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Comment by svachalek | Hacker News Reader

A 4-bedroom house bought in the 70s is far more affordable than a 1-bedroom condo bought today, which creates a situation where no one can afford to move out of their homes. It's a massive tax benefit for themselves, their children, and grandchildren, that instantly and irrevocably goes away when they sell the house. No matter how high the market drives prices there is little incentive to sell.

I don't know how much this has to do with the shortage of supply in the bay area but I'd be very surprised if it has "nothing to do" with it.

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That is not a fair assessment of the situation. There are a number of factors that have been put in place by the populace and government agencies to force this situation in the bay area:

1. Rent Control: This forces an incentive not to move. If you are in the 4-bedroom house at $1,500 a month for the past 15 years, a comparable 4-bedroom house is now $6,000. There is no incentive to move and owner's have little incentive to bring up to standard something they are not going to get an ROI on. In this instance, Prop 13 actually makes the situation bearable for the landlords, think if the costs went up and your return stayed static.

2. Building Restrictions: Between the historical board, local populace anger to building, and zoning enforcement, the bay area's supply has been static while demand has increased. There are workarounds, but they border on illegal (i.e. the guy who turned a storage closet into a baby's room for additional space); essentially sub-dividing up existing property.

Within the Bay area, the ability to move a demand curve down has not existed, so the prices have risen to meet the existing supply. Prop 13 has no direct effect on these two items except a positive effect for the landowners in reducing the tax burden that would have forced early bankruptcy for them because of the rent control.

If you think of the government as the "ultimate landlord", then property tax is just another form of rent and Prop 13 is just another form of rent control. It has most of the same positives and negatives as rent control:

> forces an incentive not to move

Check, if you move your property tax will go up

> and owner's have little incentive to bring up to standard something they are not going to get an ROI on

Check, the "landlord" (government) spending on residential infrastructure won't result in increased property tax income. This is partly why the peninsula cities invest so much in office space but refuse to build housing.

You're right that Prop 13 makes rent control possible, but overall I'm not sure that's a good thing.

<You're right that Prop 13 makes rent control possible>

Completely false; the Jarvis-Gann Amendment ("Prop 13") has nothing to do with rent control.

You may intend to instead argue that both JGA and rent control provide disincentives to move (and I would not disagree), but that's a different statement.

You're being down-voted because Klipt is agreeing with GP that by holding down the costs of property owners Prop 13 makes the holding down of property revenues by rent control more tolerable for the owner.

No, I'm being downvoted as a protest proxy against Prop 13, which I didn't advocate or defend -- I just tried to clarify the history. (I wasn't even of voting age when it passed.)

Rent control existed in many CA cities well before Prop 13 and is orthogonal. The impetus for Prop 13 was that frequent and growing property tax rate (as well as assessment) increases during Willie Brown's control of the Assembly, combined with high mortgage interest rates, were driving longtime residents (especially seniors and others on fixed incomes) out of their homes.

Most rental property owners are not lifelong, continuous owners that benefit significantly from Prop 13, and I guarantee you that those who are aren't giving any rent "discounts" because of Prop 13 savings -- the market (and law) sets the rents.

Those houses are lived in though (ignoring the whole issue of unoccupied investment properties). You can have an illiquid market with a ton of housing stock. The Bay Area has a problem with insufficient total housing stock, not with tax policy. You can see this via rental market prices, which are not locked-in like property taxes are.

Imagine a Soviet grey-concrete apartment block. You get on the list when you're 18, and get your "free" apartment five years later, in which you are effectively stuck for the next 50 years. It's illiquid, there is high supply, there are low prices.

Now imagine you can swap apartments by paying a huge bribe. It's still illiquid, there is high supply, there are low average prices, there are high marginal prices.

The problem is staying becomes increasing attractive over time. Retired people save money by staying put, young workers can't afford to move in. This breaks the housing market.

SF is not a housing market it's effectively a planned communist community with a few bribes on the open market.

> Retired people save money by staying put, young workers can't afford to move in.

This is a problem of housing stock. If you build more housing, it's not going to be occupied by people who've been sitting on it for the last 50 years. That's impossible, because it's new.

Well sort of. Consider a couple in a 4 bedroom house who's kids have moved out, but don't move into a smaller place (say 2 bedroom condo) because they would have to pay a bigger tax bill. So there are two bedrooms not being used because of taxes.

> Consider a couple in a 4 bedroom house who's kids have moved out, but don't move into a smaller place (say 2 bedroom condo)

This would theoretically deal with the problem of having young couples with many children who can only afford to live in a 2-bedroom condo, because all the bigger housing is occupied by old people with empty nests and the only new housing is 2-bedroom condos or smaller. But, if you're not interested in forcing the old people to leave, it doesn't solve the problem of housing supply -- you'll still need some housing for the old couple and some more, separate, housing for the new large family, and if you don't build additional housing to accommodate the incoming people you'll end up with a housing shortage, regardless of whether old people shift from their existing homes into smaller ones or not. As long as you're building housing for the people who move in, you might as well build it in the sizes they demand.

Not necessarily. I've been seeing several ex-rental units which have recently been passed down as part of an estate.

Inheriting a house doesn't result in a valuation event, and the seller has nothing encouraging them to sell. So, the house sits there empty - They're only paying $100/month in taxes, which is coffee money.

The combination of no capital gains on inheritance, no estate taxes and ancient property valuations creates a multi-generational issue where houses are kept locked up.

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