NBC San Diego is reporting that assembly member Chris Ward has proposed a new legislation that would create a new tax on house flippers. This law would propose a 25% tax on home sales that were owned for less than one year. I find it amazing how lawmakers will bend over backwards to find any solution to the housing shortage that isn’t building more housing. Are house flippers the core of the problem? probably not. Is the fact that we haven’t built houses in significant supply for over 30 years the problem? Yes. Do house flippers increase the cost of houses? sort of.
There’s two general business strategies that house flippers follow. One is to buy a property, fix up the property and then sell it as quickly as possible. The other strategy is to buy a property, ad square footage, maybe add an ADU or two and then sell it. The first option is what I’ve always called a flip stick renovation, kind of like putting lipstick on a pig. Does this actually add to the economy or the benefits of a society? nominally, especially if you’re doing a very light flip. If you’re just going in and painting it, a normal homeowner could do that. However, in my experience most homeowners aren’t looking to renovate their properties. They want a turn key solution. They want to walk into a house ready to live in and start moving in their stuff. The economic realities are that most homeowners can’t buy a place and afford to keep their old place, while they renovate their new one.
It is also a misunderstanding somehow house flippers are out bidding homeowners. House flippers make money by buying low, improving the asset and then selling for a profit. Usually, a homeowner that is going to live in a property is going to be able to outspend a house flipper. That is why flippers try to buy properties off market where there is less competition. This isn’t true of major developers though, because they are going to add so many units to a property that they can afford to pay more for the land than a homeowner would. However, it is very rare that these two groups are competing on the same property.
In the end, Chris Ward’s proposal to tax house flippers fails to address the core problem of house prices and instead continues to scapegoat flippers.