Today we have improved technology along almost every dimension yet the city is zoned for less than half as many people.
We are paying zoning's steep price: https://object.cato.org/sites/cato.org/files/serials/files/r... (that's a link to a PDF).
A few decades of Prop 13 have done an amazing amount of damage to the housing markets all over the state, by disincentivizing the sale of property. This has contributed heavily to reducing the supply of housing and distorting the market, among other problems.
If California made some modifications to it's taxation policy - perhaps lowering income and sales taxes while leveling the playing field on land taxation - home owners could come out paying a similar total tax bill while adding needed fluidity to the market.
As it stands, it's essentially subsidizing commuting. If you bought a house at $100k that's now worth $1M, and your job moves an hour away, you'd be giving up the property tax lock-in by moving to cut down your commute. Rent stabilization/control measures have a very similar problem.
Basing property taxes on the current value of the property makes sense, and is how it is done essentially everywhere else in the world. Basing property taxes on what the property cost the last time it was sold, even if that was decades ago and is some tiny fraction of the current value, is very unusual, and has all sorts of negative repercussions.
But politically, we might as well accept that it won't go away. Your best bet is to save up enough to afford a down payment, and hope that property appreciates and you too can also reap Prop. 13's benefits down the road when you're older. And if you're house is worth 10x as much then, you won't lose it for being on a fixed income, like most retired people are.
...I'd still prefer not having Prop. 13. The more fruitful discussion is how to best navigate a world where it continues to exist. Voters will never approve its repeal; if politicians try to do something about it, they will get thrown out the next election cycle.
Current value makes sense but California introduced Prop-13 and rent control around the same time to basically allow senior citizens to stay in their homes/rentals. Problems with prop-13 include the fact that commercial buildings are not excluded.
California also has Prop-58 and another one where the parent or grandparent can transfer the house to a child/grandchild without an FMV appraisal as well.
I believe it works like this.. Say a $50k house is paid off by the parent, then the gift tax on that can be paid by a home equity loan on it's current $1m valuation. I'm not sure if the gift tax though is calculated on the $50k or the $1m. Or if it is calculated at all. It may depend on if the parent/grandparent is still alive. You may be able to specify the value as the last real property value or the FMV (to cut future capital gains). Either way you just pay the taxes on it. But I think you can exclude a certain amount up to $500k if married.
But you could rent it out as well and use it as collateral on another mortgage.
It could also be that these houses will continue to be passed down the generations.
The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.
It seems pretty clear to me that 10% or 20% makes a big difference. Plenty of people will move across town to pay $2,400 a month instead of $3,000, why would home-owners be fundamentally different.
Property valuations can get small year-to-year bumps, but a sale triggers a re-assessment, with vastly increased property taxes after that. My neighbor across the street bought in 1975 for $28K, and their valuation for tax assessment last year was $162K. Their next-door neighbor bought last year for $1.5M and their assessed value is $920K. Their houses are quite similar, but one pays $7500 more a year in property taxes.
That difference can motivate people to endure a long commute, to hang on to a low assessment.
For example, there have been some local measures I've seen where they want tax assessments based on a percentage of your current tax, not a flat rate. As such, new residents end up paying massively higher amounts of the new measures than long-time residents.
Long-time residents have had the ability to make use of the services their tax dollars have provided for a long time, whereas new residents have not. Old residents might be all about taxes that get them things they want because they don't have to pay much at all, whereas new residents might see a material impact because of how high some of those amounts might be.
x != y
Property often increases in value more than 2% per year, so your actual rate goes down.
https://en.wikipedia.org/wiki/California_Proposition_13_(197...
The benefit accrues over many years, similar to rent control. As a result, the benefits flow to long-standing landholders, who skew disproportionately older.
The result, at least for me in San Francisco: I pay twice as much in rent for a bedroom in a four bed apartment as my grandmother does in property tax for a 4000 square foot mansion. She bought her place over fifty years ago; by definition, I could not have done so. Indeed, with the direction things are heading, huge categories of people are locked out of all segments of the SF housing market due to excessive prices; there's nothing level about that.
That's what parent is likely referring to. I'm not making a value judgement either way. Prop 13 was intended to address the real issue of people being forced out of their own homes due to rising values. But it appears to have the side effect of pushing the values even higher by restricting the sell side of the market.
That person is now sitting on a property worth megabucks. They can't afford the taxes, but they can sell it and retire to Florida.
I personally wouldn't mind having a little more of that kind of suck in my life.
I wouldn't call your suggestion deliberately cruel since you don't seem to have any idea how socially damaging this kind of isolating displacement can be. But I would say that the forced separation of people from their famalies and communities is a really hideous policy outcome, and one that should be strenuously avoided.
