New Tax on House Flippers Will Not Increase Housing Supply

As Evan Symon reports in the California Globe, Assemblyman Chris Ward, San Diego Democrat, has authored a bill to “massively tax house flippers and speculators who buy and sell a house within three years.” Assembly Bill 1771, the California Housing Speculation Act, would impose a 25 percent tax on all net capital gains from selling or exchanging homes or properties within three years of purchase.

All revenues would go to a “Speculation Recapture Community Reinvestment Fund.” The legislature created this new fund should direct funds to “local governments, schools, and affordable housing purposes for general benefit to offset the negative consequences of short-term speculation.”

Chris Anderson, of the Greater San Diego Association of Realtors, told CBS News that Ward’s bill is “really going to put a damper on our critically low inventory that we already have.” The measure also fails to distinguish between investor and owner-occupied properties. It could penalize regular homeowners who sell their homes on short notice due to a divorce or death in the family.

“That money’s going to go to the state just because you had an unfortunate circumstance?” Anderson told reporters. “I think you’re going to need that money to take care of yourself.”

Ward’s bill is another government redistribution project freighted with bureaucratic overhead and is ultimately counterproductive. Many flippers transform derelict properties into livable units and thus increase the housing supply. Any profit they happen to earn is already subject to taxes.

If Ward wants to increase the housing supply, he should strive to reduce regulations that drive up costs, change restrictive zoning laws, and reduce taxes on building materials, gasoline, and diesel fuel. Punitive taxes have a poor record of increasing the supply of anything. California’s sales and income taxes already rank among the nation’s highest.

AB 1771 would take effect for all taxable years beginning in 2023. Since the measure requires a tax change, two-thirds of both houses would need to approve.