5 ms·

Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply a

Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply and encourages ani-development stance by removing the tax consequences of appreciating property)

bcrosby95 7y ago
I doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.
- jdkee 7y ago
  That was likely due to the macro environment of high inflation in the 70s until Paul Volcker knocked it down.
- bradlys 7y ago
  All the blame? No. Most of the blame? Probably. The same that happened to your parents happened to landowners of huge properties. They still pay peanuts for property tax 40 years later. In the end - it helped people who got there first and then screwed everyone else over. It helped rent seekers more than anything.
  - dv_dt 7y ago
    That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).
    - tspike 7y ago
      Zoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.
      - dv_dt 7y ago
        Right but it's unclear how Prop 13 drives that. If you repeal Prop 13, presumably it forces more people to sell, but that just means different people with closer to market price mortgage ratios. Would make it more or less likely to oppose new development if they're at risk if something changes and the price goes down on their homes?
        bradlys 7y ago
        > it forces more people to sell More availability -> lower prices. A lot of people hold because the income:expense ratio on their property is really great. If your rental home goes from $1000/yr in taxes to the $15k/yr that every new homeowner is paying, you'll see that cut into your rental income. You could try to raise rent by $1000+/month but that won't happen because salaries aren't gonna rise that fast. So, you'll sell. Thus, as a homeowner, when you go to sell then you will get less... A lot of these homes will fund peoples retirement in other regions. I see a lot of people in older age (who don't want to deal with renting, don't want to pass the home down, or didn't save for retirement) selling their homes here and moving to somewhere cheaper. They get to live a nice life off the gains they made.
        dv_dt 7y ago
        I think policies forcing people out of homes are bad. And if you look at history, people that get forced out of their homes arent going to a nice farm upstate - they go into declining and more precarious life with less stable housing and financial situations.
        bradlys 7y ago
        Strawman argument. People in $2m homes are not going to live a poor life with less stable housing when they sell. Even if it sold for 50% less. Give me a break.
        dv_dt 7y ago
    - sharkmerry 7y ago
      It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes
      - dv_dt 7y ago
        > It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. Why? It doesn't change the total inventory, nor the ratios of how many want a home vs have a home. > The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes Commercial property also includes apartment complexes too doesn't it? In my town there is an excess of commercial retail and office property, and builds are shifting to apts/condos as far as I can tell.
        sgc 7y ago
        It does change the ratios of who wants a home since it makes a better investment. IMO prop 13 should only apply to primary residence.
        dv_dt 7y ago
        I fully agree that Prop 13 should only apply to primary residences! But I fundamentally think it's wishful & unexamined leaps of thinking that repealing all of prop 13 would somehow lower home prices. I think it's repeal would just cause unnecessary churn in where people live, increase the speed of gentrification, without holding back home prices at all.
        bradlys 7y ago
        Your argument is that more available supply on the market would cause home prices to increase. In econ 101 terms - That doesn't make sense. More supply -> cost goes down. Lower incomes would actually be better off because it would mean that more properties would sell, lowering the price of homes, and thus rentals would have to come down in price too. Churn in housing market could lead to more housing developments as well - since you have to pay full price of the land you are just sitting on. You'd be better off developing the land than just sitting on an empty lot and paying lots of property tax.
    - bradlys 7y ago
      > build properties to rent out That (generally) increases your tax assessed value. Whenever you renovate or build out - they will factor that in and tax you more. Your taxes don't stay flat with building more. You're incentivized to hold and not build - if anything. Zoning isn't in your favor either - you can't just add 10 units to your SFH. Remember - people bought when they couldn't afford to renovate - so they couldn't build out and then hold at peak development. They bought at lowest development and held. It's only after the property got really expensive that they could because they moved, rented the place out, and started raking it in. So, what people do here is keep the properties as close to the same as possible because it's too late to build out more. (And zoning) If they're able to "renovate" in such a way where they can put up an in-law unit that adds like $100-200k in assessed value, they'll do that because then they can charge $2500+/month for that unit. Ideally, in their case, they'll just convert the garage and never get taxed more. But it adds housing but at a worse quality for both the main home owner and, likely, the person in the in-law than if they just built out a lot of nice apartments somewhere. If you have a "historical" house in San Jose - you can renovate the interior all you want and get no increase in tax assessed value as long as you don't modify the exterior. In one home I was in, they gutted the entire interior of a 900sqft 2-bedroom house into a 5-bedroom 2-bath so that they could rake in $5000+/month in rent out of 5 students going to SJSU. This resulted in 0 increase in tax assessed value - it's a common move and we can probably agree shoving 5 adults into 900sqft isn't ideal. A lot of people buy homes and will renovate them to add as many bedrooms as possible - each new bedroom is like $1000+ in rent you can charge. But - remember, the interior space doesn't increase. You just cram more