4 ms·

Part of the problem with housing prices in California is that property taxes are too low. Prop 13 means existing homeowners are shielded from higher property ta

Part of the problem with housing prices in California is that property taxes are too low. Prop 13 means existing homeowners are shielded from higher property taxes, so growing property values are only good for them, no matter how high. Thus, there's no incentive to increase housing supply, which could lower prices.

justinzollars 7y ago
The problem with housing in California is that we do not build it because regulations prohibit new housing. Look at a zoning map in San Francisco. Housing is illegal.
- ethbro 7y ago
  I believe the full reasoning is that (1) if property owners paid property taxes on the full market value of their property, then (2) they would lobby for (or at least cease opposition against) upzoning for density, and (3) more dense housing would be legalized and built.
  - rizwank 7y ago
    Can you help me understand how #1 becomes #2?
    - TulliusCicero 7y ago
      In most parts of the country, there's both an upside and downside to increasing property values to landowners. Upside: they're worth more, they could sell and move somewhere else cheaper, pocketing the money, or they could rent out their place for more. Downside: they have to pay higher ongoing property taxes. Most landowners still like increasing property values, but it's not all good for them. With prop 13, the downside is wiped out. Increasing values are only good; they could increase 10x overnight and this would only make landowners filthy rich, there's no negative effect for them. Ergo, they have every incentive to keep housing supply constrained, to keep voting for politicians and policies that limit housing density.
      - ethbro 7y ago
        And to bear specifically on the sub-point that blights the Bay Area -- by removing increasing property taxes, you are removing market pressure for highest and best use. Another way to think about property taxes is that they're annual nudges to encourage best use of the property. Without that pressure, as TulliusCicero notes, why would I ever sell before retirement? And furthermore, why would I even try to make money off the property (say, by renting)? That's probably not in the city's (as in, all the people living there) best interest to have a substantial portion of homeowners so disengaged from the actual market. PS: Which isn't to say there aren't gentrification and affordable housing debates to be had. Simply that Prop 13 doesn't really help with that -- it just removed risk from those who are already homeowners.
  - justinzollars 7y ago
    It would be a lot less painful and a lot less expensive for us if we just increased the density. But people have to have their beautiful bay views.
  - rsmckinney 7y ago
    How about (4) stop importing density from India and China. Immigration is by far the #1 cause for extreme density in the Bay Area and the #1 contributor to inflated real estate and higher taxes.
- jogjayr 7y ago
  Existing homeowners don't care about new housing because their property taxes don't rise due to a constricted supply. If they did, I'd bet you those zoning laws would change pretty darned quickly.
- TulliusCicero 7y ago
  Yes, and why is it illegal? It's almost like there's no political pressure to allow more housing, because there's no incentive existing homeowners to support that. Almost as if...
  - stjohnswarts 7y ago
    That's why it is sometimes necessary for state governments to step in and override local laws on zoning, regulations on housing etc, that just hasn't happened in California yet.
gilbetron 7y ago
Whoa! Didn't even know about Prop 13 - that basically means no house can currently have a higher taxable value than basically double what it was worth in 1978. Insane!
- 0xffff2 7y ago
  Huh? I think you're mis-reading something. Your assertion is true only for houses that haven't changed hands since 1978. In most cases, the buyer of a house is assessed taxes on the market value of the house at the time of sale, and further increases are limited from there.
  - mifreewil 7y ago
    This is true but it’s insane that California allows children to inherit the lower tax basis: https://www.latimes.com/politics/la-pol-ca-california-property-taxes-elites-201808-htmlstory.html https://www.latimes.com/politics/la-pol-ca-california-proper...
    - 0xffff2 7y ago
      Yes, "in most cases" was my hedge around the various ways in which property can be transferred while keeping its tax status. The majority of prop 13 is insane IMO. If I had to pick a single thing to change, I'd much rather stop applying it to commercial property than remove the inheritance provision.
      - mifreewil 7y ago
        Yeah, commercial property makes no sense either, especially if you consider the original intent of the law, but it bothers me less than residences as at least those properties, in theory, are doing something productive for society.
        nitrogen 7y ago
        Long-term residents are also doing something productive for society -- they are providing stable communities around which longer-term plans can be made, in which cultural memory of e.g. local climatological risks can be preserved, etc. Housing is definitely way too expensive in the bay area, but calling existing residents "unproductive" is pretty astonishingly, callously, selfishly offensive.
koolba 7y ago
That’s not just part of the problem. That’s the single largest factor of the problem. Unfortunately it won’t be changed until the State is at the brink of financial collapse. At that point I can see a “millionaires reassessment” suddenly being very popular.
scarface74 7y ago
So if we want to tax illiquid assets and wealth instead of income, why stop at houses? Why not tax equity held in companies? Why don’t we tax employees based on the amount and value of equity they have in a company? Every time there is a new round of funding that increases the value of equity, impose a higher tax.
- TulliusCicero 7y ago
  It's not really houses that are important to tax, it's land, because there's a fixed amount of it, especially valuable land, so it's useful to encourage economically efficient use of that land. No property or land tax means people can just sit on land forever if they feel like it with no real downside, besides missing out on potential revenue. This is bad for society, because people need land for things, and unlike cars or computers or gold we can't just ship it in from elsewhere if some provider is being obstinate.
  - scarface74 7y ago
    No you can’t just “ship land” elsewhere. But, there is nothing stopping people and companies from moving where land is cheaper. The land is only valuable because people want to live in California instead of places where it cheaper. Its not just the supplier who is being “obstinate” the consumer is also refusing to look other places.
    - petronio 7y ago
      You have to remember that companies compete with others for human labor. If your company moves to a city nobody wants to move to, you'll lose labor resources to another company (in the case of SF companies, highly skilled labor that's not easily replaceable and has high training costs). While I also think companies should spread out more, the very fact that so many companies are paying the significantly inflated property and labor prices in the SF area shows the tremendous economic value in having access to that labor market.
      - 7y ago
remote_phone 7y ago
The idea that California property taxes are too low is completely wrong, they are too high. In Vancouver, my family’s house was paying around $6000/yr in property taxes and the house was worth 1.4M only because the housing market in Vancouver has been crazy for decades. My friend in Toronto pays $3800 on her $700k single family home. My house in the Bay Area I bought for $1M and my taxes were $12,000 and in the last few years it has gone up to $15,000. The idea that Prop 13 is somehow damaging CA is false. Imagine if you were a retiree in the Bay Area and your property taxes were indexed you the house price? It would drive out too many senior citizens and low income families because house prices have double in the last 7 years. Also before you say that Prop 13 has a negative effect if you look at the actual house purchases, in my area at least half of the houses have turned over in the last 10 years meaning that the taxes being paid were reset drastically. Prop 13 protects homeowners by keeping consistency but doesn’t stop them from selling.
- Aloha 7y ago
  The issue is, someone who owns a house they bought for 260,000, 30 years ago, isn't paying tax on the current valuation of 1.4m, they're paying a much much lower rate because of Prop 13.
- fountainofage 7y ago
  So that's your anecdote - and now mine: the building I live in is worth well over $5 million, and the property tax is currently $3500 a year. Edit: just to add - I don't know where people get the idea that we need to evict people from their homes over property taxes. Just put a lien on the property for the tax bill. This isn't rocket science.
  - proverbialbunny 7y ago
    That's a great idea, especially if they don't evict people, but just take a chunk of the house that is the state's now if they don't pay taxes. If house prices go up, the state profits when the house changes hands, or the state owns all of the house and then needs to evict people.

