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There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13. Landlords can hold property for decades without seeing

by 100k 12y ago

There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13. Landlords can hold property for decades without seeing their taxes go up, yet they cry crocodile tears about rent control (which resets every time a tenant leaves). Rent control and Prop 13 are two sides of the same coin.

sologoub 12y ago
Prop 13 for individuals/families serves largely the same purpose as rent control - to ensure that the place they live in stays affordable. If property values increase and there is no rent control, do you really expect landlords to not pass the property tax increases to the renters? In fact, I would argue that more home ownership would be a lot better than rent control, because if the home owner chooses to leave a given area by selling, he/she is able to benefit from the increased values. Renters on the other hand cannot. While it would be very interesting to contrast the tax situation in Washington state (property taxes adjust every year there from what I understand) with that of California, I doubt the current situation would greatly improve prop 13 gone, and I know for sure a lot of people would be squeezed.
- michaelt 12y ago
  In the UK, houses are placed in 'council tax bands' based on the estimated value on 1st April 1991. So the tax band stays the same regardless of housing market fluctuations. The tax rates for the bands are then set by the local council, as a political decision. Band A property? £1000 a year. Band E property, maybe it's £3000 a year. Admittedly, assessing a tax band is a little subjective - but it seems to work OK. Any idea why local government taxes in the US aren't calculated the same way?
  - sologoub 12y ago
    I'm sure they can, but like you said - it's all political. From what I know, WA state uses real estate tax as one of the primary revenue streams (in addition to sales tax), whereas CA also has income tax. CA and WA seem to have similar sales taxes, so the main difference in funding is in WA not having an income tax. There are many more differences, but I don't know if those are for a "good reason" or bloat. My personal biases make me lean to CA budgets being bloated...
  - maxlybbert 12y ago
    Property taxes in the US are mainly state law. Like anything else about taxes, California created a very weird system for its property taxes. Property taxes are a percentage of the property's value, but states have very creative ways to define the property's value. For instance, North Carolina automatically updates property values every few years ( http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/ByArticle/Chapter_105/Article_11.html http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML... ), and there is a way to dispute the tax assessor's office. California put limits on what property tax can be used for, how much it can change per year, and when the property's value gets reassessed (answer: when the property sells) in the '70s ( http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29 http://en.wikipedia.org/wiki/California_Proposition_13_%2819... ). It was done through a ballot measure, which means the legislature can't make any changes by itself.
    - maxlybbert 12y ago
      ... " and there is a way to dispute the tax assessor's value."
- batbomb 12y ago
  If Prop 13 were limited to primary residence OR to those aged 65 or older, or had means testing, that would make a lot more sense. Of course, somebody decided it would be easy to apply it to everyone, even large commercial properties. The fact that it applies to commercial properties is kind of insane. http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loophole-gets-rare-mix-of-5490455.php http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loo...
  - bmm6o 12y ago
    It would seem insane, except that one of the main purposes of the Proposition was to de-fund government. If you weren't around at the time, "drown government in the bathtub" might not ring a bell.
- kansface 12y ago
  The point is that home owners have the very strong and perverse incentive to stop all new construction under prop 13. Currently, their homes appreciate 15% each year while their taxes move less than 1%. They are minting money with no down side. New construction means they make less money, plain and simple. | In fact, I would argue that more home ownership would be a lot better than rent control... This may be the case, but its an experiment that will never happen. SF is at an extreme housing deficit, and refuses to build new housing commensurate to its population growth (1 unit per 10 new people for the past decade). Prop 13 is a large part of the problem - minus squeezing, home owners have no incentive to allow new construction.
  - sologoub 12y ago
    Disclaimer: I don't live in SF or Bay Area, but visit for work often. That said, I do live in a place that is fairly constrained on new development, but not as badly as SF. For my part, the lifestyle that makes both of these places so appealing includes a certain level of density, but not much more than that. It's hard for me to fault people who bought their properties for defending the lifestyle they bought into. On the commercial use of prop 13, I would tend to agree that it's not the best idea today. I am entirely against means testing and such for personal uses, including non-primary residences. A simple use case for non-primary residence non-commercial use is if one is taking care of elderly parents. Should the parents be forced out of their home because their child happens to own the property? This is not commercial use to me either, unless rent is being charged of course.
  - kelnos 12y ago
    The problem with that line of reasoning is that 15% increase isn't immediately available to the homeowner. To turn that into cash, they have to move. I imagine many homeowners could simply just not afford an uncapped property tax hike. Part of the attraction of homeownership is security, in that homeowners aren't subject to fluctuations in the rental market. Prop 13 helps to reinforce that security, delaying the property tax increases to the point where the homeowner would be able to afford them -- at moving time. It's certainly not perfect, but I'm not convinced repealing prop 13 is the answer. Perhaps a hybrid approach: live-in owners are subject to prop 13 caps on increases, but rental properties are not? Coupled with a repeal or loosening of rent control would allow landlords to pass on at least some of that cost increase to renters, which I think is a reasonable thing. Again, not perfect, but perhaps an improvement.