people in the same square footage - different than how apartments would build up and give people the same amount of living space. To give you another idea of why you wouldn't probably build out - my neighbor bought his house for $1.2m (This was like 2013). They spent who knows what demolishing the old home and putting up a new one. The house isn't like 5x bigger or anything - it's modestly larger than what was there. We'll say maybe 2x the interior square footage. Mostly because they added a second story on the new design. The tax assessed value is now $2.3m for that property (nearly double). If you're a landlord - would you spend $500k+ on renovating/building a property to be taxed on it too? Nah - better to just hold and rent. Besides, zoning gets complicated. There are only so many SFHs that you can make bigger and bigger to get more rent. There's a reason why almost all the housing in the bay area is outrageously expensive but has nearly original interiors from when it was first made from 1930-1975 - it's cause people don't wanna improve the property because it will be rented anyway. The cost to improve isn't worth it - it doesn't outweigh the tax increase and the minor gains in rent. The cost to change the interiors to add more bedrooms in the same square footage is the only thing that is a sometimes worthwhile investment.
- mikeyouse 7y ago
  Just out of curiosity, I tried to 'ground' those figures to median income to compare against what's happened in the past few years. Per the US Census[1], median income in 1973 was $10,500, so the price of your parents' home increased by 3x median household income. Looking at a completely unremarkable house in the sunset of SF on Zillow[2]. It sold for $1.725M in Nov of 2019 after selling for $997k in June of 2014. Household income today is right around $60k, so an increase of more like 12x median household income in 5 years. Just madness. (And yes, I know that the median household income in SF is higher than the nationwide, but that'd apply in the past too.) [1] - https://www2.census.gov/prod2/popscan/p60-096.pdf https://www2.census.gov/prod2/popscan/p60-096.pdf [2] - https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/ https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...
  - cjhopman 7y ago
    That's a bad example, that home was completely remodeled between the two sales.
    - mikeyouse 7y ago
      Fair to a point, it was merely a random click on a recently sold property, but it was a $20,000 kitchen remodel (permit 201608084481), a $7,000 bathroom remodel (permit 201408113562) and a new roof for $7,500. So not sure if it's really a bad example when 5 years + $35,000 in investment adds over $700k in value to a home. You can review the permits here: https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType&SearchBy=PermitNo https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType...
      - sologoub 7y ago
        Those are probably tax values. Actual out of pocket is likely a lot more - SF area has a huge shortage of construction labor and prices are really high, with completion rates low.
      - cjhopman 7y ago
        That's really cool thanks, didn't realize you could just look up the permits like that. I'm not sure what those values in the permits really mean, but they can't be the total costs. Hell, the kitchen remodel probably has $20,000 just in appliances. According to https://blog.housemanager.calstate.aaa.com/blog/how-much-will-bay-area-home-renovation-cost https://blog.housemanager.calstate.aaa.com/blog/how-much-wil..., the price for a mid-range kitchen remodel in SF is ~$83,000, $65,000 for the bathroom and $30,000 for an average roof replacement. Looking at the pictures of the kitchen (https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/?mmlb=g,20 https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) and bathroom (https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/?mmlb=g,40 https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) those numbers seem like they're probably closer than the permit numbers. It looks like they also remodeled the half-bath as it matches the remodeled master. It's probably more like $100-150k in renovations.
- sologoub 7y ago
  Looks like 20k of that was just inflation: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=34000&year1=197301&year2=197812 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=34000&year1=19... While still a lot, I’d suspect it’s quite different from today’s situation.
dv_dt 7y ago
Prop 13 just removes property tax consequences driving transactions, not housing price concerns of anti-development / anti-density owners. IF you drive those owners out via property tax increases, you have new owners just as concerned with the same anti-density drivers, maybe even more because they're in even greater debt at a higher price and can less absorb a feared price decrease.
- imtringued 7y ago
  New owners want to get the most out of their purchase. This means multifamily buildings.
  - dv_dt 7y ago
    People who can develop multifamily buildings have better rent profit margins if property taxes are controlled - how does repealing prop 13 change the (re)zoning motivators (pro or con).
- fossuser 7y ago
  If you can't afford high property taxes you're incentivized to allow building so market rate housing price goes down (or at least increases slowly). With Prop 13 people have zero incentive to allow building because they benefit from extreme housing value increases with no downside. Prop 13 also means only new people are paying any of the real costs for the town since their property tax dwarfs the tax of old owners (one year of a new owner's property tax can be more than the entire cumulative thirty year payments of a neighbor). I wish Prop 13 was changed so every year local town failed to build X houses (where X is some large value determine by how large the property tax spread is from new and old owners) property tax on those protected by Prop 13 would jump 10% capping out at the actual fair market valuation of the property. This way if people don't want to build at least they're actually paying for it. This will never happen though given the current incentives. I think the key problem is that housing can be an investment or affordable, but it can't be both.

