> The infamous Proposition 13, a 1978 ballot initiative that capped property taxes, meant that new housing could cost cities more in services than it would bring in through taxes. In response, cities privileged much more lucrative commercial development—setting the stage for the state’s severe jobs/housing imbalance—and tacked hefty fees on new housing construction.
Good take right here but it's not the main reason that prop 13 is making housing expensive imo. The insane market distortions causing landowners to never sell and instead stay put and NIMBY like mad is a larger reason that Prop 13 makes housing more expensive.
This is the biggest problem with people who oppose Prop 13. They claim that owners "never sell", however if you look at the number of sales, there's nothing to suggest Prop 13 stops house sales. It's basically a lie, and there's no actual data to suggest that California house sales are drastically lower because of Prop 13.
I used 2018 data because I couldn't find consistent 2019 data for all those states.
California has 1 house sold for every 89 people and Texas has 1 house sold for every 84 people, Florida has 1 house sold for every 77 people and New York state had 1 house sold for every 145 people.
Per capita, the rate of housing sales in California is not so disparate compared to the other large states, so anti-Prop 13 people need to come up with real data to show how Prop 13 is actually affecting things instead of whining about how existing home owners don't pay their fair share.
There's nothing to suggest that Prop 13 has affected real estate transactions in California. And especially in the Bay Area, the amount of turnover is healthy. In my city alone, I used Redfin to calculate that about 50% of the homes changed hands over the last 10 years. That means that the property tax was getting reset to more current levels.
If you look at the property tax rate that California pays, it's higher than Florida and New York, but less than Texas. However, Texas doesn't have state income tax, so overall the taxes being paid in California are exorbitant compared to other states.
It’s worth reading rcpt’s links in a sibling comment, but this analysis ignores a) geographic distributions within California of Prop 13 effects, b) the differences in demographics and population growth between those states, c) in California, properties other than single-family homes, and d) differing rates of renting and homeownership.
I don’t want to imply that you are being intentionally withholding of data, as I don’t believe that — what I’m saying is that this type of analysis is quite hard to do correctly, accounting for all the factors in play!
> It's basically a lie, and there's no actual data to suggest that California house sales are drastically lower because of Prop 13.
There is real research and data backing my statement. This kind of stuff has been published in serious economics journals for years now. There's no reason to rely on back-of-the-envelope estimates of housing turnover. Please take a look:
Adding a year of house ownership equates to "lock in"? That's hogwash and you know it. It's obvious that the so-called Prop 13 effects are total BS. You would expect a much more pronounced effect but the per capita number of house sales are in line with other states without Prop 13. There is zero evidence that Prop 13 is the cause of home prices skyrocketing.
Do some people have a massive advantage? Sure, just like everything else. But I prefer to have property tax stability because as I get older, if I get priced out of my house because I can't afford my property tax because Googlers and Facebook employees are raising the house prices, that would be completely unfair.
“From 1970 to 2000, the average tenure of California homeowners and renters increased by 1.04 and .79 years relative to that of homeowners and renters in the control states. These figures represent increases in average tenure of 10 percent and 19 percent, respectively.”
I appreciate the data here, but this is a pretty weak argument.
It’s not clear how an extra year of ownership between sales would cause home prices to skyrocket, especially compared with the dramatic imbalance between new development and in-migration to California’s urban centers!
SF, for example, built 24k new units since 2010, but added 83k new people. I’m willing to bet that more than 83k people would’ve moved in had SF built more housing!
This. There are some random plots of land in very desirable areas that would never be left like that without prop 13. Why yes I’ll keep paying $5000 per year in property taxes while my multi million dollar plot keeps appreciating at 8% per year...
Imagine it is you that own such a plot. Can you think of reasons why you yourself might forgo potential rent?
To fetch rent, you typically need to build something, which requires capital. Even if you have capital, opportunity cost might make it more profitable to invest it in something else. Even if building something is best alternative at the moment, expectations of change in future market conditions might make the risk-adjusted return too low to justify the opportunity cost. If you don’t have capital, you need to take a loan, which might not be possible depending on your personal financial situation and credit worthiness, but even if it is, it makes the whole business even more risky.
Now, given it’s California, even if you have capital and actually want to build something, it might as well turn out that your development efforts might be stuck in a local planing and zoning committee limbo for a decade, and often be ultimately unsuccessful, which results in lots of money lost and opportunity cost paid.
As you can see, there are plenty of reasons why you might forgo potential rent.
I'm sure the rules are complex, but even if you stripped to the studs you'd get reassessed on the improvement to the structure, correct? Not a reassessment of the whole property?
Say your property tax should be $10,000 per year, but you're paying $1,000 because of Prop 13.
If you were to put an addition on, with a value of $200,000, you'd have to pay property tax on that ($2,000 per year), but they wouldn't reassess the whole property and make you pay $12,000, I assume?
Most answers below are wrong on one thing. Yes, your house may be reassessed, but only the structure portion can be reassessed. If have a 1 M house, usually land is 800 K and house is 200 K, and in the case of a long term owner, it could be 300 K land + 50 K structure or something like that. County can’t re-access your entire land. They might add 300K for your structure improvement. Yes, it is bad, but not as bad as someone who is buying that home now.
Only the portion that is being remodeled or added to the existing home is assessed. The final assessment resulting from the new construction is then added onto the factor base year value.
They only assess the changes.
It makes sense.
Otherwise if you're paying $1000 per year in property taxes (instead of $12,000) and you put new countertops in, you'd be hit with a massive reassessment.
They even give an example in their fact sheet[2]. Adding two bedrooms would add $200,000 to your base assessment which is set by Prop 13.
Countertops wouldn't trigger reassessment. It has to be electrical, plumbing, or structural changes (e.g, changing the size of a window or door entry).