newman314 12y ago
That's not going to happen without some sort of equalization. Prop 13 benefits people that have owned property for a LONG time. I cringe every time I see my prop tax bill while my neighbors who have been here for decades pay a fraction of taxes only because they were here first [1]. But Prop 13 props up housing prices which would drop like a rock if Prop 13 were outright abolished. So there would need to be some sort of retro tax event to help lessen the pain. Additionally, I would make the distinction of this tax event for primary residence, investment property and commercial property. Maybe it should just apply for primary residence, I don't know the right answer to this but longer term, I agree that rent control and Prop 13 need to be revisited. [1] http://www.planetizen.com/node/40895 http://www.planetizen.com/node/40895
- kansface 12y ago
  The repeal of prop 13 is straightforward. Let property taxes rise more than inflation each year. It could be capped at 2x or 3x, etc. It would be slow enough to let people prepare, but fast enough to be painful.
  - gojomo 12y ago
    Indeed. Catch-up rates could also be a function of how far out-of-whack the current property tax bill is. This could even be part of a hybrid approach where owners have some protection against rapid changes, but bills slowly catch-up to their neighbors… restoring equal protection under the law regardless of date-of-purchase. For example, the increase-cap could be "the larger of 1% [like Prop 13] or a rate that, compounded 20 years, would reach parity with peer properties". As long as your bill is only ~22% less than comparable properties, you're still on the Prop 13 1% plan. But when things really get out of whack, your rates go up slightly more... and you have very strong visibility into the next two decades' of rises, if you assume property values hold. (If you're paying half your comparable-property new neighbors, your bill would go up around 3.5%/year.) No surprises, small annual changes, but (over time) far less of a giant tax-handout to the already-property-rich.
- rconti 12y ago
  How do you think prop13 props up prices? It's an incentive for people to stay in a house, which reduces churn, but it's arguably a disincentive for a renter to buy, because of the outlandish tax rates they'd need to pay (which offset the low taxes of long-term owners). I don't understand your logic.
MRSallee 12y ago
> There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13... What do these have to do with each other? And I guarantee if you gave landlords the option, they would jump on that offer. Prop 13 is saving long-time owners a few thousand dollars a year, which would be easily made up (and more) with higher rents.
Lazare 12y ago
According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not. Your argument is that renters shouldn't give up something that hurts them, until another group gives up something unrelated? Can you articulate why you think that negotiating strategy might lead to optimum outcomes for renters?
- ahomescu1 12y ago
  > According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not. I think (guessing a bit here) is that the argument goes like this: repealing Prop 13 would drive down house prices, allowing some renters to instead buy/mortgage, therefore reducing the demand for rentals, driving rents down.
  - e40 12y ago
    repealing Prop 13 would drive down house prices By increasing supply, I would imagine, at the expense of older, retired home owners. In my community, there are a lot of old people that wouldn't be able to afford a fraction of my property tax. Many would be forced to sell and there would be a glut on the market of new homes, which would likely drive prices down. I hate paying the property tax rate I do, but I would also hate to drive all the old people of my community to cheap, depressed housing stock in some remote place. What's the way out of this? I really don't know.
    - spiralpolitik 12y ago
      If the intent of Prop 13 is to keep Grandma in her home then let's ammend it only to apply to Grandmas primary residence. Prop 13 as it stands is simply a way to allow commercial landlords to avoid paying property tax at market rates.
    - bhickey 12y ago
      You're mistaken in your mechanism: it reduces demand. Repealing prop 13 should drive down prices by increasing the total cost of ownership. Suppose you can afford to pay $3000/mo for housing. If your tax bill is $500, that leaves $2500 for a mortgage payment. Higher taxes, less is leftover for a mortgage. With a $500/mo tax your maximum mortgage is $530k. If it rises to $700/mo, your maximum mortgage falls to $486k. The whole pool of people with a $3000/mo reserve have been pushed down the curve.
aetherson 12y ago
Prop 13 applies to all of California. Most of California does not have rent control. I have complex feelings about Prop 13, and I'm not by any means unilaterally a fan. But to suggest that it necessitates rent control sounds, at the very least, under-argued. How does San Jose fit into this picture?
- 100k 12y ago
  I'm not saying it necessitates rent control. I'm saying that Prop 13 and rent control both came from the same place, the high inflation 1970s (see the TechCrunch article: http://techcrunch.com/2014/04/14/sf-housing/ http://techcrunch.com/2014/04/14/sf-housing/). Repealing rent control without repealing Prop 13 would result in a MASSIVE wealth transfer from renters to landlords. I don't think that's fair.
  - kelnos 12y ago
    Repealing both would likely result in massive wealth transfer from renters to the government, though, with the landlord just being the conduit, yeah? The only way to avoid that would be to repeal prop 13 and keep rent control, but that's also unfair, as it tells landlords "hey, we're going to increase your costs, but give you no ability to recoup those costs".
jekdoce 12y ago
Both of these laws are designed to benefit people who moved here long time ago and make it economically harder for new people to move here. Whether they are landlords, renters or home buyers. Prop 13 makes new property buyers pay more for property taxes. Rent control makes new renters pay more for rent. As long as there are more people benefiting from these 2 laws than hurting, they will be in effect. It would be interesting to see organized efforts in changing these laws.
- 100k 12y ago
  Agreed. I think the entrenched property owners and long-time renters are a big part of the anti-building coalition in SF. For owners, lack of building is actually in their interest. For renters, at the very least, the lack of building doesn't affect them. Both have "got theirs" and don't want to let new people into the city.

