Real Estate

Selling the nest?

Midpeninsula parents with no kids at home have few housing options

Lucy Berman has a unique perspective, experiencing firsthand both sides of the empty-nester conundrum having a major impact on the tight Midpeninsula housing market.

A real estate agent since 2004, she sees potential homebuyers struggling to find homes they can afford in one of the nation's most expensive housing markets. With the expense comes the fact that available home inventory continues to shrink.

At the same time, Berman and her husband, Palo Alto homeowners since 1984, whose children have left the nest, are among those acknowledging that they are living in more house than they need in a city where property values have increased enormously in recent years.

Like many other local empty nesters, the Bermans considered downsizing to a smaller home on a smaller lot a few years ago. But they decided such a move just didn't make sense financially.

"We found once we paid all of the taxes (resulting from a sale), there would be no money left," Berman said. "We have a lot of friends in the same position. Most of them have owned their houses anywhere from 20 to 40 years."

And most are staying put, Berman said, thinking about remodeling projects that will allow them to age in place. Those would include things like relocating their master bedroom downstairs or finding where in the house they could build an elevator to the second floor. Those individual decisions to stay, multiplied hundreds or thousands of times, combined with the continuing large number of overseas investors sinking cash into pricey Midpeninsula real estate, is having major consequences for Berman's clients.

"It's very difficult for people to find places to live here, whether they're now renting locally or moving here from elsewhere," she said. "There's a very limited stock of houses for sale and the prices are astronomical compared to other parts of the country. I have had clients who ended up not taking jobs here after seeing the cost of living. It's a huge problem for local employers."

Getting socked with taxes on a house sale is indeed a deterrent for many empty-nester homeowners, said Michael Dreyfus, a residential real estate broker and president of Silicon Valley for Golden Gate Sotheby's International Realty.

"They look at taxes and capital gains and blanch, because they might have 40 percent going to state and local taxes," Dreyfus said.

For homeowners who benefited from 1978's Proposition 13, paying higher property taxes on a new dwelling is another drawback when they consider selling and relocating.

Dreyfus said those negatives are especially true for older members of the baby-boom generation, or the 77 million Americans born from 1946 to 1964. This is not as much of an issue however, for empty nesters on the younger side of the scale, or the late boomers, the youngest of whom are still more than a decade away from traditional retirement age. They no longer need the amenity of top-rated schools for their children and may even be wearying of the region's infamous traffic congestion.

"A move for them is more likely not connected to retirement," he said. "They have lots of time left and have the attitude they're not going to let taxes get in the way of their lives. They're enthusiastic about the possibilities for the second half of their lives."

Most of his clients in that category move to another part of the Bay Area, often San Francisco, or to a less-expensive part of California or a neighboring state, Dreyfus said.

"Psychologically, it's an easier thing for them to do if they're worried about leaving friends or a favorite yoga class," he said. "They still feel they're a part of the Bay Area community. And some have second homes in places like Tahoe or Montana or Carmel, and they want to spend more time there."

Brian Chancellor, sales manager in the Palo Alto office of the Sereno Group, agrees that younger baby boomers tend to be more willing to sell their homes than their older counterparts, move to new communities and become active members. "And I think they're less concerned about their children inheriting their property," he said. "They want them to earn their own way in the world."

Chancellor said despite the area's incredibly tight housing market, common-sense measures could be taken to help ease the availability of existing homes and help create more affordable housing.

He advocates more California counties adopt existing state laws allowing homeowners ages 55 and older to retain their Prop. 13-created lower property taxes on new properties they purchase. Chancellor also supports area cities building more densely developed, transit-oriented housing suited to empty nesters so they can sell large houses they no longer need.

People's attitudes toward living with less space, possessions and automobiles are changing, Chancellor contends, even in Silicon Valley. But the region hasn't really caught up with the idea of building more, denser housing, exacerbating the area's housing problems.

"As people get older, they're not getting into their cars as much," he said. "If we had more of the right (dense, transit-oriented) type of development on the Peninsula, and public transit was clean, cheap, safe and convenient, people would be more likely to sell their homes. I've had the opportunity to see more livable communities when I lived in Italy and Scandinavia. My wife is Danish, so I've spent lots of time in Europe. I've only had to rent a car once when there."