Kitchen - structural changes, upgrading of plumbing and/or electrical systems, changing the floor plan, increasing the size, replacing cabinets, countertops, flooring or built-in appliances with upgraded material and finishes
Replacing old countertops with same material, but new, would trigger an assessment, but upgrading them would.
You will get re-assessed even if you left the frame (or one wall standing). And new construction is reassessed. And even under prop 13, tax can increase 2% / year.
Prop 13 is not why California doesn't have enough housing. This is a lie propagated by teachers unions who flood internet forums with falsehoods.
California's problem is there are hundreds and hundreds of little "cities" each with their own restrictive zoning laws.
They need the state to overrule zoning laws and allow denser housing.
These local cities also cut "sweetheart deals" for companies and give them property tax breaks. So Apple or Facebook or anyone building a new campus pays bargain rates -- not because of Prop 13, but because the local cities have the ability to negotiate tax rates for these companies to encourage them to move in.
Good points, but it's probably not "empty land" we're talking about. Instead, it is an existing development which is not the "highest and best use". Prop 13 means underdeveloped properties can still be quite profitable in CA, and that is what discourages redevelopment.
Also, I'll add that these places are often owned by a trust. Someone in Florida is getting a check (they need) every month, and they aren't bothering the trustees to maximize the investment potential.
This is extremely common, people will forgo $4k/month because they don't want the hassle of finding a contractor to fix a house, for example. It's extremely frustrating to see all the vacant houses in my city that are in family trusts and sit on the housing market for 12 months because they are inappropriately priced, or because the family has extra stuff going on and can't find the time to get a property manager.
These houses alone aren't enough to solve the housing crisis, but they are a symptom of the disastrous tax policy.
It's enough to make me into a full Georgist, and hope for all land rents to be taxed away.
Another reason to forgo rent is in hope of a higher payoff. Especially in California with Prop 13 of 1978, if the property owner has had a property for a long time, they can be paying taxes as if it were a depression while charging rents (or taking out commercial loans) as if it’s a gold rush.
A single property with a long-term lease signed during an economic boom can pay the taxes for many vacant properties. That’s my guess as to why property owners insist on charging high rents even if it contributes to the epidemic of vacant storefronts in my neighborhood.
The most obvious answer, not suggested yet, is not having to put with the California Coastal Commission. Slap a high price on the land, sell the dream, and make the permitting and construction someone else's problem. An unimproved plot in an area under the jurisdiction of the CCC is in some ways a liability.
> meant that new housing could cost cities more in services than it would bring in through taxes.
New or resold houses reset tax to current rate. Yes, there is this provision to transfer low prop tax to another house elsewhere in the state/county if you are above 55, but that is unrelated to Prop 13
Prop 13 is evil, it helps prop owning businesses mainly and makes it slightly more affordable for a bunch of folks to keep the house as a rental unit instead of selling. But in the end, state/schools lose the most.
Resale just resets to the current value, but then freezes it again. Cities have to plan for the value in perpetuity, which means it's at valuation at year zero, and then negative from then on.
Which means the house is taxed appropriately 1 year in 13. The rest of the time? The city's underwater.
It doesn't freeze it again. The assessed value, and annual tax, still increases, albeit at a max of 2% per year, which does lag inflation over time. The biggest limitation of prop 13 is that it caps the tax rate at 1%.
We wouldn't need to pass these special school bonds if property tax rates reset annually, like they do in virtually every other state. We're simply redistributing who's responsible for paying the bills.
Historically property taxes funded schools in CA and many other states. Yes, some recent other prop-related taxes like Prop-30 have been funding general funds in the pretext of supporting education (exclusive education funding was only for the first two years.. suckers!). Either way, Propery tax linked to education is something US voters are likely to support. Richer neighborhoods get slightly richer schools even though majority of the money is evenly spread.
It's impossible to build anything here. This overregulation at work. I wrote a blog post about a plot of land in Bolinas which I hoped to build something on:
TLDR there is triple overlap of legal authorities (City, State and County) who prevent you from building anything, with a 48 year old "water emergency" in place.
I have anecdotally heard people regularly ignore the standard permitting processes and the state lacks the bandwidth for enforcing code violations. Not for huge scale projects, but more for SFH-type improvements.
Almost no one in SF gets permits unless it's for something big enough that your neighbors will narc on you for. Most houses that are for sale will have some form of unpermitted work done on it.
Not in SF from what I've seen. Unpermitted work is so common that people basically don't care anymore. Maybe in other cities where it's more common to get permits, it will definitely make a difference, but not in SF.
You say that yet there is still adding more space for jobs than housing. That’s the core issue, if new jobs > new housing the situation gets worse. If new housing > new jobs the situation gets better.
Retrofit some office space as apartments and you quickly fix the issue without any new buildings. You could even just remove some office buildings and replace them with parks for a similar net effect.
Choking the economy by limiting jobs is hardly a reasonable solution to limited housing. You are also presuming that it is easier to build offices than apartments, and easier to get permits, do environmental studies, appease NIMBY groups, and navigate the lawsuits necessary to turn offices into apartments.
More directly to the point: with current residential rents there should be a lot of money in doing just what you are proposing, and yet the real estate developers aren't.
It absolutely is easier to build offices than apartments. And I don’t have a lot of physical needs; I would live in the office if it were legal.
As it is, at my previous job the company allocated a room to be the nap room, but instead turned it into a meditation/massage room because sleeping is forbidden in commercial zoning.
Shhh, the city and state governments don’t want people to know that they are the reason we have a housing crisis. It’s much better to blame rich people, tech companies, foreign investors etc etc.
How the hell there isn't a giant apartment complex mandated, rather than forbidden, as part of these big tech company campuses is something I've scratched my head on.
My best theory is that having to sing "Sixteen Tons" day after day in music classes has forever vilified anything approaching the idea of a company town...
