15 ms·

I support Prop 13 for primary homes that owners are actually living in, but commercial rent deriving properties should have never been covered by it. I take th

by dv_dt 9y ago

I support Prop 13 for primary homes that owners are actually living in, but commercial rent deriving properties should have never been covered by it. I take this position because I'm really not interested in kicking little old ladies out of their homes of multiple decades just because some property price bubble has driven real estate to crazy levels. Basically without prop 13, every bubble is going to drive the poorest and most vulnerable home owners out of their homes, and that is a pretty ugly side effect. That is the original intended protection of prop 13, but commercial properties were somehow rolled under that same umbrella.

electricEmu 9y ago
While I understand the sentiment, how many people are estimated to be displaced? It's possible the local governments could work with very small amounts instead of coding another loophole into another law. Nuke Proposition 13, one-time grandfather some uses, and drop the remaining pain all at once.
- deleted 9y ago
  [deleted]
- dv_dt 9y ago
  In general principle, I want to favor owners living in their property. That creates social stability, instead of upheavals of neighborhood on every bubble. Without prop 13, the stronger the bubble, the more people with deep pockets are favored because they can hold out longer on property taxes. You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies. Without prop 13, you may end up exacerbating bubbles - the system ends up favoring risky behavior: the uptake of buyers willing to take out the larger loans, or people taking out taking out loans to pay their taxes and try and ride out real estate bubbles. When the bubble bursts, there will be more people with more highly leveraged loans. Cities working on random rules to help subsets of property owners is, by definition, coding loopholes. By comparison, a primary residence of a homeowner isn't a loophole, that's a basic tax status used by the IRS.
  - aianus 9y ago
    > You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies. No, it's the richest people with the smallest cash flow that get kicked out first. Property tax for a salaried worker with a $1m mortgaged house is totally manageable, property tax for a retiree with a $2m paid-off house could be unaffordable. The latter person (who's much richer) has to move, the former doesn't.
    - dv_dt 9y ago
      I think you're splitting silly hairs - technically its anyone with bad cash flow. If someone has no liquid assets and their "wealth" is only tied in the property they're living in, it's monopoly bubble money, and you're kicking them out because they're fixed income doesn't match the real estate market values (which may be unrealistic in a bubble). If you're truly wealthy, and want to preserve the property, then you'll have many options to transition even fairly illiquid assets to keep a property.
      - aianus 9y ago
        I don't agree it's hair-splitting. You can't get kicked out by surprise by repealing Prop 13 unless you've enjoyed huge capital gains and are therefore likely rich. It would make no difference for poor people who don't own property that was acquired at low cost many years ago. It's really the opposite situation of what you said.
        tehlike 9y ago
        At the rates real estate prices are rising in bay area, you would be kicking people out of where they called home for years. Whether they sit on huge gains or not is irrelevant, they wouldnt be able to afford it.
        dv_dt 9y ago
        That capital gain isn't accessible unless there is a sale. If its a sale because the owner can't afford the property tax it is likely someone with limited/fixed income. Once you force a sale, a buyer, rich enough to buy the home takes ownership, they have exactly the same incentive to approve or disapprove new homes as the original owner. The person you've forced out on the other hand, now pays the tax, the transfer costs with a real estate agent and likely repair costs on the home, has the same fixed income, and now has to find a home to live in, but now has 5-10% less capital to work with then they had before. It's a bubble, and likely real estate costs in the near area are just as high. So what has been accomplished at the end of this other than harming the living situation of the original property owner and kicking out someone of limited income for someone with more income?