justinzollars 7y ago

The problem with housing in California is that we do not build it because regulations prohibit new housing. Look at a zoning map in San Francisco. Housing is illegal.

ethbro 7y ago
I believe the full reasoning is that (1) if property owners paid property taxes on the full market value of their property, then (2) they would lobby for (or at least cease opposition against) upzoning for density, and (3) more dense housing would be legalized and built.
- rizwank 7y ago
  Can you help me understand how #1 becomes #2?
  - TulliusCicero 7y ago
    In most parts of the country, there's both an upside and downside to increasing property values to landowners. Upside: they're worth more, they could sell and move somewhere else cheaper, pocketing the money, or they could rent out their place for more. Downside: they have to pay higher ongoing property taxes. Most landowners still like increasing property values, but it's not all good for them. With prop 13, the downside is wiped out. Increasing values are only good; they could increase 10x overnight and this would only make landowners filthy rich, there's no negative effect for them. Ergo, they have every incentive to keep housing supply constrained, to keep voting for politicians and policies that limit housing density.
    - ethbro 7y ago
      And to bear specifically on the sub-point that blights the Bay Area -- by removing increasing property taxes, you are removing market pressure for highest and best use. Another way to think about property taxes is that they're annual nudges to encourage best use of the property. Without that pressure, as TulliusCicero notes, why would I ever sell before retirement? And furthermore, why would I even try to make money off the property (say, by renting)? That's probably not in the city's (as in, all the people living there) best interest to have a substantial portion of homeowners so disengaged from the actual market. PS: Which isn't to say there aren't gentrification and affordable housing debates to be had. Simply that Prop 13 doesn't really help with that -- it just removed risk from those who are already homeowners.
- justinzollars 7y ago
  It would be a lot less painful and a lot less expensive for us if we just increased the density. But people have to have their beautiful bay views.
- rsmckinney 7y ago
  How about (4) stop importing density from India and China. Immigration is by far the #1 cause for extreme density in the Bay Area and the #1 contributor to inflated real estate and higher taxes.
jogjayr 7y ago
Existing homeowners don't care about new housing because their property taxes don't rise due to a constricted supply. If they did, I'd bet you those zoning laws would change pretty darned quickly.
TulliusCicero 7y ago
Yes, and why is it illegal? It's almost like there's no political pressure to allow more housing, because there's no incentive existing homeowners to support that. Almost as if...
- stjohnswarts 7y ago
  That's why it is sometimes necessary for state governments to step in and override local laws on zoning, regulations on housing etc, that just hasn't happened in California yet.

gilbetron 7y ago

Whoa! Didn't even know about Prop 13 - that basically means no house can currently have a higher taxable value than basically double what it was worth in 1978. Insane!