A lot of new construction is residential on top of light commercial. In Culver City (in the middle of LA) they're supposedly building offices for Apple and Amazon which has adjacent housing being constructed as well (although not stacked).
1) "Rich people" want their property values to be stable or increase. They want their communities to be somewhat static. If I paid $1MM+ for a property in a dense CA metro, I can't say that'd I'd disagree with those desires. I'm buying a home and a location, not "housing" as a commodity.
2) Tech companies unnecessarily demand butts in chairs in the Bay Area, foisting the externalities onto the commons (infrastructure and housing). Tax them more if they won't go remote/support remote work. Destroy demand for dense housing and the associated infrastructure.
3) It's documented that there's substantial Chinese money flowing into specific US markets (the US isn't alone of course; Canada, Australia, and the UK also have this problem). This pushes up the price of real estate, whether these properties are lived in or simply used as a store of value outside of the CCP's reach.
Due to property owner/voter and governance momentum, it is unlikely you will see the will to increase development inertia in any California market that requires it, ever. Your options are to complain and put up with it, find an economic path to leaping onto the ownership ladder ("startup lottery", inheritance, etc), or eventually abandoning hope and moving somewhere cheaper/more development friendly (such as Colorado, Texas, Utah, Tennessee, North Carolina, Florida, etc).
Houstonian here. We have plenty of rich people, more fortune 500 companies than San Francisco, wads Chinese-owned properties, and a median home price of $230K. The difference is the regulations, my dude.
And one very specific kind of regulation at that: zoning laws. I could imagine a complex system of zoning laws maybe working, if they were written by urban planning experts with a genuine interest in the greater good.
California’s zoning laws are cobbled together by the total opposite: ordinary local officials with a myopic focus on the interests of current property owners and a general hostility to anyone else.
Zoning is a part of the difference, but recall that Texas also has 1.8% property tax (~top 5 nationally). That really changes the incentives for land owners & developers.
Houston is flat, not hemmed in by mountains or water, and hasn’t really been worried about sprawl. I’m sure it isn’t the worst place in the world, but it isn’t on my list, at least, even if the housing is cheap. At the end of the day, supply and demand are real market movers.
As far as Texas goes, what about Austin? Housing is probably cheaper, but rising quickly because of tech interests. Houston, on the other hand, should be suffering from a downturn in the oil sector.
I think Houston is not just a bad counter-example, it's the worst counter-example. It not only has really horribly high pollution[0], but enormous amounts of urban sprawl[1]. It's not exactly the model city to look up to.
It's also worth noting that the lack of regulations that Houstonians take pride in contributed to the devastation caused by Harvey in a big way.
Regulations? OK.. they contribute but Houston is not an equal conparison to the bay area. Weather, nature and immense opportunity. Also there is no more land. Mountains on one side and water on the other.
As globalization increases, there is ever more increasing demand for SF/Bay real estate, it's becoming ever more elite due to the fixed nature of housing.
'All things being equal' in terms of cost, SF would be the choice 8 times out of 10 for people as a destination. SF boundaries are fixed, housing is limited, Houston is large and has room for new housing; Houston's growth is due to affordability, not because it's aspirational.
'Tourism' isn't a perfect estimation of livable aspiration, I mean, Orlando gets massive numbers of visitors each year, but SF gets a huge number of visitors as well without 'Disneyland/Epcot' to draw them in, even with a relatively small population, it's a top tourist destination in the US. [1]. Houston doesn't get a lot of tourists.
Also, Houston's population growth has slowed dramatically, with new births accounting for more than the ingress population this year.
Because the homes and jobs available in Houston strike a price point that makes sense for certain incomes. Households making $200k+ per year are migrating to California, many from New York. Californians with middle income ($40k-$90k) are migrating to Texas [0].
The number of households between 40k-90k is greater than the over 200k group.
Because they can't afford to live in SF- which is largely constrained by physical barriers to growth.
I do agree anti building regulations are bad and somewhat at fault but it's not an apples to apples comparison by any means.
Rich people want to live on the west coast because it's beautiful and the weather is pretty nice. In fact I wish I could live on the west coast but could no longer afford to once the baby came along and my wife and I decided to go single income.
> If you want to restrict what your neighbor can build buy an easement. Otherwise talk to the invisible hand.
I'm sorry you're unhappy with how zoning and local governance exists today, but that's the hand that has been dealt.
> California makes money off of me being in it. Why is it good policy to drive an industry out?
If you're happy with the quality of life available with the status quo (renting forever with rents continually increasing faster than inflation), feel free to stay. It's your income; if you want to rent forever, that's your choice.
Owning in a high cost of living geographic area is not a right, it is a luxury obtained mostly by luck (either through a purchase before property value increased or a present day windfall of some sort, whether that's an inheritance, the startup lottery, or a high single or dual income that can support servicing a large amount of mortgage debt).
No one with the authority to change it is talking about changing it. No one invested in the status quo is willing to delegate the necessary authority to YIMBYs or their surrogates.
You’d be asking existing and potential property owners to vote against their own interests. Progress isn’t impossible, but it’s going to take decades to make meaningful reforms.
The NIMBYs are so stunningly effective because they're the only people engaged on the issue, not because their values are actually universal.
Like anything else in politics, it's a turnout game. Development regulation is an obscure issue. There's a lot of room for people who would be okay with denser cities (and thus haven't paid attention) to learn about it and show up.
And then of course there's the movement we're already seeing in state legislatures.
> Owning in a high cost of living geographic area is not a right
Neither is a specific type of zoning. Your rights as a property owner are explicitly listed on your deed. Zoning is not one of them, and you have no basis to feel entitled to preservation of your neighborhood in the state it was when you bought it.
