Comment by disposablezero | Hacker News Reader

Comment by disposablezero | Hacker News Reader

TL;DR Prop 13 main focus was it reduced property tax increases to a fixed level because retired residents were being gentrified out of their homes when they could no longer afford to pay taxes on their increasingly valuable homes. My grandparents benefited from this enormously as they bought a home in 1968 near Los Gatos for $30,000 and it's now worth over $1,000,000 but they have Prop 13 and so are able to afford property taxes. Most anyone whom moves loses this protection, so residents tend to cling to their homes because of the fear of losing Prop 13, and so many very elderly residents in California rarely, if ever, move.

Prop 13 was a half-baked, short-term solution to a terrible issue. Real-estate taxes should be scaled with both income and wealth progressive tests to prevent both obscene burdens and tax dodging, so that they are affordable, encourage people both to attract residents to the state and pay their fair shares, but knowing how Sacramento dances around hardly doing anything, it's unlikely to ever be revisited without a sustained, on-message campaign and buckets of crowdfunded cash.

If you're going to ask me about what should be the case, I'd certainly want to move more towards a land value tax[0], which captures the rental value of the land, but doesn't tax the improvements on top of it. It's agreed upon by many economists and ethicists to be fair, efficient, and consistent with sustainable urban planning and finance. It's arguably the most progressive tax.

Prop 13, FWIW, is almost precisely the opposite of a LVT. It's been putting more of the burden of financing California onto income, sales taxes, etc, in order to subsidize landowners.

[0] https://en.wikipedia.org/wiki/Land_value_tax

How does that help in the situation of a homeowner not being able to afford their tax bill because their property increased in value?

How does it help? By creating a competitive market in housing, it should ensure that the housing stock is full enough to create new affordable living for the person to move to.

But... does that still mean people might be taxed out of their home?

I hope it would be rare, because it is a bummer, but I am convinced that there is no sustainable system in which people wouldn't be "taxed out of their home" in some cases. However, consider that they'd still get a sizeable payout, and plenty of available options in their community.

It's the sad truth about land-- if someone is using it inefficiently (which is the case with the single-family households having trouble with property taxes), it's a market signal that the land should be developed more densely...

Would it not be possible to defer these taxes for people over a certain age and make it work like a lien on the house when it is sold and collected from their estate? Sure, it probably makes the income for the government less regular, but surely there could be some sort of financial instrument that could be created to smooth out these inflows, no?

Yes, some have outlined a deferement, roll-up option that would work to do this.[0]

Another option would be a Community Land Trust[1], which would take the responsibility of land ownership away, and allow residents to have more stability at the cost of not directly being responsible for land stewardship.

[0] http://kaalvtn.blogspot.co.uk/2013/01/a-poor-widow-bogey.htm...

[1] https://en.wikipedia.org/wiki/Community_land_trust

This. This. This.

In both places I've lived in the Bay Area, there were vacant houses on the block. In the old town, apparently the house was owned by an old widow who is in a nursing home and who refuses to sell. In the new neighborhood, the house has fire damage. The owner apparently has several properties around the Bay, and just isn't in a hurry to do anything -- the house has been that way for five years or more.

I hear from people living in Palo Alto that their neighborhoods are dotted with vacant homes owned by overseas investors.

Meanwhile, people making $200k a year are commuting an hour each way because they can't afford to live any closer.

Market rate property taxation would provide a strong incentive for these owners to either sell or rent out their properties.

You can do (or I guess proposed to do) what Vancouver did, tax vacant properties. Foreign buyers would purchase homes and then let them sit, reducing inventory and raising prices.

http://www.cbc.ca/news/canada/british-columbia/vancouver-vac...

This is certainly a low-hanging fruit to attack, but one can get to the point where land is inefficiently used, even if it's completely occupied.

> It's the sad truth about land-- if someone is using it inefficiently (which is the case with the single-family households having trouble with property taxes), it's a market signal that the land should be developed more densely...

If the purpose of property taxes is to encourage or force efficient land use, what happens to local zoning laws? The taxes go up and the homeowner responds by trying to build, say, a 4 unit apartment where their single family dwelling was - but the city zoning does not allow it.

Now what? Where's the increased efficiency of land use?

It doesn't, which is part of the fairness of it.

> How does that help in the situation of a homeowner not being able to afford their tax bill because their property increased in value?

If you cant afford the tax, you should move out and sell/rent out. This whole premise is absurd.

Sorry down voter. But this is a fact. We have property tax to discourage under utilization of scarce resources. If you can't afford the tax rate, you should you should find some way to increase your income. This is a prime example of why we don't need the 0.001% to screw over the rest of us. We the 99% are perfectly capable of screwing over ourselves!