0xffff2 7y ago
Huh? I think you're mis-reading something. Your assertion is true only for houses that haven't changed hands since 1978. In most cases, the buyer of a house is assessed taxes on the market value of the house at the time of sale, and further increases are limited from there.
- mifreewil 7y ago
  This is true but it’s insane that California allows children to inherit the lower tax basis: https://www.latimes.com/politics/la-pol-ca-california-property-taxes-elites-201808-htmlstory.html https://www.latimes.com/politics/la-pol-ca-california-proper...
  - 0xffff2 7y ago
    Yes, "in most cases" was my hedge around the various ways in which property can be transferred while keeping its tax status. The majority of prop 13 is insane IMO. If I had to pick a single thing to change, I'd much rather stop applying it to commercial property than remove the inheritance provision.
    - mifreewil 7y ago
      Yeah, commercial property makes no sense either, especially if you consider the original intent of the law, but it bothers me less than residences as at least those properties, in theory, are doing something productive for society.
      - nitrogen 7y ago
        Long-term residents are also doing something productive for society -- they are providing stable communities around which longer-term plans can be made, in which cultural memory of e.g. local climatological risks can be preserved, etc. Housing is definitely way too expensive in the bay area, but calling existing residents "unproductive" is pretty astonishingly, callously, selfishly offensive.

koolba 7y ago

That’s not just part of the problem. That’s the single largest factor of the problem. Unfortunately it won’t be changed until the State is at the brink of financial collapse. At that point I can see a “millionaires reassessment” suddenly being very popular.

scarface74 7y ago

So if we want to tax illiquid assets and wealth instead of income, why stop at houses? Why not tax equity held in companies? Why don’t we tax employees based on the amount and value of equity they have in a company? Every time there is a new round of funding that increases the value of equity, impose a higher tax.

TulliusCicero 7y ago
It's not really houses that are important to tax, it's land, because there's a fixed amount of it, especially valuable land, so it's useful to encourage economically efficient use of that land. No property or land tax means people can just sit on land forever if they feel like it with no real downside, besides missing out on potential revenue. This is bad for society, because people need land for things, and unlike cars or computers or gold we can't just ship it in from elsewhere if some provider is being obstinate.
- scarface74 7y ago
  No you can’t just “ship land” elsewhere. But, there is nothing stopping people and companies from moving where land is cheaper. The land is only valuable because people want to live in California instead of places where it cheaper. Its not just the supplier who is being “obstinate” the consumer is also refusing to look other places.
  - petronio 7y ago
    You have to remember that companies compete with others for human labor. If your company moves to a city nobody wants to move to, you'll lose labor resources to another company (in the case of SF companies, highly skilled labor that's not easily replaceable and has high training costs). While I also think companies should spread out more, the very fact that so many companies are paying the significantly inflated property and labor prices in the SF area shows the tremendous economic value in having access to that labor market.
    - 7y ago

remote_phone 7y ago

The idea that California property taxes are too low is completely wrong, they are too high. In Vancouver, my family’s house was paying around $6000/yr in property taxes and the house was worth 1.4M only because the housing market in Vancouver has been crazy for decades. My friend in Toronto pays $3800 on her $700k single family home. My house in the Bay Area I bought for $1M and my taxes were $12,000 and in the last few years it has gone up to $15,000. The idea that Prop 13 is somehow damaging CA is false. Imagine if you were a retiree in the Bay Area and your property taxes were indexed you the house price? It would drive out too many senior citizens and low income families because house prices have double in the last 7 years. Also before you say that Prop 13 has a negative effect if you look at the actual house purchases, in my area at least half of the houses have turned over in the last 10 years meaning that the taxes being paid were reset drastically. Prop 13 protects homeowners by keeping consistency but doesn’t stop them from selling.

Aloha 7y ago
The issue is, someone who owns a house they bought for 260,000, 30 years ago, isn't paying tax on the current valuation of 1.4m, they're paying a much much lower rate because of Prop 13.
fountainofage 7y ago
So that's your anecdote - and now mine: the building I live in is worth well over $5 million, and the property tax is currently $3500 a year. Edit: just to add - I don't know where people get the idea that we need to evict people from their homes over property taxes. Just put a lien on the property for the tax bill. This isn't rocket science.
- proverbialbunny 7y ago
  That's a great idea, especially if they don't evict people, but just take a chunk of the house that is the state's now if they don't pay taxes. If house prices go up, the state profits when the house changes hands, or the state owns all of the house and then needs to evict people.