Whether empty nesters are considering a sale of their property, renting it out, or just staying put, the strength of the Midpeninsula housing market is stoking lots of activity, said real estate agent Karen Trolan of Alain Pinel, who is a past president of the Silicon Valley Association of Realtors. She said there are lots of advantages to selling in the current hot market, and she's seen many empty-nester clients move to less-expensive markets like Auburn (in the Sierra Nevada foothills) or Arizona. Others decide to rent out their properties if they want to keep their options open to return to the Bay Area or plan to eventually bequeath their homes to heirs.

David Goll is a freelance writer for the Palo Alto Weekly. He can be emailed at david.w.goll@gmail.com.

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Comments

3 people like this
Posted by LVTfan
a resident of another community
on Dec 8, 2017 at 10:13 am

This is collateral damage from Proposition 13. In a healthily functioning land market, as people's housing needs changed over time (e.g., the aging of the boomer generation past the years when many had school-aged children in the home) many would decide that it was time to move into more suitable homes for the newest age-and-stage. But due to Prop 13's peculiar lock-in effects, they never left, never provided the consumer demand for the next sort of housing -- be it a relatively new and technologically modern and efficient smaller single family home on a smaller lot, or a part of a larger building, with elevator, view, proximity to amenities including public transportation, cultural attractions, walkable neighborhoods.

They didn't demand these things, and they didn't supply to the younger families the family-sized homes they needed. So the young families were forced to drive until they qualified for a mortgage -- not just on their househunting trips, but day in and day out.

How could California get itself out of this situation? Get enough ordinary people to recognize that Prop 13 is not in the real interests of the vast majority of its residents. Yes, it is very kind to well-established companies, and large landholders. The rest? Not so much. Announce that Prop 13 will go away in 2 years. Have the assessors do what assessors do: value the land accurately, every parcel. Map it, so that everyone can judge their quality. Consider not even bothering to value the buildings; valuing buildings is expensive to do and invasive, and a there exists a strong argument for not taxing buildings at all. (Remember Milton Friedman's wise statement? Over the course of 40 years, he called taxing land value the "least bad" tax. Curious that he never raised his voice against Prop 13, whose effect was to largely untax the land whose value appreciated the most.

Announce that in 3 years, every property holder will be paying taxes based on the market value of their site. Amazing things will happen, and it won't wait for 3 years to start. Stay revenue neutral if you like, at first -- that is, only collect in property taxes the amount you're currently collecting, but redistribute the load based not on when a property was purchased, but on what it is worth today, whether it was bought in 1977, 1987, 1997, 2007 or 2017. Some of California's most burdened will become less burdened; some of the long-subsidized folks will decide that maybe someone else can use that land after all. Those who want to build housing will have access to the most necessary input: LAND! Demand for more modest homes will blossom, and so will jobs, and the density that supports public transit, and short commutes, and more affordable homes.

Likely the next step might be to increase the portion of California's taxes that come from land value, since it has been kept so low for so long, and substitute this for sales taxes, or for wage taxes on all but the highest earners. This will create a more vibrant economy.

Remind me: what's not to like about this picture? Seems like a win-win-win, unless you're one who has long been subsidized and is basking in your prospects for a windfall for yourself or your heirs.


12 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Dec 8, 2017 at 11:05 am

Online Name is a registered user.

When have you ever heard a realtor say it's the wrong time to sell? Or the wrong time to buy?


3 people like this
Posted by John
a resident of Midtown
on Dec 9, 2017 at 8:18 pm

The obvious answer, re: Prop 13, is to reassess every property to 1978 values (when Prop 13 passed)and increase its assessed value by 2% per year since then. There would be no basis to complain about unfair taxation then. It's the egregious appetites of the socialists to spend the common peoples' money that distorts our housing markets. As a homeowner (widower and empty nester), I would definitely consider downsizing, but not with the distorted taxation rates.


10 people like this
Posted by resident
a resident of Downtown North
on Dec 10, 2017 at 2:38 pm

The tax issues are only one problem. Another big problem is the lack of smaller properties for couples whose grown kids have moved to their own homes. I know a lot of older couples who would like to move out of their 4 bedroom home and into a lower-maintenance 2-bedroom condo, but too few of those are for sale in Palo Alto.


12 people like this
Posted by resident
a resident of Downtown North
on Dec 11, 2017 at 12:22 pm

Curious that this article does not mention that the Realtor's lobby is proposing a state ballot proposition around this issue. Mercury-News report: Web Link

Personally, I think a tax break without an increase in housing stock is not going to accomplish much.


Sorry, but further commenting on this topic has been closed.

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