The "community" doesn't owe long time residents or new residents anything just because they decided to buy instead of renting. Let's be rational here.

"If you cant afford the tax, you should move out and sell/rent out"

This makes zero sense to me. Someone bought the property 50 years ago and now is the sole owner, but it is reasonable to force them off their property / out of their home? I get it, other people are willing to pay more for it, but it is the owner's property.

Taken to the full Georgist theory, a person is entitled to property in themselves, and in what they create, but not to land and other natural resources; they have no right to excludes others from natural resources without paying the rest of the community rent for its use.

This reminds me of an article posted on HN a few years ago (not California) but one state was increasing property taxes based upon the persons view the State increased his home value by over a hundred thousand dollars and his house was something like a cabin.

Same argument can be made about buying in the bay area. If you can't afford it, move. My argument is just as unreasonable to make as telling someone to leave their home.

> But this is a fact. We have property tax to discourage under utilization of scarce resources.

I'm going to have to ask for a citation on that. In places where land is cheap and plentiful, and there not even remotely a problem with under utilization of scarce resources, they still tend to have property taxes. Property tax rates tend to be set at a level that correlates almost perfectly with local government funding needs. That suggests that we have property taxes to fund local government.

This is a major reason why a Land Value Tax is more equitable than a property tax.

You own land in downtown SF? That's a very scarce resource, and you ought to be taxed on it in order to make sure it's correctly utilized. (Note: the infrastructure within SF is relatively good, which is theoretically what the land tax is paying for.)

You own land outside of a small town and you wish to build a factory? Your land is next to valueless, and the improvements you build shouldn't be discouraged through taxes. (Note: the infrastructure out here is fairly poor, which explains why the land tax is minimal.)

To jump to a theoretical conclusion, Joseph Stiglitz demonstrated through the Henry George Theorem[0] that the quantity of public goods a municipal government supplies is equal to the amount it would receive in a land value tax, given certain assumptions. In short, a land value tax would optimally fund local government.

[0] https://en.wikipedia.org/wiki/Henry_George_theorem

If you bought 20-30 years ago when housing prices were more reasonable but due to bubbles created by the Government your property increased in value from 150k to 600k your property taxes now would be about $800 a month. Living in San Diego you cannot really buy a house for less then 500k. Raising everyone's property taxes to this level would essentially evict many millions of homeowners. Prop 13 is a good thing there are plenty of taxes already including a very high income tax, property tax addons (extra fees besides the main tax), sales taxes, prepared food taxes, lighting and fixture taxes on businesses, sewer tax, and many other thousands of taxes for the the California Government to mismanage.

Those would go down if prop 13 were fixed.

and the homeless population would skyrocket.

No it wouldn't. Average price of housing would stay the same.

Some states have property tax deferral programs where retired owner can borrow money for property tax which is paid off when property is sold or transferred on death. This would let fixed income residents stay in home but keeping fair property tax rates.

You can always just lock in low property taxes only for people on fixed incomes.

What makes no sense to me is why would you cap someone's tax rate when the cause of it going up is their house is worth a shit ton more? They have the financial means to pay it (equity in the house)!

It would make more sense to me to either do nothing and let home owners get a reverse mortgage and use that to pay their tax bill or have the gov't just put a lien on the property and when the next sale happens they get their cut.

It would seem to me that homeowners facing a higher tax bill because their home drastically increased in value should be the last ones you subsidize.

It's a textbook case of populism. The people voting are, by definition, the current residents of the state, and many of them are homeowners. Capping their tax rate and pushing any increase off on newcomers looks like a wonderful idea.

You could call it a form of generational theft, from the 1978 population of California against all future generations to move there.

Nordlinger v Hahn (1992)[0] challenged the Constitutionality of this under the Equal Protection Clause of the 14th Amendment. They ruled 8-1 that it was (John Paul Stevens dissenting)[1]. Stevens' dissent is worth reading. To excerpt:

> These property owners (hereinafter Squires) are guaranteed that, so long as they retain their property and do not improve it, their taxes will not increase more than 2% in any given year. As a direct result of this windfall for the Squires, later purchasers must pay far more than their fair share of property taxes.

[0] https://www.oyez.org/cases/1991/90-1912

[1] https://supreme.justia.com/cases/federal/us/505/1/case.html

I don't agree with that. If I was an old person, and I bought a house at 30K, and its paid off after years of hard work. It would freaking suck if my tax bill is suddenly more than what I can afford to pay, forcing me to move.

That's not fair.