> Owning in a high cost of living geographic area is not a right, it is a luxury obtained mostly by luck
This is kind of a weird take. Whether someone can afford to fulfill as basic of a need as housing shouldn't be about luck, no matter the qualities of the area concerned. It's kind of like saying whether someone can afford to eat on a given day should be based on luck—we would think that's crazy, and for good reason. The housing crisis is currently ripping families and friendships apart, not to mention fraying the very fabric of civic and community life—all so a select few lucky folks can feel like they've made it. House prices in the Bay Area (and in other currently high-priced metros) will revert, sooner or later, but in the meantime, we're willing to cause a lot of pain and suffering in the name of picking winners and losers, if only momentarily. And speaking as someone who owns a home in a desirable part of the Bay Area and is 100% pro-housing, I don't really get it. It's really sad to see a lot of my neighbors supporting regressive anti-housing policy—it's almost like sociopathy on a massive scale.
> Tech companies unnecessarily demand butts in chairs in the Bay Area, foisting the externalities onto the commons (infrastructure and housing).
I'm not so sure it's unnecessary. I (and my employer) find it very useful that I have so many colleagues within walking distance of my desk and that we have centralized meeting, event, and dining infrastructure.
I also find it very useful to have so many other employers nearby that I could work at if this job doesn't work out. My employer finds it very useful to have such a large local labor market for the kinds of roles they need to fill.
I'm not opposed to income and property taxes on these marginal increases in productivity that the tech industry gets in the Bay Area, but I strongly disagree that the industry's large presence is somehow inefficient. The tech industry actually uses the resources of the area more efficiently than other industries because of these network effects.
> "Rich people" want their property values to be stable or increase. They want their communities to be somewhat static. If I paid $1MM+ for a property in a dense CA metro
If you buy a $1MM home you are rich, no scare quotes required! I think this explains a lot of the dynamic: rich people do not believe they are rich.
But Las Vegas has always been like that since it was just a few billboards and a gas station. Most people in Nevada are transplants. And the rest are children or grandchildren of transplants, primarily from California.
> 2) Tech companies unnecessarily demand butts in chairs in the Bay Area, foisting the externalities onto the commons (infrastructure and housing). Tax them more if they won't go remote/support remote work. Destroy demand for dense housing and the associated infrastructure.
Can this be quantified? When people complain about increased housing demand due to tech, clearly they're not talking about existing CA residents taking up tech jobs (since they already lived there), so we're talking about people immigrating to CA (from other states or countries) to work in tech. But how much does that actually contribute to housing demand?
Let's see some numbers. What percentage of California's population growth since 1978 (prop 13 year) was due to immigration (vs natural pop growth), and what percentage of those immigrants came to work in tech?
Just to elaborate. Bolinas is a town in Western Marin County. It's a significant drive on winding, hard to maintain roads (highway 1 and others) from any location even in wealthy, isolated Marin County. It was once a hippy town but is now, naturally, a preserve of the very wealthy but regardless of cost, with no jobs in the area, only tourists and the wealth would buy development there.
It seems like the State and YIMBY or whoever should push housing near transportation as well as denser housing. This is obviously not that.
If you read the GP's post, you'll notice they're complaining about not being able to build on an irregular parcel in Marin that's advertised for $12K. Of course, the parcel is that cheap because you can't build on it. The GP should save their complaints for problems that make sense. Complaints about not being able to build in Mountain View make sense, this doesn't.
Altogether, the problems of US housing comes from too much low density housing and too little high density. Given this, keeping people from building on marginal locations is not the worse sin, to say the least.
Thanks for posting this explanation. Bolinas is also pretty infamous as the only town in California that Caltrans can't post a sign pointing too.
It does hit on the fundamental Bay Area issue that almost all water is imported, and there are significant restrictions on development because of that. Almost all of the land surrounding the populated bay is part of a public & ngo "green belt". In the Bay Area, there really is not just some new amazing new places to build. We must build up.
in Contra Costa county (many affluent suburbs and converted acreage) the home-owners marched en masse to a County Supervisors meeting where a tiered pricing of water was on the table.. with One Thousand Gallons a DAY being at the top.. and, huge resistance from "home" owners.. the Supervisors caved, and the measure failed.. this is pre-drought 1990s California Bay Area.. absolutely true
Aren't California cities already the most dense in the US short of New York? We could perhaps do more but it doesn't seem right to say its impossible to build.
Searching for the word "supply" in the article yields 0 hits. I thought I read somewhere recently that two cities in Texas built more housing in 2017 and 2018 than the entire state of California over that same period. It would be great to see a dynamic map of housing being built through the years to see how many rooms or square feet a given region has in aggregate across the various years. Does Trulia let folks in on their data with an API or anything that would permit public data analysis? Is there a public datasource for this information?
Prop 13 does play a part in housing costs in CA, but I suspect it contributes less than limited supply in California metros and low interest rates.
Some of the limited supply is due to building restrictions, but addressing those requires more than just issuing building permits. We can't build high density housing and ignore transportation and infrastructure, and upgrading those tends to be more difficult than building more units.
Prop 13 also contributes to the limited supply because existing property owners don’t pay their fair share toward transportation and infrastructure. The property taxes rise slower than inflation, while the cost of living (important for paying for infrastructure maintenance, let alone new infrastructure) increases faster than inflation.
Therefore, California cities charge outrageous impact fees on construction. The time of construction is the only time the property can contribute its full share toward transportation and infrastructure. These impact fees are passed to the consumer in the cost of new housing. Thus, new housing does not get built until the shortage has inflated the cost of all housing enough to cover the fees. The vast majority of that increase becomes homeowner windfall profits.
In this respect, low interest rates are actually good because they raise the cost of existing housing high enough to make new housing worth the extortionate impact fees. Even better would be the repeal of Prop 13.
“The vast majority of that increase becomes homeowner windfall profits.”