by 100k 12y ago

sologoub 12y ago

Prop 13 for individuals/families serves largely the same purpose as rent control - to ensure that the place they live in stays affordable. If property values increase and there is no rent control, do you really expect landlords to not pass the property tax increases to the renters? In fact, I would argue that more home ownership would be a lot better than rent control, because if the home owner chooses to leave a given area by selling, he/she is able to benefit from the increased values. Renters on the other hand cannot. While it would be very interesting to contrast the tax situation in Washington state (property taxes adjust every year there from what I understand) with that of California, I doubt the current situation would greatly improve prop 13 gone, and I know for sure a lot of people would be squeezed.

michaelt 12y ago
In the UK, houses are placed in 'council tax bands' based on the estimated value on 1st April 1991. So the tax band stays the same regardless of housing market fluctuations. The tax rates for the bands are then set by the local council, as a political decision. Band A property? £1000 a year. Band E property, maybe it's £3000 a year. Admittedly, assessing a tax band is a little subjective - but it seems to work OK. Any idea why local government taxes in the US aren't calculated the same way?
- sologoub 12y ago
  I'm sure they can, but like you said - it's all political. From what I know, WA state uses real estate tax as one of the primary revenue streams (in addition to sales tax), whereas CA also has income tax. CA and WA seem to have similar sales taxes, so the main difference in funding is in WA not having an income tax. There are many more differences, but I don't know if those are for a "good reason" or bloat. My personal biases make me lean to CA budgets being bloated...
- maxlybbert 12y ago
  Property taxes in the US are mainly state law. Like anything else about taxes, California created a very weird system for its property taxes. Property taxes are a percentage of the property's value, but states have very creative ways to define the property's value. For instance, North Carolina automatically updates property values every few years ( http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/ByArticle/Chapter_105/Article_11.html http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML... ), and there is a way to dispute the tax assessor's office. California put limits on what property tax can be used for, how much it can change per year, and when the property's value gets reassessed (answer: when the property sells) in the '70s ( http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29 http://en.wikipedia.org/wiki/California_Proposition_13_%2819... ). It was done through a ballot measure, which means the legislature can't make any changes by itself.
  - maxlybbert 12y ago
    ... " and there is a way to dispute the tax assessor's value."
batbomb 12y ago
If Prop 13 were limited to primary residence OR to those aged 65 or older, or had means testing, that would make a lot more sense. Of course, somebody decided it would be easy to apply it to everyone, even large commercial properties. The fact that it applies to commercial properties is kind of insane. http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loophole-gets-rare-mix-of-5490455.php http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loo...
- bmm6o 12y ago
  It would seem insane, except that one of the main purposes of the Proposition was to de-fund government. If you weren't around at the time, "drown government in the bathtub" might not ring a bell.
kansface 12y ago
The point is that home owners have the very strong and perverse incentive to stop all new construction under prop 13. Currently, their homes appreciate 15% each year while their taxes move less than 1%. They are minting money with no down side. New construction means they make less money, plain and simple. | In fact, I would argue that more home ownership would be a lot better than rent control... This may be the case, but its an experiment that will never happen. SF is at an extreme housing deficit, and refuses to build new housing commensurate to its population growth (1 unit per 10 new people for the past decade). Prop 13 is a large part of the problem - minus squeezing, home owners have no incentive to allow new construction.
