How This New California Bill Would Try To Stop 'Home Flipping'

A new state bill is designed to discourage home "flipping," the practice of buying homes and quickly selling them for a profit. Its author says he's trying to prevent speculators from further driving up home prices.

Introduced by Assemblymember Chris Ward, AB 1771 would impose a 25% tax on the profits of homes sold within the first three years after purchase. The tax rate would decline every year after that and expire after seven years.

“It aims to change behavior so that speculators are specifically putting their profits at risk, and would decide to invest elsewhere, instead of scooping up more and more homes,” Ward said. “That would in turn leave the doors open for traditional homeowners to have their bids accepted.”

According to the bill, investors are responsible for more than half of home sales in Southern California, while nationally the figure is 18%.

“It's really trying to create a very specific, targeted incentive,” Ward said. “And that would in turn level the playing field to help those who want to be a part of the community long term.”

The bill would direct the revenue to community reinvestment. Under this fund, money would be allocated to multiple projects, including at least one-third for county-level affordable housing and nearly half for infrastructure.

“Those should be sent right back into local communities because they're also suffering,” he said. “So I see this as a way to try to recapture some of this equity that's otherwise going into bank accounts and make sure that that's going right back into local communities.”

Some real estate industry experts question whether the bill would have much success in lowering prices. They argue that increasing the housing supply would have much more impact.

The San Diego Democrat's bill includes an exemption for military servicemembers and first-time home buyers.

Ward says he may tweak the legislation to avoid penalizing non-flippers who end up having to sell a home within seven years.