In much of America, buying a first home is hard but still possible with years of saving and a decent income. In California, that old story is breaking down. A growing share of homes are not being bought by new families at all. They are being passed down after a death.
Last year, about 18% of all property transfers in California, nearly 60,000 homes, happened through inheritance, according to an analysis by real estate data firm Cotality. That is a record for the state going back to 1995, up from 12% in 2019. It is also about double the national share of 8.8%.
The message is brutal and simple: for a lot of younger Californians, inheritance is becoming one of the last reliable paths to homeownership.
Inheritance Is Becoming the Shortcut
Cheryl Norris, a 76 year old antique dealer in Northern California, has owned homes for decades. Her two children in their 30s do not see a clear way to buy in the same region. She plans to leave her Santa Rosa home and her three bedroom San Rafael property to her daughter and son.
“Even though my kids work as hard as I did, it’s sad that inheritance is their best shot at homeownership here,” Norris said.
A Los Angeles financial adviser, Jeff Fishman, described what this turns homeownership into: “Homeownership has become a ’til death do us part scenario” in California.
That is not just a personal tragedy for would be buyers. It reshapes the whole market by keeping homes off the market longer and concentrating opportunity inside families who already own property.
California Prices Have Pulled Away From Reality
California home prices are among the highest in the U.S. and the numbers are staggering. The state’s median single family sales price reached nearly $900,000 last year. In San Rafael, the typical home costs about $1.2 million, according to Zillow.
Norris’s own story shows how fast values have climbed. She and her late husband bought their Santa Rosa home for about $149,000 in 1988, and it has roughly quadrupled in value. Her San Rafael home was valued at about $281,500 in 1985 and is now estimated around $1.8 million.
Her son Jameson, 35, who works gig jobs like ride share driving, said what many younger residents feel: “It’s a bit depressing knowing it’s nearly impossible for me to buy my own place,” he said, “even though I’m so grateful.”
Homeownership Is Shrinking and Delayed
The problem is not just high prices. It is the way those prices have outpaced ordinary wealth.
A Terner Center and MetroSight analysis found that 43.5% of Californians ages 25 to 75 were homeowners in 2021, down from 49.8% in 2000. The report also says California’s homeownership rate is more than 15 percentage points lower than the rest of the United States, the largest gap ever recorded.
For the key years when people usually buy their first home, the slide is clear. Among Californians ages 35 to 45, the share who owned a home fell from 49.5% in 2000 to 39.7% in 2021, nearly a 10 point drop in about two decades.
The San Francisco Chronicle summarized the affordability gap this way: only about 38% of California residents ages 35 to 45 can afford a home, compared with 56% nationally for that age group.
California now has the oldest “age of prevalence,” meaning the age when a majority becomes homeowners. In California, that age is 49. Across most of the U.S., it is about 35.
Proposition 13 Created a Powerful Lock In
California’s housing market is not just expensive. It is sticky.
Since 1978, Proposition 13 has generally capped property tax increases at 2% a year based on the most recent purchase price, creating a large gap between longtime owners and new buyers. Longtime owners often pay taxes based on decades old valuations. New buyers pay taxes based on current market prices. As the WSJ reporting put it, a new buyer today can pay 10 times as much property tax as a neighbor who purchased in the 1970s.
The result is a strong reason not to move, even when families outgrow a home or could downsize. Redfin data in the reporting shows the typical California homeowner stayed put for almost 17 years in 2024, compared with about 12 years nationally.
An NBER summary explains this “lock in effect” in plain terms: when home values rise faster than the 2% assessment cap, owners gain by staying because their taxes remain far below what they would pay on a similar home purchased today.
Ken DeLeon, founder of DeLeon Realty in Palo Alto, described the cycle: “We’re in this negative feedback loop.” Fewer people sell, supply tightens, prices rise, and the incentive to stay grows even stronger.
Capital Gains Rules Make Dying With the House a Tax Strategy
Property taxes are only one piece. Federal capital gains rules add another huge reason to hold a house until death.
Homeowners selling a primary residence can exclude $250,000 in gains, or $500,000 for couples. But when a home is worth millions, gains can easily exceed those limits. That makes selling painful.
If the home is inherited, its value for tax purposes resets to its market price at the date of death. Miklos Ringbauer, an accountant in Los Angeles, gave a vivid example: if a home appreciated from $200,000 to $2 million, the heir could save more than $500,000 in federal and state taxes by inheriting instead of the owner selling while alive.
Darred Greenside inherited a three bedroom San Francisco home his aunt and uncle bought in 1964 for $41,000. Even though his property taxes jumped, he said the inheritance still changed his life because he did not need a mortgage. “I don’t have any regrets,” he said.
And many owners do not need to sell even for retirement. Cotality estimates that California homeowners with mortgages have about $600,000 in equity on average, letting them borrow through home equity lines of credit or rent out the home rather than selling.
The Housing Shortage Makes Every Distortion Worse
When buyers are locked out and owners are locked in, shortage becomes gasoline on the fire.
The Chronicle notes that zoning laws passed in the 1960s and 1970s suppressed housing construction in California, even while the state’s population grew. Fewer homes built over time means fewer chances for new families to enter the market. When existing homes also turn over less often, the squeeze tightens.
That is how California ends up in a situation where inheritance is no longer a side story. It becomes a major lane on the highway into homeownership.
Solutions in Site?
The reporting and research point to several levers, each aimed at a different part of the system:
- Adjusting inheritance rules under Proposition 13. California tightened its property tax rules in 2021 to limit when heirs can keep a parent’s low tax rate. A partner at Ayoub & Dodson, Rachel Dodson, said the change has encouraged more heirs of vacation properties to sell, though it does not fundamentally change the incentive to pass homes down.
- Expanding the capital gains exclusion. Some politicians and housing economists want to increase the capital gains exclusion for home sales to encourage older owners to sell before death, especially larger homes that could work for younger families.
- Zoning and permitting reform to increase supply. Others focus on easing land use constraints and speeding up building, aiming to expand supply and reduce upward pressure on prices.
None of these changes are simple. But together they highlight the real issue: California’s market is no longer just expensive. It is becoming structurally tilted toward families who already own.
When nearly one out of every five home transfers is an inheritance, the state is not just pricing out younger buyers. It is slowly turning homeownership into an intergenerational club, where the membership card is a family last name.