I am young so I do not benefit from Prop 13, but I can see why its an undue burden on people who just want to live their life.

Someone suggested pegging it off of income, or other assets, and I think that's fair.

Maybe it's even more fair to peg the local government budget based on what could be collected from the surrounding homeowners. If the government can't afford to keep the neighborhood super nice, then perhaps the home value would remain low, thus self-justifying the low tax.

That's not fair? Consider this:

Man buys a house house for $100K in 1980, pays it off by 2010 and owns it outright. The value of the home has increased to $1.5M. All of his mortgage payments amounted to $250K, so that's $1.25M in profit.

He's on a fixed income, so he can't afford it when his property tax bill rises to $12,000 per year. As a result, he get a cut on his property taxes while his $1.25M in equity just sits there. After he dies, all that money goes to his heirs.

I consider that unfair.

Unfair to whom?

All those people who spent their 20's eating $13 sandwiches from Seamless, instead of putting their money in the bank.

People whose parents didn't win the housing lottery by buying in Cali 30 years ago but whose parents are from (yegads) Nevada or even (chortle) the other coast and who don't have either Prop13 protection or a convenient million dollar home to hand - but who are the ones who actually pay for all the public services in Cali with their taxes?

(I live half a world away from there and really don't have a horse in that race, but you have to be wilfully blind not to see both the injustice and the economic inefficiency.)

So instead we should shift the benefit to the people who would be able to afford giant property taxes? I.e. Another set of incredibly privileged people.

What on earth is fair about taxation based on property value anyway? Other countries e.g. the U.K. do it by property size and the implied use of services.

Why shouldn't it be possible to buy a home safe in the knowledge that you won't be forced out because of the choices of people around you that you have nothing to do with?

If you're going to talk about random lotteries - why aren't you taking about raising taxes on people who made paper money from other unsold assets that happen to have appreciated dramatically in the last 30 years?

Why not handle changes in land value the same way we handle changes in value of personal property?

Suppose I hire a young, unknown artist to paint a portrait for me, for $100. Thirty years later, the artist is very famous and recognized as one of the most talented and important artists of his generation, and his early works (such as my portrait) sell for tens of millions of dollars.

The way we handle taxing that tens of millions of value that my painting gained is that when I sell it, the difference between the sales price and what I paid counts as income (probably long term capital gains income in this case), and I pay tax on it.

Property taxes are usually used to fund local government and the services it provides. Those don't really correlate well with the value of property. My house and land are assessed about twice as much as that of my neighbor two houses away for instance, and about half of my neighbor across the street, but we are all provide about the same burden on the city for services and all reap about the same benefits.

Thus, I wonder if the way we should do this is that property taxes to fund local government should simply be per lot (or maybe per family, or something like that), and not be tied to the market value of the property. The value of the property would figure into income taxes, when those changes are realized during a sale of the property, using the same rules that we now use for personal property.

The per-lot taxes you suggest are increasingly the way things are financed in California: it's called a parcel tax and when a city wants to raise money for schools and the like, it's one of their few options for passing a new tax, since they've already maxed out the property tax allowed under Prop 13. The other major option for new taxes is sales taxes, but those create a perverse incentive for cities to maximize the number of car dealerships and other commercial property and minimize the amount of new housing they allow, since it's stores that pay property taxes, while houses tend to consume more city resources while paying fewer taxes.

> Real-estate taxes should be scaled with both income and wealth progressive tests to prevent both obscene burdens and tax dodging, so that they are affordable, encourage people both to attract residents to the state and pay their fair shares

Ultimately, this will not sufficiently increase housing stock enough to solve the problem. The problem here isn't that the State of California isn't making enough money in income taxes, but that there's an artificial ceiling on the tax base, because people can't afford to move in (to new developments) and start paying property taxes themselves.

Ultimately, allowing people to stay will only exacerbate the problem. NIMBY is a political phenomenon advanced by an artificially small voting base which is acting in its own interests. If their taxes normalize, and they start to move out, then so does their political influence also start to wane. This will gradually allow for new development to start up and for new people to move in, which will both bring additional tax revenue and proportionally reduce political support for NIMBY. Over time, this becomes a self-reinforcing positive cycle for development.

And no, I don't have any sympathy for Grandma and Grandpa having to move. First of all, because they're going to get a massive payday for doing so, since their real estate is worth so much. And second of all, because the laws of economics are blind. Are Grandma and Grandpa really more deserving of affordable housing than anybody else? Prop 13 is the government picking winners and losers, and calling Grandma and Grandpa "losers" because they were forced to sell for millions is, quite frankly, offensive to anybody who is losing under Prop 13.

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