Obviously, if somebody wants to move far away, fine. But forcing them to do so is horribly wrong.
It's nuts to tax Joe Worker who needs to live in that area to get to work double or triple the property tax of the rich old guy next door who spends his days playing golf or w/e.
No the answer here is "sorry, but no" to all the people who have decided to block density in central areas in order to keep their own property values astronomically high.
There's no good reason why we should be shipping everyone but the richest workers in their economic prime to painfully remote locals because people in San Francisco's Sunset District are blockading the kinds of buildings that make places like Barcelona, Amsterdam, and Brownstone Brooklyn such attractive places to live.
It sounds problematic on so many levels: in some parts of bay area houses are worth 2.5m, but they werent that expensive years ago. Think mountain view before google.
That is around 30k in taxes right there, per year.
Assume at 1.5% property tax rate and it's $15K per year. With a $900K capital gain, you could pay the property taxes for 60 years.
And if the value of the home drops, then the gov't eats the difference.
I just don't think it's fair that the people who received most of the gains in property value are the ones that get the most generous tax break.
The bad incentives of Prop 13 reward cities for favoring offices over housing. The property tax generally doesn't support the infrastructure, so they approve other activities that they can tax. Cupertino just opened the Apple Spaceship, but they have no plans to approve housing for thousands more workers.
In the news a month ago, in the midst of a teacher housing affordability problem, San Jose rejects teacher housing. http://www.mercurynews.com/2017/05/08/san-jose-city-hall-bal...
I take this position because I'm really not interested in kicking little old ladies out of their homes of multiple decades just because some property price bubble has driven real estate to crazy levels. Basically without prop 13, every bubble is going to drive the poorest and most vulnerable home owners out of their homes, and that is a pretty ugly side effect. That is the original intended protection of prop 13, but commercial properties were somehow rolled under that same umbrella.
Nuke Proposition 13, one-time grandfather some uses, and drop the remaining pain all at once.
Without prop 13, you may end up exacerbating bubbles - the system ends up favoring risky behavior: the uptake of buyers willing to take out the larger loans, or people taking out taking out loans to pay their taxes and try and ride out real estate bubbles. When the bubble bursts, there will be more people with more highly leveraged loans.
Cities working on random rules to help subsets of property owners is, by definition, coding loopholes. By comparison, a primary residence of a homeowner isn't a loophole, that's a basic tax status used by the IRS.
No, it's the richest people with the smallest cash flow that get kicked out first.
Property tax for a salaried worker with a $1m mortgaged house is totally manageable, property tax for a retiree with a $2m paid-off house could be unaffordable. The latter person (who's much richer) has to move, the former doesn't.
It's really the opposite situation of what you said.
Once you force a sale, a buyer, rich enough to buy the home takes ownership, they have exactly the same incentive to approve or disapprove new homes as the original owner.
The person you've forced out on the other hand, now pays the tax, the transfer costs with a real estate agent and likely repair costs on the home, has the same fixed income, and now has to find a home to live in, but now has 5-10% less capital to work with then they had before. It's a bubble, and likely real estate costs in the near area are just as high. So what has been accomplished at the end of this other than harming the living situation of the original property owner and kicking out someone of limited income for someone with more income?
The fact that some people have been there longer than others shouldn't absolve them of their duty to pay their fair share of taxes based on the value of their property.
I might be heartless but it's hard for me to feel too much sympathy for this individual.
It is indeed a sort by cash flow, but whether you own the place or not won't impact the decision.
That said, one argument for rolling back prop 13 from primary homes too is that as long as it's in place those property price bubbles are more likely to occur. As long as their property taxes will remain flat existing residents are still incentivized to oppose constructing new housing, pushing prices ever higher.
If existing homeowners felt some discomfort from the housing shortage - in the form of higher property taxes - as opposed to only seeing massive financial upside - in the form of rapidly appreciating home prices (which can be realized when they eventually sell or can be borrowed against for immediate cash), then they would be more incentivized to support building more housing supply, keeping prices down. Right now existing homeowners are highly incentivized to oppose building more housing and that's a huge part of the reason why prices are so high.
Of course, there are downsides to rolling back prop 13 for primary residences too - it's not as if everything would work out perfectly smoothly. But I suspect a rollback could be crafted so that the transition could be pretty comfortable for existing homeowners.
If density itself increased property values then you could buy a few acres of ranch land in Montana for five hundred dollars, build a high-rise and rake in profit.
Density is a trailing indicator of demand to live or work in some particular place. It's that demand that pushes up prices.
