"Wonderful World of Real Estate" was the theme of the 81st annual convention last week of the California Assn. of Realtors, but the consensus of the speakers was that as wonderful as it is, the real estate world has some major concerns.
Not the least of these is tax reform. However, despite much earlier talk about enactment this year of Administration-backed federal proposals that would seriously hurt second-home sales and the construction of low-cost rental housing, speakers who addressed this topic predicted that such legislation will not be passed on the federal level until 1986 at the earliest, and there was some skepticism about it being passed even then because 1986 is an election year.
Even so, Richard Rosenthal, the first person to hold the title of CAR president-elect, told reporters, "Every time Congress is in session, we must get concerned, because sooner or later, Congress must deal with tax reform, and there won't be the same advantages that real estate enjoys now."
Actually, he added, "state legislation worries us more than federal legislation." The reason is that although a state bill that is similar to the federal package was carried over to the next legislative session, there is a chance that it could pass sooner.
During a panel discussion, Dugald Gillies, vice president of the association's Governmental Affairs Department, said that the state Senate "agreed with CAR, that it should be held over until next year" but added that the first interim hearing on the bill (AB 540) is scheduled on Oct. 31.
"It's our analysis that this (bill) would be a disadvantage for first-time home buyers," he said, "because it would make mortgage-interest payments higher, and the deductibility of property taxes would be lost entirely." AB 540 would make capital gains taxable as ordinary income, he added, "and so that means that if you bought property 20 years ago and realize a significant gain in value (when it is sold), you would be taxed (on the increase in value) as ordinary income."
Gillies also told of another state bill that was just announced by the governor's Tax Reform Commission. "It would produce $875 million less from personal income taxes than existing law gets now, and it would make that up on cigarettes and booze," he said. The bill will also track federal proposals, "whatever they are," he said.
There is still much uncertainty about what the federal government will eventually do about tax reform, and although there were concerns about how the reforms will affect the real estate market, there was a general acceptance that the federal government must act sooner or later to reduce the national deficit.
As Clark Wallace, a Moraga, Calif., real estate broker and president-elect of the National Assn. of Realtors, said at the convention's opening general session, "About two-thirds of the industry in this country will walk on eggs until there is meaningful deficit reduction."
Later, he told reporters that "the most critical issue for real estate during the next few years" is "getting our economic house in order in this country."
Among the concerns voiced at seminars were the record numbers of foreclosures involving farms, which New York economist Al Gross termed "a sector problem not likely to be resolved for the next 10 years;" commercial bank failures, which he said were at a "record-high level in 1985"; increased costs of errors-and-omissions insurance for professionals in the real estate industry, and slowly rising inflation.
Of course, all was not doom and gloom. How could it be at the Anaheim Disneyland Hotel, where the convention was held.
Much, if not most, was upbeat. Wallace opened the convention, saying, "Relatively speaking, this is as good a real estate market as we have enjoyed since 1978." He referred to "a high infusion of foreign capital."
Mention was made during one seminar of an estimated "$86 billion coming into real estate next year from out of the country." And many of the concerns, like tax reform, involve things that probably won't happen for at least a year. This was also true of higher mortgage interest rates.
Timothy Howard, senior vice president and chief economist of the Federal National Mortgage Assn., warned that "the first element in the system--strong U.S. economic growth--is starting to falter" but stressed that "higher interest rates because of the budget deficit will not have an impact for about a year."
"Housing should continue to do well, up slightly next year from this," he continued, "but storm clouds will gather at the end of 1986 on the interest rate horizon unless there is some successful resolution of the budget deficit."
State Sen. John Seymour (R-Anaheim) also expressed concern about such California problems as the dearth of affordable housing. He called for elimination of builders' fees for school construction. He is seeking ways to protect against what he views as "loopholes in Proposition 13," like arbitrary imposition of local taxes to make up for property-tax revenues lost through voter approval of the proposition.
He called the future of California "bright but challenging," saying that the state could be the fourth "economic power of the world" by the year 2,000. If the state were a country, it would be currently ranked seventh in terms of economic strength.
Science-fiction writer Ray Bradbury also addressed the 2,000 association members, saying, "We'll soon be colonizing the moon, and you'll be putting up your real estate signs on Mars."