3 ms·

A two-bedroom house around the corner from me in Oakland, barely larger than 1,000 square feet, just sold for $1,175,000. But what's even crazier is the Prop 13

A two-bedroom house around the corner from me in Oakland, barely larger than 1,000 square feet, just sold for $1,175,000. But what's even crazier is the Prop 13 assessment on this house. It last sold in 1977 for $30,500. Over the last 40 years, climbing at 2% a year as allowed by Prop 13, it's current assessed value is $60,716, nearly 20X under its actual market value! This past year, the owners paid $1,857.78 in property taxes: $724.40 in ad valorem tax at a rate of 1.3486% and $1,133.38 in fixed parcel taxes. The new owners will pay $16,979.43 in property taxes, with $15,846.05 due to the ad valorem portion. That's 9X the previous owner, which works out to $1,414.95 a month in taxes! And the old owners were probably angry about the increasing fixed portion, which went from $548.28 in 2005, to $1,133.38 this past year, and which for them makes up the bulk of their property taxes. When you look at the actual, concrete numbers, it really is mind-boggling. Prop 13 aside, this house has appreciated 40x in 40 years, only 4x of which is due to inflation. Do you think the new owners will see another 10x in real returns over the next 40 years? Will the sales price in 2058 really be $45 million dollars? Somehow, I doubt it.

gnarcoregrizz 8y ago
The 2% growth thing is the biggest mistake. It should follow the CPI or some other inflation metric. That way, you are taxed on the fair market value, but the growth follows the market. It's still not fair, but it is better than what is there now. They made the same mistake with legislating 7% growth into pensions. I still hate the "fair market valuation lock-in". So much of it comes down to timing and nothing else. When rates were high in the 70s and 80s, people locked in a tax rate at a low price. Therefore, it's probably advantageous, from a property tax perspective, to buy in a high rate environment in CA. Rates have been going down consistently since then, and thus we have all of these older people that have locked in their property tax rate at a ridiculously low valuation. There is just so much the market can do that legislating these things like growth into the law just has too many unpredictable effects. I was renting a place for 2500/mo from a woman's son who paid $600/year in property taxes. He wasn't the least bit interested in maintaining it either.
- supertrope 8y ago
  The whole motivation behind Prop 13 was to cap increases below inflation and protect existing owners' positions.

gnarcoregrizz 8y ago

The 2% growth thing is the biggest mistake. It should follow the CPI or some other inflation metric. That way, you are taxed on the fair market value, but the growth follows the market. It's still not fair, but it is better than what is there now. They made the same mistake with legislating 7% growth into pensions. I still hate the "fair market valuation lock-in". So much of it comes down to timing and nothing else. When rates were high in the 70s and 80s, people locked in a tax rate at a low price. Therefore, it's probably advantageous, from a property tax perspective, to buy in a high rate environment in CA. Rates have been going down consistently since then, and thus we have all of these older people that have locked in their property tax rate at a ridiculously low valuation. There is just so much the market can do that legislating these things like growth into the law just has too many unpredictable effects. I was renting a place for 2500/mo from a woman's son who paid $600/year in property taxes. He wasn't the least bit interested in maintaining it either.

supertrope 8y ago
The whole motivation behind Prop 13 was to cap increases below inflation and protect existing owners' positions.