I see this sentiment a lot in these threads, that somehow the fat cat homeowners are laughing all the way to the bank. For most of these homeowners this property is their home, just because it goes up in value quickly over 5-10 years doesn’t net them any “windfall”, and it could all vanish as quick as it came.
As somebody mentioned in response to a similar article, individual homeowners aren’t in it for the increased property value. They’re in it for lower taxes and a safety net against change. Just like (individual) “NIMBY”s aren’t in it for property values, they’re in it because they don’t want change.
It does, but I doubt it contributes as much as low interest rates. The difference in current mortgage rates and the long run average rate is something like 40% of a homes current value IIRC. Assessed value increasing at 2% per year instead of 3% per year does make a difference, but a 1% difference in the rate of increase of taxes that are 1% of the assessed value is a 1 hundredth of a percent difference per year.
I'm in a state without anything like Prop 13. If someone wants to build some development nearby which drives up demand for land and housing in my area, and so drives up property values, and so drives up my property taxes then I've got an incentive to oppose that development.
If we had something like Prop 13 so I didn't have to worry about that development driving up my property taxes wouldn't I then have less incentive to oppose the development?
There is a significant amount of just plain NIMBYism, but I think some of the resistance is deserved because people know the developers just want to get in, sell the units, and get out leaving everyone else to deal with all the effects of way more people using the same infrastructure.
Now, if the developers are willing to pay for the infrastructure improvements to handle all the people, that's great, but I haven't seen that happen often, although it admittedly does happen.
We don’t need developers to pay for infrastructure - we have owners of the new building paying property taxes. That’s what funds city infrastructure. Prop 13 is what limits those revenues, it shouldn’t be on the developers back.
My feeling is it's better to have something paid for up front than hope it'll be paid for later.
We could repeal prop 13 and increase property taxes, but there's nothing requiring that increase in revenue be spent on improving the infrastructure related to the new development. Local government could spend it on something else.
There's also Mello-Roos for the specific improvements that need to be made, but that hurts demand for new housing because it's another cost tacked on, which developers don't like.
The fact of the matter is, as we build more housing, we also need to build more infrastructure to support more people. Developers don't want to do this, but requiring them to do it insures it gets done.
I don’t understand why ownership of property should be taxed. And increasingly more and more.
Consumption should be taxed. I get that. Why should be income be taxed? Are we being taxed for being productive and making money? It makes no sense to me.
It’s like taxing rent. That makes no sense, does it? Why should property be taxes? Why should income be taxed? Inheritance tax is like taxing death.
We have accepted taxes as a way of life that we have ceased to question its usefulness and purpose.
I think it strange that everyone who thinks that repealing prop 13 will magically “fix” housing affordability appears completely ignorant of the fact that most of the western world have effectively zero property taxes.
The problem with Prop 13 isn't that it keeps taxes too low, it's that it disincetivises downsizing by making your taxes jump when you move into a smaller place.
I don't think it's all (or even most) of the problem, but it's bad legislation and definitely contributes to the housing shortage.
Or maybe every structure built on a lot decreases its value?
I just dont understand why real property should appreciate just by existing and being bought and sold. Isnt that just money for nothing? Doesnt that run counter to the old calvinist ethos of WORKING for money?
What? Are people just going to live and sleep outside just because there's no more profit in drawing imaginary lines on the ground?
It's a bit tricky because part of the valuation is 'replacement value'. A problem with San Francisco is building now costs something like $600-1000 a sqft.
Well, maybe you should have taken a look at housing prices in California. People are willing to pay $2 million or more for a house in SF. That's quite a bit more than "free".
The only people whining and wanting things ”for free” are the rent seekers who sought to eliminate property taxes so they could impede economic progress and live for free and try to prevent anyone else from moving in because “muh soul“ (translation: “muh property value”)
Correction: you are right, "market rate" implies free market, which means free from government intervention -- which is very much not the case when it comes to housing.
Would you be ok with private owners being able to buy up all your water and only selling when they want to at the "market rate"?
If speculators can buy up all the available property, why not allow them to buy up a region's drinking water too? I'd be the first to jump in and get massive loans investing in it. When it all dries up and no one wants to sell, will people be cheering on the free market here?
Good take right here but it's not the main reason that prop 13 is making housing expensive imo. The insane market distortions causing landowners to never sell and instead stay put and NIMBY like mad is a larger reason that Prop 13 makes housing more expensive.
California has 39,512,223 people and 441,900 homes sold in 2018. https://journal.firsttuesday.us/home-sales-volume-and-price-...
Texas has 28,995,881 people and 344,030 homes sold in 2018. https://www.prnewswire.com/news-releases/texas-housing-marke...
Florida has 21,477,737 people and 277,827 homes sold in 2018. https://www.prnewswire.com/news-releases/flas-housing-market...
New York State has 19,453,561 people and 134,066 homes sold in 2018. https://www.democratandchronicle.com/story/news/politics/alb...
I used 2018 data because I couldn't find consistent 2019 data for all those states.
California has 1 house sold for every 89 people and Texas has 1 house sold for every 84 people, Florida has 1 house sold for every 77 people and New York state had 1 house sold for every 145 people.
Per capita, the rate of housing sales in California is not so disparate compared to the other large states, so anti-Prop 13 people need to come up with real data to show how Prop 13 is actually affecting things instead of whining about how existing home owners don't pay their fair share.
There's nothing to suggest that Prop 13 has affected real estate transactions in California. And especially in the Bay Area, the amount of turnover is healthy. In my city alone, I used Redfin to calculate that about 50% of the homes changed hands over the last 10 years. That means that the property tax was getting reset to more current levels.
If you look at the property tax rate that California pays, it's higher than Florida and New York, but less than Texas. However, Texas doesn't have state income tax, so overall the taxes being paid in California are exorbitant compared to other states.
