4 ms·

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

by 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
        not everyone lives in a $2M home... not even in CA
- PHGamer 7y ago
  which is a big government problem which is a california problem (though some townships in rural american can be quite big government themselves). Zoning should be illegal imo but I get that assholes make it some you need some rules. The problem is everyone adds to their rules to control their fifedom.
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.

by dv_dt 7y ago

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
        not everyone lives in a $2M home... not even in CA
PHGamer 7y ago
which is a big government problem which is a california problem (though some townships in rural american can be quite big government themselves). Zoning should be illegal imo but I get that assholes make it some you need some rules. The problem is everyone adds to their rules to control their fifedom.

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.