3 ms·

One under-appreciated topic is the extent to which we dis-incent people to sell their homes as they age. Through prop 13 (in California), and a stepped-up cost

One under-appreciated topic is the extent to which we dis-incent people to sell their homes as they age. Through prop 13 (in California), and a stepped-up cost basis at death (in the US) - we give people very strong financial incentives to continue ownership. As a result you have (forgive me) old people who either remain in their homes or rent them out instead of selling them, long after they otherwise would. I think this is still not as big a factor as the simple lack of building - but it sure doesn't help.

rcpt 4y ago
It's the heart of the problem. Prop 13 means there's zero financial downside to appreciating home values which leads to NIMBYs on steroids.
jj20cf 4y ago
This will be exacerbated by the low mortgage rates which most homeowners are locked in for the next 20+ years. There should be a way to negotiate with the lender holding my mortgage to let me move it to another house for some increase in basis points which would result in a win-win for both sides.
- cloverich 4y ago
  I think there is a way to do this? I'm not sure what it is called or how common it is, but we've been house hunting and one of the local Agent's brought it up.
- Nifty3929 4y ago
  This is a great point! However I'm not sure about your proposed solution. You'd have to give up a fair bit of the difference in interest rate to incent the banks to agree to this. There would likely be a selection bias that most of the people who would take advantage of it were going to sell anyway, and now the bank is stuck carrying a sub-market-rate loan they otherwise would have gotten out of.
Invictus0 4y ago
Forgive you what? For saying "old people"?
penneyd 4y ago
A law was recently passed that allows you to sell and move and keep your property tax rate that was designed to alleviate this issue.
bradgessler 4y ago
Yes, I can’t say this enough but a really great way to preserve wealth in CA is to (1) buy an expensive home with a low interest 30 year fixed loan, (2) live in said home as long as possible so you can pay roughly the same tax you did when you purchased the home. After 10 years in the home there’s only downsides to moving. I actually rented in SF from somebody whose grandparents bought the home I rented. The value of the 1800 sq/ft rental home was around $1.8m, but the landlord was paying property tax on the value of the home from when his grandparents bought the property in the 70’s. The tax bill should have been about $20k/year, but it was only a few thousand because the tax rate was locked into the value of the home in the 70’s. Meanwhile a neighbor bought a $3m home next door and was paying $35k in property tax. For me it meant I got a slight discount on rent. The whole thing is absurd.
- theironhammer 4y ago
  Agreed but property tax should not be based on the current value of the home. Property prices are insane. It's both unfair that the guy in the expensive home pays a huge amount in taxes as it is also unfair that the other guys property taxes are locked in to when property prices were less insane.
  - bradgessler 4y ago
    In theory, yes, but in practice what happens is those people get priced out of their homes anyway. If a retired person was living in the $1.8m home in my example above and was paying a low tax based on the 1970's of the house, they might not be able to afford moving to a more practical $900k one-bedroom apartment/condo because their tax rate would increase and they may not have the cashflow to pay for that bill (even considering the proceeds from the sale of the home). If you walk through SF, even really nice neighborhoods like St. Franciswood, you'll see large beautiful homes that are in severe states of disrepair because the owners don't have the cashflow to pay for the enormous costs of repairing their homes. They'd be better off moving to a smaller dwelling, but they won't because it could cost more and the incentives are more out of whack.
  - dantheman 4y ago
bsder 4y ago
Prop 13 has distorted the market of residential, but, at this point, it's baked in. Individual residential housing will turn over--the owner will eventually die. Where Prop 13 has been terrible is on commercial real estate. Most office complexes in Silicon Valley have dozens of sublease layers in order to avoid triggering a reassessment. Forcing those to unwind would be a gigantic boon. Unfortunately, those people have a LOT of money to throw around. The last time this popped up on a proposition, the commercial real estate owners spent a FORTUNE to defeat it.

rcpt 4y ago

It's the heart of the problem. Prop 13 means there's zero financial downside to appreciating home values which leads to NIMBYs on steroids.

jj20cf 4y ago

This will be exacerbated by the low mortgage rates which most homeowners are locked in for the next 20+ years. There should be a way to negotiate with the lender holding my mortgage to let me move it to another house for some increase in basis points which would result in a win-win for both sides.

cloverich 4y ago
I think there is a way to do this? I'm not sure what it is called or how common it is, but we've been house hunting and one of the local Agent's brought it up.
Nifty3929 4y ago
This is a great point! However I'm not sure about your proposed solution. You'd have to give up a fair bit of the difference in interest rate to incent the banks to agree to this. There would likely be a selection bias that most of the people who would take advantage of it were going to sell anyway, and now the bank is stuck carrying a sub-market-rate loan they otherwise would have gotten out of.

Invictus0 4y ago

Forgive you what? For saying "old people"?

penneyd 4y ago

A law was recently passed that allows you to sell and move and keep your property tax rate that was designed to alleviate this issue.

bradgessler 4y ago

Yes, I can’t say this enough but a really great way to preserve wealth in CA is to (1) buy an expensive home with a low interest 30 year fixed loan, (2) live in said home as long as possible so you can pay roughly the same tax you did when you purchased the home. After 10 years in the home there’s only downsides to moving. I actually rented in SF from somebody whose grandparents bought the home I rented. The value of the 1800 sq/ft rental home was around $1.8m, but the landlord was paying property tax on the value of the home from when his grandparents bought the property in the 70’s. The tax bill should have been about $20k/year, but it was only a few thousand because the tax rate was locked into the value of the home in the 70’s. Meanwhile a neighbor bought a $3m home next door and was paying $35k in property tax. For me it meant I got a slight discount on rent. The whole thing is absurd.

theironhammer 4y ago
Agreed but property tax should not be based on the current value of the home. Property prices are insane. It's both unfair that the guy in the expensive home pays a huge amount in taxes as it is also unfair that the other guys property taxes are locked in to when property prices were less insane.
- bradgessler 4y ago
  In theory, yes, but in practice what happens is those people get priced out of their homes anyway. If a retired person was living in the $1.8m home in my example above and was paying a low tax based on the 1970's of the house, they might not be able to afford moving to a more practical $900k one-bedroom apartment/condo because their tax rate would increase and they may not have the cashflow to pay for that bill (even considering the proceeds from the sale of the home). If you walk through SF, even really nice neighborhoods like St. Franciswood, you'll see large beautiful homes that are in severe states of disrepair because the owners don't have the cashflow to pay for the enormous costs of repairing their homes. They'd be better off moving to a smaller dwelling, but they won't because it could cost more and the incentives are more out of whack.
- dantheman 4y ago

bsder 4y ago

Prop 13 has distorted the market of residential, but, at this point, it's baked in. Individual residential housing will turn over--the owner will eventually die. Where Prop 13 has been terrible is on commercial real estate. Most office complexes in Silicon Valley have dozens of sublease layers in order to avoid triggering a reassessment. Forcing those to unwind would be a gigantic boon. Unfortunately, those people have a LOT of money to throw around. The last time this popped up on a proposition, the commercial real estate owners spent a FORTUNE to defeat it.