I don’t want to imply that you are being intentionally withholding of data, as I don’t believe that — what I’m saying is that this type of analysis is quite hard to do correctly, accounting for all the factors in play!
There is real research and data backing my statement. This kind of stuff has been published in serious economics journals for years now. There's no reason to rely on back-of-the-envelope estimates of housing turnover. Please take a look:
https://www.nber.org/digest/apr05/w11108.html
Do some people have a massive advantage? Sure, just like everything else. But I prefer to have property tax stability because as I get older, if I get priced out of my house because I can't afford my property tax because Googlers and Facebook employees are raising the house prices, that would be completely unfair.
10% for homeowners, hardly the smoking gun.
It’s not clear how an extra year of ownership between sales would cause home prices to skyrocket, especially compared with the dramatic imbalance between new development and in-migration to California’s urban centers!
SF, for example, built 24k new units since 2010, but added 83k new people. I’m willing to bet that more than 83k people would’ve moved in had SF built more housing!
To fetch rent, you typically need to build something, which requires capital. Even if you have capital, opportunity cost might make it more profitable to invest it in something else. Even if building something is best alternative at the moment, expectations of change in future market conditions might make the risk-adjusted return too low to justify the opportunity cost. If you don’t have capital, you need to take a loan, which might not be possible depending on your personal financial situation and credit worthiness, but even if it is, it makes the whole business even more risky.
Now, given it’s California, even if you have capital and actually want to build something, it might as well turn out that your development efforts might be stuck in a local planing and zoning committee limbo for a decade, and often be ultimately unsuccessful, which results in lots of money lost and opportunity cost paid.
As you can see, there are plenty of reasons why you might forgo potential rent.
Say your property tax should be $10,000 per year, but you're paying $1,000 because of Prop 13.
If you were to put an addition on, with a value of $200,000, you'd have to pay property tax on that ($2,000 per year), but they wouldn't reassess the whole property and make you pay $12,000, I assume?
They only assess the changes.
It makes sense.
Otherwise if you're paying $1000 per year in property taxes (instead of $12,000) and you put new countertops in, you'd be hit with a massive reassessment.
They even give an example in their fact sheet[2]. Adding two bedrooms would add $200,000 to your base assessment which is set by Prop 13.
[1]https://www.sfassessor.org/property-information/homeowners/n... [2]https://www.sfassessor.org/sites/default/files/uploaded/ARS_...
Kitchen - structural changes, upgrading of plumbing and/or electrical systems, changing the floor plan, increasing the size, replacing cabinets, countertops, flooring or built-in appliances with upgraded material and finishes
Replacing old countertops with same material, but new, would trigger an assessment, but upgrading them would.
Prop 13 is not why California doesn't have enough housing. This is a lie propagated by teachers unions who flood internet forums with falsehoods.
California's problem is there are hundreds and hundreds of little "cities" each with their own restrictive zoning laws.
They need the state to overrule zoning laws and allow denser housing.
These local cities also cut "sweetheart deals" for companies and give them property tax breaks. So Apple or Facebook or anyone building a new campus pays bargain rates -- not because of Prop 13, but because the local cities have the ability to negotiate tax rates for these companies to encourage them to move in.
Also, I'll add that these places are often owned by a trust. Someone in Florida is getting a check (they need) every month, and they aren't bothering the trustees to maximize the investment potential.
These houses alone aren't enough to solve the housing crisis, but they are a symptom of the disastrous tax policy.
It's enough to make me into a full Georgist, and hope for all land rents to be taxed away.
If you're only paying $5000 per year in property taxes on a plot of land worth $2M and going up, why not?
A single property with a long-term lease signed during an economic boom can pay the taxes for many vacant properties. That’s my guess as to why property owners insist on charging high rents even if it contributes to the epidemic of vacant storefronts in my neighborhood.
https://www.sandiegouniontribune.com/opinion/commentary/sd-u...
No reason to give corporations preferential treatment on property taxes
> meant that new housing could cost cities more in services than it would bring in through taxes.
New or resold houses reset tax to current rate. Yes, there is this provision to transfer low prop tax to another house elsewhere in the state/county if you are above 55, but that is unrelated to Prop 13
Prop 13 is evil, it helps prop owning businesses mainly and makes it slightly more affordable for a bunch of folks to keep the house as a rental unit instead of selling. But in the end, state/schools lose the most.
Which means the house is taxed appropriately 1 year in 13. The rest of the time? The city's underwater.
https://www.valuepenguin.com/how-long-homeowners-stay-in-the...
https://www.lincolninst.edu/research-data/data-toolkits/sign...
I believe we have the most powerful notion of direct democracy which is why our voting demographics get the biggest tax cuts
http://jz.io/2018/05/12/development-is-difficult-in-californ...
TLDR there is triple overlap of legal authorities (City, State and County) who prevent you from building anything, with a 48 year old "water emergency" in place.
If you do pull permits, it costs $1,500 or so and your property taxes will go up.
Apparently if you get busted, they just make you pay plus a small penalty.
Retrofit some office space as apartments and you quickly fix the issue without any new buildings. You could even just remove some office buildings and replace them with parks for a similar net effect.
More directly to the point: with current residential rents there should be a lot of money in doing just what you are proposing, and yet the real estate developers aren't.
As it is, at my previous job the company allocated a room to be the nap room, but instead turned it into a meditation/massage room because sleeping is forbidden in commercial zoning.
My best theory is that having to sing "Sixteen Tons" day after day in music classes has forever vilified anything approaching the idea of a company town...
If the gov't (at all levels) really wanted more housing, it could happen pretty dam quickly. There is enough capital floating around out there.
Problem is the capital says "not worth the hassle" or "with all the delays and costs, it's not worth it".
