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REDWOOD CITY 9212 <br /> <br />Economic & Planning Systems, Inc. 31 Fiscal Implications of Proposed Ordinance <br />Other Potential Fiscal Impacts <br />Property Tax <br />Property tax accounts for about 40 percent of Redwood City’s total General Fund <br />revenues and residential land uses are an important contributor to this source.27 <br />Thus, to the extent that rent control materially affects the performance of the <br />City’s housing markets, the proposed Ordinance could affect the City’s fiscal <br />outlook through property-related taxes. <br />Rent control policies can potentially impact property-related revenues in multiple <br />ways, as described below: <br />• Conversion of rental housing to ownership: To the extent that the proposed <br />Ordinance incentivizes landlords to sell rental housing, these properties would <br />be reassessed to prevailing market values. Due to Proposition 13, the assessed <br />value of most property that has remained under the same ownership for <br />multiple years is typically well below its true market value. Thus, any increase <br />in housing sales attributable to the proposed Ordinance would likely generate <br />at least a temporary increase in property-related tax revenues such as property <br />tax, property transfer tax, and motor vehicle in-lieu payments. That said, <br />because Costa-Hawkins currently exempts single-family units and <br />condominiums from rent control, the proposed Ordinance is unlikely to <br />significantly incentivize conversion to ownership (multi-family apartments are <br />more difficult to convert to ownership). This dynamic could change if California <br />voters or the Legislator were to ever repeal or amend Costa-Hawkins. <br />• Reduced Assessed Value of Rent Controlled Properties: By limiting rent <br />increases to 60 percent of the percentage change in CPI, the proposed <br />Ordinance essentially mandates a gradual decline in the real rents of affected <br />properties over time. This effect will, in turn, limit the income generating <br />potential of these properties and ultimately their economic and market values. <br />However, due to the impact of Proposition 13 on assessed values, as noted <br />above, it is likely that only a portion of residential rental properties would be <br />eligible for a reassessment in their taxable value. Specifically, recently <br />transacted multi-family properties, that is, those that have been recently <br />purchased, are most likely to have assessed values that are most closely <br />aligned with prevailing market prices. In these circumstances, some new <br />property owners may ultimately file for assessment appeals if the values of <br />their properties do not keep pace with inflation because real rental revenue is <br />declining over time. <br />The impact of this effect on property taxes will depend on the portion of multi- <br />family rental housing that was recently transacted. In the last five years (2020- <br /> <br />27 - Redwood City FY23 ACFR Signed (6/30/2023 City of Redwood City FY23 AUD [6/30/2023] (In Process)) <br />8.A. - Page 159 of 168 <br />169