- georgeecollins 9y ago
  All you have to do is convince property owners that it is OK to pass a law that will probably lower the value of their property and raise their taxes. Or, figure out how to pass a bill that is opposed by property owners, by getting the support of the powerful California lobby that doesn't own property. Wait.. what is that lobby?
skewart 9y ago
That's a reasonable position to take. That said, one argument for rolling back prop 13 from primary homes too is that as long as it's in place those property price bubbles are more likely to occur. As long as their property taxes will remain flat existing residents are still incentivized to oppose constructing new housing, pushing prices ever higher. If existing homeowners felt some discomfort from the housing shortage - in the form of higher property taxes - as opposed to only seeing massive financial upside - in the form of rapidly appreciating home prices (which can be realized when they eventually sell or can be borrowed against for immediate cash), then they would be more incentivized to support building more housing supply, keeping prices down. Right now existing homeowners are highly incentivized to oppose building more housing and that's a huge part of the reason why prices are so high. Of course, there are downsides to rolling back prop 13 for primary residences too - it's not as if everything would work out perfectly smoothly. But I suspect a rollback could be crafted so that the transition could be pretty comfortable for existing homeowners.
- dv_dt 9y ago
  I question the argument that existing residents have incentive to oppose new housing for pricing purposes. Increasing density in the long run increases property prices. Look at prices in any downtown city....
  - skewart 9y ago
    You don't think the causality goes the other direction for high-density downtown neighborhoods? Lots of people want to live and work downtown (for a variety of reasons). When thousands of people are will to pay a premium to be within the same square mile it suddenly becomes possible to cover the massive cost of building a steel frame high-rise tower. If density itself increased property values then you could buy a few acres of ranch land in Montana for five hundred dollars, build a high-rise and rake in profit. Density is a trailing indicator of demand to live or work in some particular place. It's that demand that pushes up prices. Of course, in some particular cases where some parcel of vacant urban land had been zoned at low density and then suddenly became up-zoned to allow higher density then its value can go up as a result. It had been able to allow maybe just a $2.5 million single-family home, but now it's possible to build an apartment building worth $60 million, so of course the price would go up.
Spooky23 9y ago
I think you are hitting the nail on the head. This issue plus the over the top subsidy of mortgages has created extended boom cycles.
kcorbitt 9y ago
I'm not convinced that Prop 13 is the best or only solution to the "we don't want to kick senior citizens out of their communities" issue. Prop 13 only helps you if your property has appreciated in value anyway. So by definition, all of its beneficiaries are sitting on assets that have appreciated, sometimes enormously. Currently, Prop 13 caps property taxes as a percent of the last sale price. What if instead we allowed property taxes to increase with home value, but deferred collection of the incremental tax increase until the sale of the home? The back taxes owed could even be capped as a percent of appreciation. Given that the property's price has by definition increased, even after paying the back taxes the seller still gets much of their money back, the government comes out whole, we don't force old people to sell prematurely and the tax burden is shared more equitably between old and new owners.
- jzwinck 9y ago
  If your home becomes much more valuable in 2018 to 2028 but then falls sharply in 2029 to 2034 and you become ill in 2035, who will pay the high tax then due? What you propose is basically an additional mortgage via the state. This means more leverage for home owners and increased risk for the state. When a broad downturn comes, the state will be shoved briskly toward bankruptcy.
  - ScottBurson 9y ago