2) Tech companies unnecessarily demand butts in chairs in the Bay Area, foisting the externalities onto the commons (infrastructure and housing). Tax them more if they won't go remote/support remote work. Destroy demand for dense housing and the associated infrastructure.
3) It's documented that there's substantial Chinese money flowing into specific US markets (the US isn't alone of course; Canada, Australia, and the UK also have this problem). This pushes up the price of real estate, whether these properties are lived in or simply used as a store of value outside of the CCP's reach.
Due to property owner/voter and governance momentum, it is unlikely you will see the will to increase development inertia in any California market that requires it, ever. Your options are to complain and put up with it, find an economic path to leaping onto the ownership ladder ("startup lottery", inheritance, etc), or eventually abandoning hope and moving somewhere cheaper/more development friendly (such as Colorado, Texas, Utah, Tennessee, North Carolina, Florida, etc).
Disclaimer: Not a CA resident, too expensive!
California’s zoning laws are cobbled together by the total opposite: ordinary local officials with a myopic focus on the interests of current property owners and a general hostility to anyone else.
Houston zoning really is a breath of fresh air.
As far as Texas goes, what about Austin? Housing is probably cheaper, but rising quickly because of tech interests. Houston, on the other hand, should be suffering from a downturn in the oil sector.
Houston: 63k / 230k Austin: 55k / 230k Dallas: 52k / 223k SF: 90k / 1,200k LA: 64k / 723k Sacramento: 67k / 350k
Based on a quick Google search.
It's also worth noting that the lack of regulations that Houstonians take pride in contributed to the devastation caused by Harvey in a big way.
[0]: https://www.houstonchronicle.com/news/houston-texas/houston/...
[1]https://www.thrillist.com/travel/nation/urban-sprawl-worst-c...
And California cities are?
Did you look at the rankings in your source? Houston comes in at #9 in terms of worst air pollution.
#1-#8 are all California cities, with the exception of one in Arizona.
In fact, California cities rank the highest in air pollution across all the measures.
[1]https://www.lung.org/our-initiatives/healthy-air/sota/city-r...
No, I did not say California cities are, for precisely the reasons you stated in fact!
You said Houston is "the worst counter-example" to San Francisco because the pollution is so high.
Yet, pollution is worse in in the bay area than Houston.
SF/Bay/North Cal is a very aspirational place, Houston is not.
And can you really say SF is aspirational if Houston is growing 4 times faster?
As globalization increases, there is ever more increasing demand for SF/Bay real estate, it's becoming ever more elite due to the fixed nature of housing.
'All things being equal' in terms of cost, SF would be the choice 8 times out of 10 for people as a destination. SF boundaries are fixed, housing is limited, Houston is large and has room for new housing; Houston's growth is due to affordability, not because it's aspirational.
'Tourism' isn't a perfect estimation of livable aspiration, I mean, Orlando gets massive numbers of visitors each year, but SF gets a huge number of visitors as well without 'Disneyland/Epcot' to draw them in, even with a relatively small population, it's a top tourist destination in the US. [1]. Houston doesn't get a lot of tourists.
Also, Houston's population growth has slowed dramatically, with new births accounting for more than the ingress population this year.
[1] https://www.worldatlas.com/articles/the-most-visited-cities-...
With worker mobility ever increasing in this world, the demand for the 'nice spots' skyrockets.
It's cheaper in Houston because people don't want to live in Houston- at least not nearly to the same degree.
The number of households between 40k-90k is greater than the over 200k group.
[0]: https://lao.ca.gov/LAOEconTax/Article/Detail/265
I do agree anti building regulations are bad and somewhat at fault but it's not an apples to apples comparison by any means.
Rich people want to live on the west coast because it's beautiful and the weather is pretty nice. In fact I wish I could live on the west coast but could no longer afford to once the baby came along and my wife and I decided to go single income.
California makes money off of me being in it. Why is it good policy to drive an industry out?
I'm sorry you're unhappy with how zoning and local governance exists today, but that's the hand that has been dealt.
> California makes money off of me being in it. Why is it good policy to drive an industry out?
If you're happy with the quality of life available with the status quo (renting forever with rents continually increasing faster than inflation), feel free to stay. It's your income; if you want to rent forever, that's your choice.
Owning in a high cost of living geographic area is not a right, it is a luxury obtained mostly by luck (either through a purchase before property value increased or a present day windfall of some sort, whether that's an inheritance, the startup lottery, or a high single or dual income that can support servicing a large amount of mortgage debt).
A hand that has resulted in the ""housing crisis"" which is why we are here talking about why and how it should be changed.
You’d be asking existing and potential property owners to vote against their own interests. Progress isn’t impossible, but it’s going to take decades to make meaningful reforms.
Like anything else in politics, it's a turnout game. Development regulation is an obscure issue. There's a lot of room for people who would be okay with denser cities (and thus haven't paid attention) to learn about it and show up.
And then of course there's the movement we're already seeing in state legislatures.
Neither is a specific type of zoning. Your rights as a property owner are explicitly listed on your deed. Zoning is not one of them, and you have no basis to feel entitled to preservation of your neighborhood in the state it was when you bought it.
This is kind of a weird take. Whether someone can afford to fulfill as basic of a need as housing shouldn't be about luck, no matter the qualities of the area concerned. It's kind of like saying whether someone can afford to eat on a given day should be based on luck—we would think that's crazy, and for good reason. The housing crisis is currently ripping families and friendships apart, not to mention fraying the very fabric of civic and community life—all so a select few lucky folks can feel like they've made it. House prices in the Bay Area (and in other currently high-priced metros) will revert, sooner or later, but in the meantime, we're willing to cause a lot of pain and suffering in the name of picking winners and losers, if only momentarily. And speaking as someone who owns a home in a desirable part of the Bay Area and is 100% pro-housing, I don't really get it. It's really sad to see a lot of my neighbors supporting regressive anti-housing policy—it's almost like sociopathy on a massive scale.
