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Comment by jedberg | Hacker News Reader

Prop 13. It's destroying the market here. People don't want to sell because it could cost them dearly.

If I wanted to sell my house and move next door (our houses cost about the same), besides the fees to the real estate agents, my property taxes would literally double (from about 10K a year to 20K) and I've only lived here (Cupertino, right next to Apple HQ) for eight years.

My neighbor, who has been in the house for 35 years, would go from 1K a year to 20K a year.

Because of Prop 13, I'm highly unmotivated to sell.

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I agree that Prop 13 is destructive and an unfair wealth transfer from the young and new residents to the house owners with seniority.

On the other hand, the only meaningful macro effect it can have is to reduce liquidity and moderately buoy prices.

A family can't upgrade to a larger house without incurring the increase, so they don't move. A family receives a better job offer... but the commute will be too far so they don't accept it. A family wants to move, but they demand a premium to sell to cover their increase of property taxes.

On the other end, a family buys a house that is far too expensive than reasonable (6x income) but does this with the expectation that their frozen property tax rate will not scale with their income and their property value. Families that aren't willing to accept this default risk miss out on being able to purchase in that area.

Both of these effects are bad but I think it only partially explains the differential between house prices and annual incomes. I assert the overarching reason is scarcity due to geographical constraints and insufficient development. If Prop 13 were a primary factor, we would see high house prices in the Central Valley and near Joshua Tree.

> On the other hand, the only meaningful macro effect it can have is to reduce liquidity and moderately buoy prices.

Exactly. The article is about the lack of inventory. I was explaining why there is a lack of inventory.

I got sucked in by the dramatic language: "destroying" and missed the general point you were making.

The macro effect you aren't accounting for is political -- there's no penalty to residents for nimby policies.

Sure there is. They can't upgrade to a larger house when they have another child because they won't be able to find a deal that compensates their huge property tax increase. They have to live with the crushing reality that their children most likely won't be able to live in the area unless they were the percentage of those who could be successful. These are enormous costs. I agree that they may not be apparent to most residents.

Of course, and prop 13 also creates soft forms of blight. Old people stay in their homes long after they should have sensibly downsized...but ANYWHERE they move in California (even into a one-bedroom condo in nowhere-ville) will increase their property taxes! So they don't move. But they also can't afford the outrageous local costs for upgrades and basic maintenance, so their homes are slowly falling apart.

Actually there is an exception for old people in certain counties where they can keep their old property tax. Which makes the problem even worse because they can sell their house, upsize and yet keep their old 1980s tax rate.

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