Of course, in some particular cases where some parcel of vacant urban land had been zoned at low density and then suddenly became up-zoned to allow higher density then its value can go up as a result. It had been able to allow maybe just a $2.5 million single-family home, but now it's possible to build an apartment building worth $60 million, so of course the price would go up.
so, the proposal becomes: if these new zoning changes allow apartments on your block, you'll reap a 200% gain if you sell your house today, but you'll immediately lose backyard privacy, quiet streets, sunshine in parts of your yard, easy access to the freeway, and so your enjoyment of life will decrease and you'll have less free time outside of work, etc
my take is simply that a lot of people think the price increase isn't high enough. if they want to keep their existing job in LA, where are they going to move to with that 200%?
now, if the number were 2000% instead of 200% maybe zoning changes would be uncontroversial...
I think you have your causality backwards there - city centers are inherently valuable (close proximity to jobs, food, recreation, etc) which favors dense development to take advantage of that value.
On the other hand if you build a bunch of dense housing in the middle of the desert, it won't be worth much at all.
If no developer wants to build more houses (possibly asking for a zoning change) thereby increasing density, why would an existing homeowner have a decision at all to make in allowing it or preventing it?
My point is not really to argue that the opposite is true, rather that you can make an argument either way, whether higher demand leads to higher density or higher density leads to higher demand. There are certainly low density urban centers that no one wants to live in despite their proximity to jobs, food, and recreation.
Increasing density is the effect of higher prices, not the cause.
after election I'm starting to doubt democracy!
Moving to a smaller and cheaper home might result in the exact same monthly bill.
Now that is only fair and it is more accurate to see the low taxes paid in the past as the unfair part but the end result is the same.
In fact, it's getting to the point where there's no medium-priced stock in areas like the West side. People with growing families want (and often need) bigger houses, but can't afford them, so they increase the size of their existing house, thereby remaining one more small or medium sized from the market. It's a vicious cycle.
How can people know about all these different laws that are very important to know if you want to plan well for your future. Seems like legal systems need some kind of lifespan so accumulated complications can be wiped away and a fresh start is possible (sort of like all living things are born and die). I suppose the founding fathers thought of this and included a constitution convention option for when a wholesale reset of the legal system is required. Bloody revolution not necessarily required.
California with its props is a whole other ball of wax... :-)
You definitely taught me something new though!
This issue plus the over the top subsidy of mortgages has created extended boom cycles.
Currently, Prop 13 caps property taxes as a percent of the last sale price. What if instead we allowed property taxes to increase with home value, but deferred collection of the incremental tax increase until the sale of the home? The back taxes owed could even be capped as a percent of appreciation. Given that the property's price has by definition increased, even after paying the back taxes the seller still gets much of their money back, the government comes out whole, we don't force old people to sell prematurely and the tax burden is shared more equitably between old and new owners.
What you propose is basically an additional mortgage via the state. This means more leverage for home owners and increased risk for the state. When a broad downturn comes, the state will be shoved briskly toward bankruptcy.
() The annual tax bill would be capped according to the Prop. 13 formula (annual increase limited to 2%). The difference between the tax bill and the tax due gets added to the lien balance.
() The tax bill would increase at that rate even if the property value drops, until the lien balance is paid off.
With these rules in place, it's actually pretty hard for the lien balance to get very large compared to the amount by which the property has appreciated. It would take a catastrophically sudden and severe drop in property values for that to happen.
> as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently
Governance would be so much more productive if we were all willing to get behind ideas that have been proven to work, even if the "other side" thought of them first. Like you've done here. :)
I know how naive that all sounds. I'm just worried that these two sides are going to tear this nation apart in very disastrous ways.
Why not just pay taxes on the purchase price, and defer all taxes on appreciated value until the sale?
And why not let the children defer the taxes further? It'd be tragic if your kids were forced to sell the family home immediately upon your death because they couldn't afford the taxes.
Seems like the important innovation here is defer-until-sale, not the pro-retiree, anti-inheritance values.
At 65 your income is expected to drop significantly. By allowing deferred costs on property tax at the age of retirement, you reduce a pressure on tight resources.
Seniors in that case can spend on food / medical and the government doesn't get the bad press of evicting a grandmother who has to choose between feeding herself and paying property tax.
Most of the bubble is because of rent control aka prop 13. There's plenty of research showing that artificially limiting rent on part of the housing stock squeezes the price on the remaining units and causes the rent controlled units to never appear on the market. Look at data on NYC for an extreme example of this.