I'm not so sure it's unnecessary. I (and my employer) find it very useful that I have so many colleagues within walking distance of my desk and that we have centralized meeting, event, and dining infrastructure.
I also find it very useful to have so many other employers nearby that I could work at if this job doesn't work out. My employer finds it very useful to have such a large local labor market for the kinds of roles they need to fill.
I'm not opposed to income and property taxes on these marginal increases in productivity that the tech industry gets in the Bay Area, but I strongly disagree that the industry's large presence is somehow inefficient. The tech industry actually uses the resources of the area more efficiently than other industries because of these network effects.
If you buy a $1MM home you are rich, no scare quotes required! I think this explains a lot of the dynamic: rich people do not believe they are rich.
Only in California would people complain "there are too many high paying jobs being created".
Las Vegas is basically Southern California relocated to the closest big city that's building houses.
My family transplanted from Santa Barbara.
And my wife is a transplant from San Diego.
Can this be quantified? When people complain about increased housing demand due to tech, clearly they're not talking about existing CA residents taking up tech jobs (since they already lived there), so we're talking about people immigrating to CA (from other states or countries) to work in tech. But how much does that actually contribute to housing demand?
Let's see some numbers. What percentage of California's population growth since 1978 (prop 13 year) was due to immigration (vs natural pop growth), and what percentage of those immigrants came to work in tech?
It seems like the State and YIMBY or whoever should push housing near transportation as well as denser housing. This is obviously not that.
If you read the GP's post, you'll notice they're complaining about not being able to build on an irregular parcel in Marin that's advertised for $12K. Of course, the parcel is that cheap because you can't build on it. The GP should save their complaints for problems that make sense. Complaints about not being able to build in Mountain View make sense, this doesn't.
Altogether, the problems of US housing comes from too much low density housing and too little high density. Given this, keeping people from building on marginal locations is not the worse sin, to say the least.
It does hit on the fundamental Bay Area issue that almost all water is imported, and there are significant restrictions on development because of that. Almost all of the land surrounding the populated bay is part of a public & ngo "green belt". In the Bay Area, there really is not just some new amazing new places to build. We must build up.
Some of the limited supply is due to building restrictions, but addressing those requires more than just issuing building permits. We can't build high density housing and ignore transportation and infrastructure, and upgrading those tends to be more difficult than building more units.
Therefore, California cities charge outrageous impact fees on construction. The time of construction is the only time the property can contribute its full share toward transportation and infrastructure. These impact fees are passed to the consumer in the cost of new housing. Thus, new housing does not get built until the shortage has inflated the cost of all housing enough to cover the fees. The vast majority of that increase becomes homeowner windfall profits.
In this respect, low interest rates are actually good because they raise the cost of existing housing high enough to make new housing worth the extortionate impact fees. Even better would be the repeal of Prop 13.
I see this sentiment a lot in these threads, that somehow the fat cat homeowners are laughing all the way to the bank. For most of these homeowners this property is their home, just because it goes up in value quickly over 5-10 years doesn’t net them any “windfall”, and it could all vanish as quick as it came.
As somebody mentioned in response to a similar article, individual homeowners aren’t in it for the increased property value. They’re in it for lower taxes and a safety net against change. Just like (individual) “NIMBY”s aren’t in it for property values, they’re in it because they don’t want change.
I'm in a state without anything like Prop 13. If someone wants to build some development nearby which drives up demand for land and housing in my area, and so drives up property values, and so drives up my property taxes then I've got an incentive to oppose that development.
If we had something like Prop 13 so I didn't have to worry about that development driving up my property taxes wouldn't I then have less incentive to oppose the development?
Now, if the developers are willing to pay for the infrastructure improvements to handle all the people, that's great, but I haven't seen that happen often, although it admittedly does happen.
We could repeal prop 13 and increase property taxes, but there's nothing requiring that increase in revenue be spent on improving the infrastructure related to the new development. Local government could spend it on something else.
There's also Mello-Roos for the specific improvements that need to be made, but that hurts demand for new housing because it's another cost tacked on, which developers don't like.
The fact of the matter is, as we build more housing, we also need to build more infrastructure to support more people. Developers don't want to do this, but requiring them to do it insures it gets done.
Consumption should be taxed. I get that. Why should be income be taxed? Are we being taxed for being productive and making money? It makes no sense to me.
It’s like taxing rent. That makes no sense, does it? Why should property be taxes? Why should income be taxed? Inheritance tax is like taxing death.
We have accepted taxes as a way of life that we have ceased to question its usefulness and purpose.
I don't think it's all (or even most) of the problem, but it's bad legislation and definitely contributes to the housing shortage.
CA 2020: 40M
Are there states that are not in a housing crisis? What are they doing differently?
What would California land prices and rent look like in non-housing crisis?
Anyone seen analysis like this: Show a house on Zillow and instead of it being worth $x figure out it should be $y
I just dont understand why real property should appreciate just by existing and being bought and sold. Isnt that just money for nothing? Doesnt that run counter to the old calvinist ethos of WORKING for money?
What? Are people just going to live and sleep outside just because there's no more profit in drawing imaginary lines on the ground?
That is actually how it works right now
Structures depreciate - a new house is worth more than an old one (unless there is some unique historic/sentimental value)
https://news.ycombinator.com/newsguidelines.html
https://en.wikipedia.org/wiki/Market_rate
Would you be ok with private owners being able to buy up all your water and only selling when they want to at the "market rate"?
If speculators can buy up all the available property, why not allow them to buy up a region's drinking water too? I'd be the first to jump in and get massive loans investing in it. When it all dries up and no one wants to sell, will people be cheering on the free market here?
Or maybe there would be a revolt because there is no water.
Or people would love to a region with affordable water