    There are various ways to set this up. What I would propose for California would have these properties: () The annual tax bill would be capped according to the Prop. 13 formula (annual increase limited to 2%). The difference between the tax bill and the tax due gets added to the lien balance. () The tax bill would increase at that rate even if the property value drops, until the lien balance is paid off. With these rules in place, it's actually pretty hard for the lien balance to get very large compared to the amount by which the property has appreciated. It would take a catastrophically sudden and severe drop in property values for that to happen.
    - chillydawg 9y ago
      Why cap it? Removing caps allows the market to properly price property with regard to taxes and will give the market stability. Caps are a distortion and will hurt some and benefit others.
slackingoff2017 9y ago
The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Also, an increase in housing values is proportional to the worth of the house so even rich people are affected. Your vision of old widows on the streets doesn't match reality. Most of the bubble is because of rent control aka prop 13. There's plenty of research showing that artificially limiting rent on part of the housing stock squeezes the price on the remaining units and causes the rent controlled units to never appear on the market. Look at data on NYC for an extreme example of this. In NYC around half the housing is rent controlled and a tenant stays for over twenty years on average. These units pay roughly a third of the rate of a non rent controlled apartment. In non-rent-controlled apartments the cost is over the three times as high and the average person stays for less than two years. In NYC these units have been rent controlled for so long that most have passed down from the original owner. However, they still only tend to be sold upon death because renting them out illegally is incredibly lucrative, often enough that the owner can live off of the proceeds. So yeah rent control effectively removes that part of housing stock from the market permanently. It's too hard to prevent people from profiting off their rent controlled units so it just results in a racket.
- dv_dt 9y ago
  > The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Soo, get out of this neighborhood and move someplace poorer to make room for people who can afford it? I still think that's pretty ugly when talking about people's homes. When you're talking about people with fixed incomes, the only option after getting kicked out is to move someplace lower cost... I don't understand the rent control discussion - there was a reason I differentiate between primary residence owners and commercial rent investments, especially the intergenerational costs. I don't think prop 13 lets you make any transfers of ownership without resetting the tax assement. (I could be wrong here...)
  - slackingoff2017 9y ago
    The primary residence owners get the same perverse incentive to illegally rent and never sell the property. Why wouldn't they? It's literally free money. And transfers don't need to happen when the average person lives 80 years. These units will largely be kept off the market for over thirty years. I understand your concern about long time residents being forced out, but the proper solution to this is not locking out large portions of the housing market. A much better solution is to highly encourage new and higher density housing to make the area more affordable to everyone. Existing residents don't deserve to live in SF more than new ones just because theyve been there longer
nathanvanfleet 9y ago
The reality is that the NIMBY's paying low property taxes were a contributor to the high prices in markets such as San Francisco. Why destroy your view when the only side effect is increasing housing costs for OTHER people?
usaar333 9y ago
If their house value goes up, won't that allow the little old ladies to take out a larger reverse mortgage to pay their taxes? At what point does this not become possible?
nwah1 9y ago
If we want to keep old people in our communities, then why are we only caring about old landowners? Let's just pay enormous amounts of money to all old people in general, so that they won't ever leave areas with decent commute times.
jacobolus 9y ago
> That is the original intended protection That’s a myth. The “little old grannies” was the original sales pitch of prop 13, but the intended beneficiaries always included rich people’s trusts, heavy industry, commercial real estate, large property management companies, etc., at the expense of the state budget. The folks who wrote it were Orange County businessmen and staunch anti-government anti-tax activists.
deleted 9y ago
[deleted]