In NYC around half the housing is rent controlled and a tenant stays for over twenty years on average. These units pay roughly a third of the rate of a non rent controlled apartment. In non-rent-controlled apartments the cost is over the three times as high and the average person stays for less than two years.
In NYC these units have been rent controlled for so long that most have passed down from the original owner. However, they still only tend to be sold upon death because renting them out illegally is incredibly lucrative, often enough that the owner can live off of the proceeds.
So yeah rent control effectively removes that part of housing stock from the market permanently. It's too hard to prevent people from profiting off their rent controlled units so it just results in a racket.
Soo, get out of this neighborhood and move someplace poorer to make room for people who can afford it? I still think that's pretty ugly when talking about people's homes. When you're talking about people with fixed incomes, the only option after getting kicked out is to move someplace lower cost...
I don't understand the rent control discussion - there was a reason I differentiate between primary residence owners and commercial rent investments, especially the intergenerational costs. I don't think prop 13 lets you make any transfers of ownership without resetting the tax assement. (I could be wrong here...)
And transfers don't need to happen when the average person lives 80 years. These units will largely be kept off the market for over thirty years.
I understand your concern about long time residents being forced out, but the proper solution to this is not locking out large portions of the housing market. A much better solution is to highly encourage new and higher density housing to make the area more affordable to everyone. Existing residents don't deserve to live in SF more than new ones just because theyve been there longer
Yes, of course they do. It's people's _homes_ we're talking about. And it's absolutely in every society's interest to safe guard a mix of people everywhere.
Rampant gentrification where the moneyed upper and middle classes squeeze out the lower class, is clearly the number one reason for an increasing segregated society, disenfranchisement and alienation. Perfect growing grounds for radicalisation and what follows...
That’s a myth. The “little old grannies” was the original sales pitch of prop 13, but the intended beneficiaries always included rich people’s trusts, heavy industry, commercial real estate, large property management companies, etc., at the expense of the state budget.
The folks who wrote it were Orange County businessmen and staunch anti-government anti-tax activists.
I think both of these controls have some helpful effects that last way longer than they should. We are trying to damp market oscillations (speculation), not remove them completely! Perhaps the increases could be the moving average of the last 5-10 years, so increases would slowly phase in if they are real growth and be smoothed over if they are temporary fluctuations.
I don't think proponents of rent control and Prop 13 would agree. They are trying to protect existing communities over the long term, and feel (somewhat understandably) that "the market" should not have the authority to disband communities on any time scale.
Speculators are an easy rhetorical target, but if you dig deeper it's really about locking in the existing physical and social character of a neighborhood indefinitely, market forces be damned.
If we remove modern zoning law that restricts the bulk of the city to be low density slum, LA can easily house double its population.
A relevant article on affordable housing: https://www.strongtowns.org/journal/2017/5/8/immutable-laws-...
And in this political climate that will simply never happen. Nobody wants to invest in infrastructure anywhere there is already established buildings. They just want to build new, not refurbish old, because its cheaper to do the former, even if it is macroscopically unsustainable and fails to solve the problem.
Dezoning and allowing urban areas to densify is the only reasonable way forward. Sure, you won't have every road be a 6 or 8 lane monstrosity like Atlanta, but that is not a bad thing. By densifying our cities, mass transit becomes much more efficient and cost effective, and reduces/eliminates the need and outsized cost of owning a car.
1 - https://www.strongtowns.org/journal/2017/1/9/the-real-reason...
http://www.latimes.com/local/lanow/la-me-ln-planning-commiss...
(1) Get rid of rent control; it doesn't work because it focuses on the price side. Instead...
(2) Tax all businesses and individuals collecting long-term residential rents at a flat rate of, like, 65 cents for every dollar of rent collected.
(3) Deposit the 0.65 revenue into a totally transparent, 100 percent "open accounting" fund that awards building projects to competing builders. The builders must build "for sale" units, some high-density urban, some "family size"... the key is to truly increase the supply of housing that allows people to build equity (as the article points out, people who rent simply cannot build equity and that has been the problem all along).
(4) Businesses and individuals who can't afford the 0.65 tax on rents they collect are probably already too leveraged with other people's money anyway; let them go under and convert that "for rent" complex into a "for sale" one. Whoever buys it will be subjected to the 0.65 tax, too, if they decide "making money on rentals" is the kind of business they want to do.
I suspect this "being too heavily leveraged with other people's money" is a root-cause issue for why rents keep rising astronomically and people's wages are not keeping up. Why not build a system that lets renters leverage their own earnings?
I wouldn't want to lock in my price until I thought prices were going to stop falling.
Do you mean that? A 65% rental income tax seems exceedingly high, and while I can imagine an argument for it, you don't really seem to present much of one in your comment.
