Houses are expensive in San Francisco’s Russian Hill neighborhood, as seen from Lombard and Hyde streets. The typical homeowner stays in a San Francisco home for 16.5 years, one of the longest average tenures in the U.S., according to a new analysis from Redfin. (Bront? Wittpenn/The Chronicle)
In California’s largest cities, homeowners tend to stay put much longer than the average American.
The typical homeowner stays 16.5 years in a San Francisco home and 18.7 years in San Jose, according to a new analysis from Redfin. In Los Angeles, homeowners hold on to their homes the longest in the country – about 20 years on average.
This compares to a national median tenure of around 12 years, up from just over 6.5 years two decades ago.
The data highlights the impacts of California’s tax laws, which include unique incentives for homeowners that make them less likely to sell.
The historic Prop 13 ballot initiative was particularly notable. Since its approval by voters in 1978, the constitutional amendment has capped the property tax rate at 1 percent of a home’s assessed value at the time of purchase and limited its increase each year.
“Proposition 13 essentially sets property taxes so that if you bought your house a very long time ago, you pay much lower property taxes than if you bought the house today,” said Daryl Fairweather, Redfin’s chief economist.
The median sale price of a home in California has nearly doubled since 2015, according to data from the state Employment Development Department. Since property taxes for longtime homeowners are based on the value of older homes, buying a new home could result in a much higher tax bill — a pretty strong incentive to stay put. (Proposition 19, approved by voters in 2020, allows people 55 and older to shift their tax basis when they sell and buy a new home, although the benefit is reduced if the replacement home costs more.)
California’s capital gains tax is another consideration, Fairweather said. Inheriting a home comes with what is called a “step-up cost basis”: the value of the estate is adjusted to the fair market price on the day of the owner’s death. This means that heirs generally pay capital gains taxes only on any increase in value after inheriting the home, not on appreciation that occurred during the parent’s lifetime.
So if you’re structuring your estate in hopes of maximizing its value for your children, it makes more sense to stay in your home and allow them to benefit from the step-up rather than selling it yourself and paying capital gains taxes on the gain.
These property tax laws have helped seniors on fixed incomes continue to be able to afford their homes, protecting them and their heirs from massive tax bills. But the laws have shifted the burden of affordability to younger generations: Higher prices – exacerbated by lack of inventory when people are incentivized to stay in their homes longer – mean these young people are less likely to be able to afford housing compared to their parents’ and grandparents’ generations. And when they buy a home, they pay a disproportionate share of property taxes compared to their neighbors.
David Garcia, deputy policy director at Berkeley’s Terner Center for Housing Innovation, co-authored a 2023 report on the issues facing first-time homebuyers. “The First Step is the Hardest: California’s Sliding Ladder of Homeownership” revealed that homeownership in California was increasingly out of reach for young buyers.
Delaying the age at which you buy your first home can permanently impact your ability to build wealth, according to a new report from Realtor.com: People who are able to buy a home before age 30 tend to have 22.5% higher net worth at age 50 than people who wait until their 40s.
People looking to buy their first home face headwinds from several directions. When there is more demand than supply, the cost of housing increases. So on top of the supply problem caused by people holding on to their homes for so long, Garcia said, the current rules make existing homeowners reluctant to see other housing built near their homes, which could dilute the value of what could be their most valuable asset. Builders are building fewer “starter homes” than a half-century ago, preferring more lucrative luxury properties. Lower supply means higher demand, which leads to higher rents, making it even more difficult for potential buyers to save for a down payment.
We also don’t build a lot of housing with seniors in mind, Fairweather said. Older Americans generally want homes without many stairs and located in walkable areas, near many other seniors. People will not downsize if there is nowhere more suitable for them.
Although Californians have owned their homes the longest, the national average has also increased significantly, indicating that this problem is not unique to the Golden State. Garcia said that while other states don’t have Proposition 13, legislative attempts to limit rising property taxes have proven popular elsewhere. And many states are experiencing a housing shortage of their own, although it may not be as severe as California.
Given strong incentives to stay put, what motivates people to move? Jonathan Engler, director of home lending at Golden 1 Credit Union, said the factors are the same as they were 20 years ago: new babies, new jobs, deaths. He said he has observed the pendulum beginning to swing in some areas of California in favor of first-time home buyers, including factors such as policies allowing people to sell backyard units as separate condos and splitting single-family lots to build additional homes under the state’s SB9 law.
The Bay Area is one of the most expensive real estate markets in the world. But the area’s relatively high wages make those prices a little easier to swallow, said Andy Orion, a real estate agent specializing in the Peninsula. He said many of his first-time homebuyers tend to be discouraged by prices, but qualify for mortgages based on their income. Just wait for a bonus, acquisition, merger or IPO – or get help from family members – to put together the down payment.
While the results of the Redfin analysis didn’t surprise him, he said new jobs and new babies mean many of his first-time buyers are buying their next home faster than they expected. He makes them a bet when they buy their first house: if they stay there more than five years, he will take them out to a nice dinner; if they sell before half a decade, they foot the bill.
He hasn’t lost that bet yet, he said.
This article originally published on Here’s How Long Californians Keep Their Homes — and How It Compares to Elsewhere.
