in County Tax Rolls
By HOWARD FINE
Staff Reporter
Fueled by a hot residential real estate market, property tax rolls in L.A. County rose 6.2 percent last year over 2000 levels, providing a much-needed dose of good news for cash-strapped local governments.
According to figures to be released today by L.A. County Assessor Rick Auerbach, the total value of property in L.A. County in 2001 was $647.2 billion, excluding utilities, government property and non-profit-owned properties. That’s a $39.8 billion increase from the 2000 level.
Auerbach said half the increase resulted from properties that changed ownership, triggering reassessments under Proposition 13. The number of properties that changed hands increased about 5 percent.
More importantly, Auerbach said, the average amount of increase in the Prop. 13 reassessments was about 10 percent, from $97,000 to $107,000. (In other words, a house sold last year had an assessed value $107,000 higher than in 2000.)
“Low interest rates and a short supply of medium-priced housing have resulted in a very dynamic residential market,” Auerbach said. “We’re actually on track to see an even bigger increase in the number of transactions this year than last.”
Boost for cities
Over the past two years, growth in residential real estate values has outpaced growth in other sectors. From 1999 to 2001, the total assessed value of single family homes increased 15.4 percent, compared with 10.7 percent growth in commercial and industrial property and 13.8 percent growth in multifamily units.
In looking at the average market value of a single family home, however, the rate of growth slowed in 2001, perhaps due to a slowdown in the high-end residential market, or homes valued at over $1 million. Because those sale prices are so large, any slowing would be magnified in overall averages.
The most dramatic increases in property assessments were in the San Gabriel Valley, home to three of the 10 cities with the largest percentage increases in assessed valuation. Bradbury, Azusa and Burbank all recorded total valuation jumps of more than 8 percent.
“You’ve got moderate priced housing in the San Gabriel Valley. It’s relatively close to where the jobs are, and you have a lot of upwardly mobile immigrant populations there,” said Raphael Bostic, director of the Casden Real Estate Economic Forecast at the University of Southern California. “So it’s no wonder that the San Gabriel Valley is hot.”
But so is the county overall in spite of fears over the economy and stock market. This should provide a welcome boost for cities that face budget cutbacks from Sacramento and slowing growth in retail sales tax revenues. Under Prop. 13, 1 percent of the assessed value of each property is paid in taxes that are ultimately distributed to county and local governments and school districts.
Rising property tax revenues and real estate transaction taxes were the single biggest factor in the whittling down of the city of L.A.’s 2002-03 budget deficit from a projected $250 million in December to just $40 million in April.
In spite of the rapid rise in residential real estate prices and a rise in the value of properties with new construction, the 6.2 percent increase last year was in line with increases in past years. Slower growth in commercial property values and in business equipment values were the main offsetting factors.
“Business equipment is where the impact of 9-11 and the dot-com crash was most felt,” Auerbach said. Airplanes and other aviation equipment fell dramatically in value as the air travel industry collapsed after Sept. 11. And with the demand for new computers and telecommunications equipment off sharply, values fell there as well, leading to more modest growth in business equipment values overall.
The falling stock market could cut both ways on the outlook for the rest of the year, Auerbach said. If people feel poorer, they may hold back on making big purchases like houses. On the other hand, with demand for housing in Southern California continuing to outstrip supply, housing may be looked upon as a haven for investment dollars.
Also, Auerbach said, the 2002 assessed valuations could be affected by continuing sluggishness on the commercial real estate side resulting from the dot-com and telecom crashes and the stagnation of the overall economy.
Effect of economy
Local real estate experts concur that somewhat slower property value growth may be in the offing.
“We would expect the housing market to settle down a little bit towards the end of the year,” said Robert Kleinhenz, senior economist with the California Association of Realtors. “What we’ve seen in the last eight months or so has been extraordinary: a lot of people wanted a piece of the action and they thought that interest rates would soon rise as the economy rebounded. Now that they’ve acted, we expect a return to more typical levels.”
Another wild-card for next year: the impact of a state court ruling on property reassessments. Under Proposition 8, a property owner is entitled to seek a reduction in assessment when property values in the area fall. Property owners sought and won such reductions in droves in the mid-1990s following the lengthy drop in real estate values earlier in the decade.
But when property values resumed their rise in the late 1990s, county assessors not only can resume the 2 percent assessment hikes allowed under Prop. 13, they can also restore the property to the value it would have been without the downward readjustments.
An Orange County property owner filed suit challenging this “restoration” power and a state judge ordered the county to refund the restoration. If this ruling stands on appeal, counties could be forced to refund tens of millions of dollars in property taxes. Last year, for example, Los Angeles County saw an increase of $4.8 billion in assessed valuations due to Proposition 8 restorations, meaning that up to $48 million might have to be refunded to property owners.
Besides the San Gabriel Valley, several coastal cities, as well as Westlake Village and Palmdale, saw significant increases in property valuations. These areas, though, have consistently posted some of the largest gains in property values in recent years, with the coastal cities remaining the most desirable place to live and the outlying areas to the north seeing the most new development.