- sologoub 12y ago
  Disclaimer: I don't live in SF or Bay Area, but visit for work often. That said, I do live in a place that is fairly constrained on new development, but not as badly as SF. For my part, the lifestyle that makes both of these places so appealing includes a certain level of density, but not much more than that. It's hard for me to fault people who bought their properties for defending the lifestyle they bought into. On the commercial use of prop 13, I would tend to agree that it's not the best idea today. I am entirely against means testing and such for personal uses, including non-primary residences. A simple use case for non-primary residence non-commercial use is if one is taking care of elderly parents. Should the parents be forced out of their home because their child happens to own the property? This is not commercial use to me either, unless rent is being charged of course.
- kelnos 12y ago
  The problem with that line of reasoning is that 15% increase isn't immediately available to the homeowner. To turn that into cash, they have to move. I imagine many homeowners could simply just not afford an uncapped property tax hike. Part of the attraction of homeownership is security, in that homeowners aren't subject to fluctuations in the rental market. Prop 13 helps to reinforce that security, delaying the property tax increases to the point where the homeowner would be able to afford them -- at moving time. It's certainly not perfect, but I'm not convinced repealing prop 13 is the answer. Perhaps a hybrid approach: live-in owners are subject to prop 13 caps on increases, but rental properties are not? Coupled with a repeal or loosening of rent control would allow landlords to pass on at least some of that cost increase to renters, which I think is a reasonable thing. Again, not perfect, but perhaps an improvement.

newman314 12y ago

That's not going to happen without some sort of equalization. Prop 13 benefits people that have owned property for a LONG time. I cringe every time I see my prop tax bill while my neighbors who have been here for decades pay a fraction of taxes only because they were here first [1]. But Prop 13 props up housing prices which would drop like a rock if Prop 13 were outright abolished. So there would need to be some sort of retro tax event to help lessen the pain. Additionally, I would make the distinction of this tax event for primary residence, investment property and commercial property. Maybe it should just apply for primary residence, I don't know the right answer to this but longer term, I agree that rent control and Prop 13 need to be revisited. [1] http://www.planetizen.com/node/40895 http://www.planetizen.com/node/40895

kansface 12y ago
The repeal of prop 13 is straightforward. Let property taxes rise more than inflation each year. It could be capped at 2x or 3x, etc. It would be slow enough to let people prepare, but fast enough to be painful.
- gojomo 12y ago
  Indeed. Catch-up rates could also be a function of how far out-of-whack the current property tax bill is. This could even be part of a hybrid approach where owners have some protection against rapid changes, but bills slowly catch-up to their neighbors… restoring equal protection under the law regardless of date-of-purchase. For example, the increase-cap could be "the larger of 1% [like Prop 13] or a rate that, compounded 20 years, would reach parity with peer properties". As long as your bill is only ~22% less than comparable properties, you're still on the Prop 13 1% plan. But when things really get out of whack, your rates go up slightly more... and you have very strong visibility into the next two decades' of rises, if you assume property values hold. (If you're paying half your comparable-property new neighbors, your bill would go up around 3.5%/year.) No surprises, small annual changes, but (over time) far less of a giant tax-handout to the already-property-rich.
rconti 12y ago
How do you think prop13 props up prices? It's an incentive for people to stay in a house, which reduces churn, but it's arguably a disincentive for a renter to buy, because of the outlandish tax rates they'd need to pay (which offset the low taxes of long-term owners). I don't understand your logic.