bcrosby95 7y ago

I doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.

jdkee 7y ago
That was likely due to the macro environment of high inflation in the 70s until Paul Volcker knocked it down.
bradlys 7y ago
All the blame? No. Most of the blame? Probably. The same that happened to your parents happened to landowners of huge properties. They still pay peanuts for property tax 40 years later. In the end - it helped people who got there first and then screwed everyone else over. It helped rent seekers more than anything.
- dv_dt 7y ago
  That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).
  - tspike 7y ago
    Zoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.
    - dv_dt 7y ago
      Right but it's unclear how Prop 13 drives that. If you repeal Prop 13, presumably it forces more people to sell, but that just means different people with closer to market price mortgage ratios. Would make it more or less likely to oppose new development if they're at risk if something changes and the price goes down on their homes?
      - bradlys 7y ago
        > it forces more people to sell More availability -> lower prices. A lot of people hold because the income:expense ratio on their property is really great. If your rental home goes from $1000/yr in taxes to the $15k/yr that every new homeowner is paying, you'll see that cut into your rental income. You could try to raise rent by $1000+/month but that won't happen because salaries aren't gonna rise that fast. So, you'll sell. Thus, as a homeowner, when you go to sell then you will get less... A lot of these homes will fund peoples retirement in other regions. I see a lot of people in older age (who don't want to deal with renting, don't want to pass the home down, or didn't save for retirement) selling their homes here and moving to somewhere cheaper. They get to live a nice life off the gains they made.
        dv_dt 7y ago
        I think policies forcing people out of homes are bad. And if you look at history, people that get forced out of their homes arent going to a nice farm upstate - they go into declining and more precarious life with less stable housing and financial situations.
        bradlys 7y ago
        Strawman argument. People in $2m homes are not going to live a poor life with less stable housing when they sell. Even if it sold for 50% less. Give me a break.
        dv_dt 7y ago
  - sharkmerry 7y ago
    It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes
    - dv_dt 7y ago
      > It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. Why? It doesn't change the total inventory, nor the ratios of how many want a home vs have a home. > The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes Commercial property also includes apartment complexes too doesn't it? In my town there is an excess of commercial retail and office property, and builds are shifting to apts/condos as far as I can tell.
      - sgc 7y ago
        It does change the ratios of who wants a home since it makes a better investment. IMO prop 13 should only apply to primary residence.
        dv_dt 7y ago
        I fully agree that Prop 13 should only apply to primary residences! But I fundamentally think it's wishful & unexamined leaps of thinking that repealing all of prop 13 would somehow lower home prices. I think it's repeal would just cause unnecessary churn in where people live, increase the speed of gentrification, without holding back home prices at all.
        bradlys 7y ago
        Your argument is that more available supply on the market would cause home prices to increase. In econ 101 terms - That doesn't make sense. More supply -> cost goes down. Lower incomes would actually be better off because it would mean that more properties would sell, lowering the price of homes, and thus rentals would have to come down in price too. Churn in housing market could lead to more housing developments as well - since you have to pay full price of the land you are just sitting on. You'd be better off developing the land than just sitting on an empty lot and paying lots of property tax.
  - bradlys 7y ago
    > build properties to rent out That (generally) increases your tax assessed value. Whenever you renovate or build out - they will factor that in and tax you more. Your taxes don't stay flat with building more. You're incentivized to hold and not build - if anything. Zoning isn't in your favor either - you can't just add 10 units to your SFH. Remember - people bought when they couldn't afford to renovate - so they couldn't build out and then hold at peak development. They bought at lowest development and held. It's only after the property got really expensive that they could because they moved, rented the place out, and started raking it in. So, what people do here is keep the properties as close to the same as possible because it's too late to build out more. (And zoning) If they're able to "renovate" in such a way where they can put up an in-law unit that adds like $100-200k in assessed value, they'll do that because then they can charge $2500+/month for that unit. Ideally, in their case, they'll just convert the garage and never get taxed more. But it adds housing but at a worse quality for both the main home owner and, likely, the person in the in-law than if they just built out a lot of nice apartments somewhere. If you have a "historical" house in San Jose - you can renovate the interior all you want and get no increase in tax assessed value as long as you don't modify the exterior. In one home I was in, they gutted the entire interior of a 900sqft 2-bedroom house into a 5-bedroom 2-bath so that they could rake in $5000+/month in rent out of 5 students going to SJSU. This resulted in 0 increase in tax assessed value - it's a common move and we can probably agree shoving 5 adults into 900sqft isn't ideal. A lot of people buy homes and will renovate them to add as many bedrooms as possible - each new bedroom is like $1000+ in rent you can charge. But - remember, the interior space doesn't increase. You just cram more people in the same square footage - different than how apartments would build up and give people the same amount of living space. To give you another idea of why you wouldn't probably build out - my neighbor bought his house for $1.2m (This was like 2013). They spent who knows what demolishing the old home and putting up a new one. The house isn't like 5x bigger or anything - it's modestly larger than what was there. We'll say maybe 2x the interior square footage. Mostly because they added a second story on the new design. The tax assessed value is now $2.3m for that property (nearly double). If you're a landlord - would you spend $500k+ on renovating/building a property to be taxed on it too? Nah - better to just hold and rent. Besides, zoning gets complicated. There are only so many SFHs that you can make bigger and bigger to get more rent. There's a reason why almost all the housing in the bay area is outrageously expensive but has nearly original interiors from when it was first made from 1930-1975 - it's cause people don't wanna improve the property because it will be rented anyway. The cost to improve isn't worth it - it doesn't outweigh the tax increase and the minor gains in rent. The cost to change the interiors to add more bedrooms in the same square footage is the only thing that is a sometimes worthwhile investment.
mikeyouse 7y ago
Just out of curiosity, I tried to 'ground' those figures to median income to compare against what's happened in the past few years. Per the US Census[1], median income in 1973 was $10,500, so the price of your parents' home increased by 3x median household income. Looking at a completely unremarkable house in the sunset of SF on Zillow[2]. It sold for $1.725M in Nov of 2019 after selling for $997k in June of 2014. Household income today is right around $60k, so an increase of more like 12x median household income in 5 years. Just madness. (And yes, I know that the median household income in SF is higher than the nationwide, but that'd apply in the past too.) [1] - https://www2.census.gov/prod2/popscan/p60-096.pdf https://www2.census.gov/prod2/popscan/p60-096.pdf [2] - https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/ https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...
- cjhopman 7y ago
  That's a bad example, that home was completely remodeled between the two sales.
  - mikeyouse 7y ago
    Fair to a point, it was merely a random click on a recently sold property, but it was a $20,000 kitchen remodel (permit 201608084481), a $7,000 bathroom remodel (permit 201408113562) and a new roof for $7,500. So not sure if it's really a bad example when 5 years + $35,000 in investment adds over $700k in value to a home. You can review the permits here: https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType&SearchBy=PermitNo https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType...
    - sologoub 7y ago
      Those are probably tax values. Actual out of pocket is likely a lot more - SF area has a huge shortage of construction labor and prices are really high, with completion rates low.
    - cjhopman 7y ago
      That's really cool thanks, didn't realize you could just look up the permits like that. I'm not sure what those values in the permits really mean, but they can't be the total costs. Hell, the kitchen remodel probably has $20,000 just in appliances. According to https://blog.housemanager.calstate.aaa.com/blog/how-much-will-bay-area-home-renovation-cost https://blog.housemanager.calstate.aaa.com/blog/how-much-wil..., the price for a mid-range kitchen remodel in SF is ~$83,000, $65,000 for the bathroom and $30,000 for an average roof replacement. Looking at the pictures of the kitchen (https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/?mmlb=g,20 https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) and bathroom (https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-CA-94116/15118110_zpid/?mmlb=g,40 https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) those numbers seem like they're probably closer than the permit numbers. It looks like they also remodeled the half-bath as it matches the remodeled master. It's probably more like $100-150k in renovations.
sologoub 7y ago
Looks like 20k of that was just inflation: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=34000&year1=197301&year2=197812 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=34000&year1=19... While still a lot, I’d suspect it’s quite different from today’s situation.