(Also you refer to it as a "0.65 tax" everywhere else in your comment.)
The proliferation of renting "for profit" in the last 10-15 years is the number one factor contributing to the acceleration of the division of the top 1 percent from the bottom 40 percent (used to be the bottom 25 percent, then the bottom 30 percent; now it is the bottom 40 percent), because there are no market forces slowing it down. More progressive income taxes could have slowed down the top tier just enough to give the bottom 40 percent a little bit of a break. But the rate at which the top 1 percent's income is growing is now even too much for that to have any effect. They write tax code for their benefit, own lobbyists, get unfair tax credits, and basically wreak havoc on the working class by stealing their equity. The article's citations of median rents in LA is evidence enough.
Current system: When landlords have more profit to buy more units, they control more supply and are thus incentivized to further inflate rents, ad infinitum. Clearly price-side economics favors those setting prices. Rent controls do not really work, nor does any system that attempts to make renting "affordable" for working class people because it's basically just pouring more money into an already broken system. Lift people up and out of poverty by giving them incentives to escape the broken system rather than forcing them to stay beholden to it.
The reason the tax on rental income would work is it would make renting "for profit" prohibitively expensive for landlords. Sure, they could try to aggressively increase rents, but it would work against them because for every extra dollar of rent they tried to suck out of people, they'd only net 35 cents. Furthermore, a fresh injection of supply would hamper their efforts to buy up all the supply in consolidtions. Rather the small and independent landlords would have to focus on keeping their current renters happy (like by offering real customer service) and improving the quality of the rentals they manage. Imagine that!
The solution is to make collecting rents an unappealing and unprofitable avenue of investment. And it would work.
That said, I feel like a better solution to wealth inequality would be something more direct like wealth tax or land value tax.
Then there'd be no homes/condos/etc. to rent. How do citizens, most with no cash savings, acquire housing then?
https://www.portlandoregon.gov/bps/article/420062 discusses this in more detail, but in short, we make sure there are places for cars to sleep before letting anyone make a place for a human to sleep. As a result, most of LA's core is asphalt.
A lot of it, though, is just down to geography.
Where does the land for your proposed solution of "just building townhouses and small apartment buildings" actually come from? Where are all these adjacent lots for sale?
LA is no stranger to "small apartment buildings", this started back in the 1950's. In fact one of its architectural signatures is the "dingbat", its hard to drive anywhere in the city and not see these[2].
How about the parking for all of the people you propose putting in this repurposed space? Strip malls tend to be on major thoroughfares that already experience congestion. How do you handle this increase with the addition of all the new residents above the strip mall?
The question/distinction you are asking isn't relevant since the majority of Los Angeles has both apartment buildings and single family homes on the same street or block.
This is true even in the "desirable" neighborhoods such as Echo Park and Silvelake mentioned in the article. And it matters now where in that desirable neighborhood - up on the hill or in the flats. You will see a million dollar Craftsmen house and across the street nondescript stucco apartment building.
Please provide a citation for where that "tons of room" is? Most apartment buildings in Los Angeles are at least two stories[1]. The majority of housing structures are 20+ units[1].
Los Angeles actually ranks among the best in terms of density despite it's sprawling nature[2]. That sprawl it turns out is actually somewhat efficiently.
I have provided citations for all of my assertions including the one above that shows that the LA city council has been routinely rubber stamping high density projects[3].
Nowhere did I say mountains or earthquakes were an issue. I even pointed out that apartment complexes were common place even in the hills.
Where are the data points and citations corroborating your statements? I don't see any. I guess they are just opinions then?
[1] https://www.washingtonpost.com/news/wonk/wp/2015/09/21/the-m...
[2] https://www.citylab.com/transportation/2015/02/a-new-index-t...
[3] http://www.latimes.com/local/lanow/la-me-ln-planning-commiss...
LA: 3,198/km2
From wikipedia.
Perhaps they've been approving more lately - because they have a lot of catching up to do.
Just look around with Google Maps - there's tons and tons of this sort of housing:
https://www.google.com/maps/@34.0418869,-118.4327533,3a,60y,...
It's not dense at all.
Here's a random place in Milan: https://goo.gl/maps/c4u9cgLeNon
That's more typical of a big city in a place where it's legal to build up.
And your density figure for LA is also wrong. from the last census:
>"The nation's most densely populated urbanized area is Los Angeles-Long Beach-Anaheim, Calif., with nearly 7,000 people per square mile."[1]
That is 7,000 people per 2.6/Km.
[1] https://www.census.gov/newsroom/releases/archives/2010_censu...