Tax Program Designed To Encourage Green Homes Is Destroying The Real Estate Market In California

Tax Program Designed To Encourage Green Homes Is Destroying The Real Estate Market In California

While California’s initiative of creating energy-saving homes might be good for the environment, it isn’t necessarily good for the home market. Reports coming out of the state’s real estate market have indicated that financing renovations for these houses makes the homes more difficult to sell, and it is starting to disrupt the market for home mortgages.

Since its establishment in 2008, more than 50,000 households in California have signed up for the Property Assisted Clean Energy program, or PACE. This program allows residents to borrow money for environmentally-friendly renovations, such as solar panels and energy saving windows. Those who borrow the money will have to pay additional property taxes, which stay with the renovated home.

However, when it comes time to sell a home, buyers have been apprehensive of the higher tax rates associated with these homes. As a result, state realtors are now fighting against PACE, saying that it is preventing the market from functioning properly.

Banks are also against PACE because the associated loans take precedent over mortgage debt if the homeowner goes into default. Banks are used to being the top dog.

Senior vice president of the Mortgage Bankers Association Pete Mills says, “There is a general principle in mortgage banking: first in time, first in line. Taxing authorities are always a risk of jumping ahead, but that’s a far different matter than a private company selling energy improvements being able to jump ahead.”

Additionally, mortgages of homes containing PACE liens are said to be less valuable than average mortgages. Federal housing finance programs have been reluctant to get involved with these homes.

President Barack Obama says that he wants the program to succeed because of its positive impact on the environment. He says that he plans on working with the Federal Housing Administration to help make PACE homes more attractive to finance.

On the positive side, PACE has led to the creation of new jobs, and it has cleaned up the environment. Since the program started seven years ago, nearly 50,000 renovation projects have created more than 8,000 new jobs, and the reduction in carbon dioxide emissions has been the equivalent of taking 330,000 SUVs off the road for a year.

Meanwhile, investors on Wall Street have also appreciated the program because bonds backed by PACE projects are considered to be of low risk since they are prioritized over traditional mortgage debt.  Companies involved with PACE have raised more than $600 million in bond sales during the previous two years.

Still, some realtors have stated that as much as 10% of their homes fail to sell because of tax assessments associated with PACE. Companies associated with PACE have tried to combat the problem by improving disclosures in contracts and establishing units devoted to help resolve problems associated with selling the homes.

Still, many sellers have found that most buyers simply do not want to take over the tax agreements. While the program had good intentions, it certainly hasn’t worked in the way that many people had hoped.

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