dv_dt 7y ago

Prop 13 just removes property tax consequences driving transactions, not housing price concerns of anti-development / anti-density owners. IF you drive those owners out via property tax increases, you have new owners just as concerned with the same anti-density drivers, maybe even more because they're in even greater debt at a higher price and can less absorb a feared price decrease.

imtringued 7y ago
New owners want to get the most out of their purchase. This means multifamily buildings.
- dv_dt 7y ago
  People who can develop multifamily buildings have better rent profit margins if property taxes are controlled - how does repealing prop 13 change the (re)zoning motivators (pro or con).
fossuser 7y ago
If you can't afford high property taxes you're incentivized to allow building so market rate housing price goes down (or at least increases slowly). With Prop 13 people have zero incentive to allow building because they benefit from extreme housing value increases with no downside. Prop 13 also means only new people are paying any of the real costs for the town since their property tax dwarfs the tax of old owners (one year of a new owner's property tax can be more than the entire cumulative thirty year payments of a neighbor). I wish Prop 13 was changed so every year local town failed to build X houses (where X is some large value determine by how large the property tax spread is from new and old owners) property tax on those protected by Prop 13 would jump 10% capping out at the actual fair market valuation of the property. This way if people don't want to build at least they're actually paying for it. This will never happen though given the current incentives. I think the key problem is that housing can be an investment or affordable, but it can't be both.