by dv_dt 9y ago

electricEmu 9y ago

While I understand the sentiment, how many people are estimated to be displaced? It's possible the local governments could work with very small amounts instead of coding another loophole into another law. Nuke Proposition 13, one-time grandfather some uses, and drop the remaining pain all at once.

deleted 9y ago
[deleted]
dv_dt 9y ago
In general principle, I want to favor owners living in their property. That creates social stability, instead of upheavals of neighborhood on every bubble. Without prop 13, the stronger the bubble, the more people with deep pockets are favored because they can hold out longer on property taxes. You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies. Without prop 13, you may end up exacerbating bubbles - the system ends up favoring risky behavior: the uptake of buyers willing to take out the larger loans, or people taking out taking out loans to pay their taxes and try and ride out real estate bubbles. When the bubble bursts, there will be more people with more highly leveraged loans. Cities working on random rules to help subsets of property owners is, by definition, coding loopholes. By comparison, a primary residence of a homeowner isn't a loophole, that's a basic tax status used by the IRS.
- aianus 9y ago
  > You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies. No, it's the richest people with the smallest cash flow that get kicked out first. Property tax for a salaried worker with a $1m mortgaged house is totally manageable, property tax for a retiree with a $2m paid-off house could be unaffordable. The latter person (who's much richer) has to move, the former doesn't.
  - dv_dt 9y ago
    I think you're splitting silly hairs - technically its anyone with bad cash flow. If someone has no liquid assets and their "wealth" is only tied in the property they're living in, it's monopoly bubble money, and you're kicking them out because they're fixed income doesn't match the real estate market values (which may be unrealistic in a bubble). If you're truly wealthy, and want to preserve the property, then you'll have many options to transition even fairly illiquid assets to keep a property.
    - aianus 9y ago
      I don't agree it's hair-splitting. You can't get kicked out by surprise by repealing Prop 13 unless you've enjoyed huge capital gains and are therefore likely rich. It would make no difference for poor people who don't own property that was acquired at low cost many years ago. It's really the opposite situation of what you said.
      - tehlike 9y ago
        At the rates real estate prices are rising in bay area, you would be kicking people out of where they called home for years. Whether they sit on huge gains or not is irrelevant, they wouldnt be able to afford it.
      - dv_dt 9y ago
        That capital gain isn't accessible unless there is a sale. If its a sale because the owner can't afford the property tax it is likely someone with limited/fixed income. Once you force a sale, a buyer, rich enough to buy the home takes ownership, they have exactly the same incentive to approve or disapprove new homes as the original owner. The person you've forced out on the other hand, now pays the tax, the transfer costs with a real estate agent and likely repair costs on the home, has the same fixed income, and now has to find a home to live in, but now has 5-10% less capital to work with then they had before. It's a bubble, and likely real estate costs in the near area are just as high. So what has been accomplished at the end of this other than harming the living situation of the original property owner and kicking out someone of limited income for someone with more income?
georgeecollins 9y ago
All you have to do is convince property owners that it is OK to pass a law that will probably lower the value of their property and raise their taxes. Or, figure out how to pass a bill that is opposed by property owners, by getting the support of the powerful California lobby that doesn't own property. Wait.. what is that lobby?

skewart 9y ago

That's a reasonable position to take. That said, one argument for rolling back prop 13 from primary homes too is that as long as it's in place those property price bubbles are more likely to occur. As long as their property taxes will remain flat existing residents are still incentivized to oppose constructing new housing, pushing prices ever higher. If existing homeowners felt some discomfort from the housing shortage - in the form of higher property taxes - as opposed to only seeing massive financial upside - in the form of rapidly appreciating home prices (which can be realized when they eventually sell or can be borrowed against for immediate cash), then they would be more incentivized to support building more housing supply, keeping prices down. Right now existing homeowners are highly incentivized to oppose building more housing and that's a huge part of the reason why prices are so high. Of course, there are downsides to rolling back prop 13 for primary residences too - it's not as if everything would work out perfectly smoothly. But I suspect a rollback could be crafted so that the transition could be pretty comfortable for existing homeowners.

dv_dt 9y ago
I question the argument that existing residents have incentive to oppose new housing for pricing purposes. Increasing density in the long run increases property prices. Look at prices in any downtown city....
- skewart 9y ago
  You don't think the causality goes the other direction for high-density downtown neighborhoods? Lots of people want to live and work downtown (for a variety of reasons). When thousands of people are will to pay a premium to be within the same square mile it suddenly becomes possible to cover the massive cost of building a steel frame high-rise tower. If density itself increased property values then you could buy a few acres of ranch land in Montana for five hundred dollars, build a high-rise and rake in profit. Density is a trailing indicator of demand to live or work in some particular place. It's that demand that pushes up prices. Of course, in some particular cases where some parcel of vacant urban land had been zoned at low density and then suddenly became up-zoned to allow higher density then its value can go up as a result. It had been able to allow maybe just a $2.5 million single-family home, but now it's possible to build an apartment building worth $60 million, so of course the price would go up.

Spooky23 9y ago

I think you are hitting the nail on the head. This issue plus the over the top subsidy of mortgages has created extended boom cycles.

kcorbitt 9y ago

I'm not convinced that Prop 13 is the best or only solution to the "we don't want to kick senior citizens out of their communities" issue. Prop 13 only helps you if your property has appreciated in value anyway. So by definition, all of its beneficiaries are sitting on assets that have appreciated, sometimes enormously. Currently, Prop 13 caps property taxes as a percent of the last sale price. What if instead we allowed property taxes to increase with home value, but deferred collection of the incremental tax increase until the sale of the home? The back taxes owed could even be capped as a percent of appreciation. Given that the property's price has by definition increased, even after paying the back taxes the seller still gets much of their money back, the government comes out whole, we don't force old people to sell prematurely and the tax burden is shared more equitably between old and new owners.