MRSallee 12y ago

> There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13... What do these have to do with each other? And I guarantee if you gave landlords the option, they would jump on that offer. Prop 13 is saving long-time owners a few thousand dollars a year, which would be easily made up (and more) with higher rents.

Lazare 12y ago

According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not. Your argument is that renters shouldn't give up something that hurts them, until another group gives up something unrelated? Can you articulate why you think that negotiating strategy might lead to optimum outcomes for renters?

ahomescu1 12y ago
> According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not. I think (guessing a bit here) is that the argument goes like this: repealing Prop 13 would drive down house prices, allowing some renters to instead buy/mortgage, therefore reducing the demand for rentals, driving rents down.
- e40 12y ago
  repealing Prop 13 would drive down house prices By increasing supply, I would imagine, at the expense of older, retired home owners. In my community, there are a lot of old people that wouldn't be able to afford a fraction of my property tax. Many would be forced to sell and there would be a glut on the market of new homes, which would likely drive prices down. I hate paying the property tax rate I do, but I would also hate to drive all the old people of my community to cheap, depressed housing stock in some remote place. What's the way out of this? I really don't know.
  - spiralpolitik 12y ago
    If the intent of Prop 13 is to keep Grandma in her home then let's ammend it only to apply to Grandmas primary residence. Prop 13 as it stands is simply a way to allow commercial landlords to avoid paying property tax at market rates.
  - bhickey 12y ago
    You're mistaken in your mechanism: it reduces demand. Repealing prop 13 should drive down prices by increasing the total cost of ownership. Suppose you can afford to pay $3000/mo for housing. If your tax bill is $500, that leaves $2500 for a mortgage payment. Higher taxes, less is leftover for a mortgage. With a $500/mo tax your maximum mortgage is $530k. If it rises to $700/mo, your maximum mortgage falls to $486k. The whole pool of people with a $3000/mo reserve have been pushed down the curve.

aetherson 12y ago

Prop 13 applies to all of California. Most of California does not have rent control. I have complex feelings about Prop 13, and I'm not by any means unilaterally a fan. But to suggest that it necessitates rent control sounds, at the very least, under-argued. How does San Jose fit into this picture?

100k 12y ago
I'm not saying it necessitates rent control. I'm saying that Prop 13 and rent control both came from the same place, the high inflation 1970s (see the TechCrunch article: http://techcrunch.com/2014/04/14/sf-housing/ http://techcrunch.com/2014/04/14/sf-housing/). Repealing rent control without repealing Prop 13 would result in a MASSIVE wealth transfer from renters to landlords. I don't think that's fair.
- kelnos 12y ago
  Repealing both would likely result in massive wealth transfer from renters to the government, though, with the landlord just being the conduit, yeah? The only way to avoid that would be to repeal prop 13 and keep rent control, but that's also unfair, as it tells landlords "hey, we're going to increase your costs, but give you no ability to recoup those costs".

jekdoce 12y ago

Both of these laws are designed to benefit people who moved here long time ago and make it economically harder for new people to move here. Whether they are landlords, renters or home buyers. Prop 13 makes new property buyers pay more for property taxes. Rent control makes new renters pay more for rent. As long as there are more people benefiting from these 2 laws than hurting, they will be in effect. It would be interesting to see organized efforts in changing these laws.

100k 12y ago
Agreed. I think the entrenched property owners and long-time renters are a big part of the anti-building coalition in SF. For owners, lack of building is actually in their interest. For renters, at the very least, the lack of building doesn't affect them. Both have "got theirs" and don't want to let new people into the city.