jzwinck 9y ago
If your home becomes much more valuable in 2018 to 2028 but then falls sharply in 2029 to 2034 and you become ill in 2035, who will pay the high tax then due? What you propose is basically an additional mortgage via the state. This means more leverage for home owners and increased risk for the state. When a broad downturn comes, the state will be shoved briskly toward bankruptcy.
- ScottBurson 9y ago
  There are various ways to set this up. What I would propose for California would have these properties: () The annual tax bill would be capped according to the Prop. 13 formula (annual increase limited to 2%). The difference between the tax bill and the tax due gets added to the lien balance. () The tax bill would increase at that rate even if the property value drops, until the lien balance is paid off. With these rules in place, it's actually pretty hard for the lien balance to get very large compared to the amount by which the property has appreciated. It would take a catastrophically sudden and severe drop in property values for that to happen.
  - chillydawg 9y ago
    Why cap it? Removing caps allows the market to properly price property with regard to taxes and will give the market stability. Caps are a distortion and will hurt some and benefit others.

slackingoff2017 9y ago

The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Also, an increase in housing values is proportional to the worth of the house so even rich people are affected. Your vision of old widows on the streets doesn't match reality. Most of the bubble is because of rent control aka prop 13. There's plenty of research showing that artificially limiting rent on part of the housing stock squeezes the price on the remaining units and causes the rent controlled units to never appear on the market. Look at data on NYC for an extreme example of this. In NYC around half the housing is rent controlled and a tenant stays for over twenty years on average. These units pay roughly a third of the rate of a non rent controlled apartment. In non-rent-controlled apartments the cost is over the three times as high and the average person stays for less than two years. In NYC these units have been rent controlled for so long that most have passed down from the original owner. However, they still only tend to be sold upon death because renting them out illegally is incredibly lucrative, often enough that the owner can live off of the proceeds. So yeah rent control effectively removes that part of housing stock from the market permanently. It's too hard to prevent people from profiting off their rent controlled units so it just results in a racket.

dv_dt 9y ago
> The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Soo, get out of this neighborhood and move someplace poorer to make room for people who can afford it? I still think that's pretty ugly when talking about people's homes. When you're talking about people with fixed incomes, the only option after getting kicked out is to move someplace lower cost... I don't understand the rent control discussion - there was a reason I differentiate between primary residence owners and commercial rent investments, especially the intergenerational costs. I don't think prop 13 lets you make any transfers of ownership without resetting the tax assement. (I could be wrong here...)
- slackingoff2017 9y ago
  The primary residence owners get the same perverse incentive to illegally rent and never sell the property. Why wouldn't they? It's literally free money. And transfers don't need to happen when the average person lives 80 years. These units will largely be kept off the market for over thirty years. I understand your concern about long time residents being forced out, but the proper solution to this is not locking out large portions of the housing market. A much better solution is to highly encourage new and higher density housing to make the area more affordable to everyone. Existing residents don't deserve to live in SF more than new ones just because theyve been there longer

nathanvanfleet 9y ago

The reality is that the NIMBY's paying low property taxes were a contributor to the high prices in markets such as San Francisco. Why destroy your view when the only side effect is increasing housing costs for OTHER people?

usaar333 9y ago

If their house value goes up, won't that allow the little old ladies to take out a larger reverse mortgage to pay their taxes? At what point does this not become possible?

nwah1 9y ago

If we want to keep old people in our communities, then why are we only caring about old landowners? Let's just pay enormous amounts of money to all old people in general, so that they won't ever leave areas with decent commute times.

jacobolus 9y ago

> That is the original intended protection That’s a myth. The “little old grannies” was the original sales pitch of prop 13, but the intended beneficiaries always included rich people’s trusts, heavy industry, commercial real estate, large property management companies, etc., at the expense of the state budget. The folks who wrote it were Orange County businessmen and staunch anti-government anti-tax activists.

deleted 9y ago

[deleted]