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Comment by jly | Hacker News Reader

I would look also at the seriously distorted property and land taxation system in California as an additional contributor along with zoning.

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.

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I support Prop 13 for primary homes that owners are actually living in, but commercial rent deriving properties should have never been covered by it.

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.

While I understand the sentiment, how many people are estimated to be displaced? It's possible the local governments could work with very small amounts instead of coding another loophole into another law.

Nuke Proposition 13, one-time grandfather some uses, and drop the remaining pain all at once.

In general principle, I want to favor owners living in their property. That creates social stability, instead of upheavals of neighborhood on every bubble. Without prop 13, the stronger the bubble, the more people with deep pockets are favored because they can hold out longer on property taxes. You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies.

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.

> You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies.

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.

I think you're splitting silly hairs - technically its anyone with bad cash flow. If someone has no liquid assets and their "wealth" is only tied in the property they're living in, it's monopoly bubble money, and you're kicking them out because they're fixed income doesn't match the real estate market values (which may be unrealistic in a bubble). If you're truly wealthy, and want to preserve the property, then you'll have many options to transition even fairly illiquid assets to keep a property.

I don't agree it's hair-splitting. You can't get kicked out by surprise by repealing Prop 13 unless you've enjoyed huge capital gains and are therefore likely rich. It would make no difference for poor people who don't own property that was acquired at low cost many years ago.

It's really the opposite situation of what you said.

At the rates real estate prices are rising in bay area, you would be kicking people out of where they called home for years. Whether they sit on huge gains or not is irrelevant, they wouldnt be able to afford it.

That capital gain isn't accessible unless there is a sale. If its a sale because the owner can't afford the property tax it is likely someone with limited/fixed income.

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?

What's accomplished is that productive workers can live close to work instead of the double whammy of having a long commute and paying extra to subsidize rich people that don't work.

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.

The seller will maybe pay 7-8% in terms of transaction costs. Lets assume a 30% increase in a house payments is enough to kick someone out. The costs of a typical house costs 6%(mortgage + taxes + insurance + repairs). That's means you need $1,000 a month for a 200k house.(Seems reasonable). Avg. California property taxes are 1.25%. So for that to increase your total payments by 30% you would need your house' value to increase $288,000 before it knocked you out of house and home. Of course with the 8% in transactions costs you leave with a modest $260k in profit.

I might be heartless but it's hard for me to feel too much sympathy for this individual.

260k in profit which needs to be rolled into a place to live in the same market that just kicked you out of your home...

Not the same market -- in some saner market somewhere else. That's the whole point of the exercise.

So the goal is to make the poor go away, in a place that will have less economic opportunities ?

I don't consider anyone with 300k in net worth poor. And the goal is to not subsidize these individuals who have just had a massive windfall, which screws up the rental market leaving the truly poor(renters) SoL.

No, the goal is to make rich go away, and make poor have a place to live where they have more economic opportunities. If you cannot afford to pay $1k/month property tax, it means that you have an asset worth around $1M, so by no means you are poor.

If you cannot pay $1k a month in taxes, you probably cannot rent the place, either. The taxes driving the owners away will drive the renters away, too.

Sell the asset then, simple as that.

Are you asserting that the tax won't be passed down to renters ?

It is indeed a sort by cash flow, but whether you own the place or not won't impact the decision.

All you have to do is convince property owners that it is OK to pass a law that will probably lower the value of their property and raise their taxes. Or, figure out how to pass a bill that is opposed by property owners, by getting the support of the powerful California lobby that doesn't own property. Wait.. what is that lobby?

That's a reasonable position to take.

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.

I question the argument that existing residents have incentive to oppose new housing for pricing purposes. Increasing density in the long run increases property prices. Look at prices in any downtown city....

You don't think the causality goes the other direction for high-density downtown neighborhoods? Lots of people want to live and work downtown (for a variety of reasons). When thousands of people are will to pay a premium to be within the same square mile it suddenly becomes possible to cover the massive cost of building a steel frame high-rise tower.

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.

i live in LA and my take is that people in single family dwelling residential blocks often resist construction of higher density buildings because quality of life goes down (i.e. more cars on the streets, more smog, traffic, noise, unfamiliar people, potential crime, less access to government resources like schools and law enforcement, per capita, because those resources are not built out as fast as population growth in LA).

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...

But you have to remember that for that every home owner whose quality of life diminishes there are 100's of renters whose quality of life increases because they can live in a neighborhood they wouldn't have previously been able to afford.

For a majority of cases if the original home owners hadn't settled and allow infrastructure to mature around their investments then the density would likely not have increased to the point where re-zoning was viable. (At least that's the pattern I see in Australia, where we are at a much lower density across the board)

> Increasing density in the long run increases property prices.

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.

Economics is a mesh of effects operating in a loop. There is no easily discerned causality.

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?

On the other hand, all of your inherent values of a city center can be said to be caused by higher population density. Food and recreation spots will be opened close to where people live. Jobs are variable in terms of location, but there's certainly an advantage to moving close to population centers--at the very least, access to a vast workforce.

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.

Obviously density isn't sufficient to create value on its own, but in the context of neighbourhoods of a city, more dense areas tend to become more valuable than less dense ones, because density supports better services. So if one suburb lets developers build high rises and another of similar value doesn't, the former is likely to end up more valuable in the future.

Limiting supply in the face of increasing demand causes prices to go up.

Increasing density is the effect of higher prices, not the cause.

very interesting argument. I wish there was an authority that somebody could just change this stupid zoning laws, we have to analyse this gaming theory strategies to incentive people while everybody know what the solution is.

after election I'm starting to doubt democracy!

In general state governments can pass laws which override local zoning ordinances.

I think the larger disincentive is simply downsizing (such as the common pattern of becoming an empty nester) or moving in general causes supply to be very scarce.

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.

Yeah, this is another problem that LA is starting to face in many neighborhoods. There are no smaller houses. What happens is as soon as a small house goes on the market, a developer buys it for several percent over asking price with cash, tears it down and builds a McMansion on it that stretches from one end of the lot to the other. So there is no lower-priced housing stock available to buyers.

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.

Prop 60 lets people 55 and older a one time transfer of their low property tax assessment value to another home of the same or lesser value. The new home must be in the same county as the old one or in one of eight counties that accept transfers of base-year value from other counties.

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.

I posited that laws should be reviewed after X years and if there was not a compelling reason (with proof) to continue them then they would lapse. This would hopefully ensure that only really useful laws would even be bothered to be created.

California with its props is a whole other ball of wax... :-)

Oh and in my empty nester scenario earlier they could be as young as 40 and as old as 70+ so not all would qualify.

You definitely taught me something new though!

I think you are hitting the nail on the head.

This issue plus the over the top subsidy of mortgages has created extended boom cycles.

I'm not convinced that Prop 13 is the best or only solution to the "we don't want to kick senior citizens out of their communities" issue. Prop 13 only helps you if your property has appreciated in value anyway. So by definition, all of its beneficiaries are sitting on assets that have appreciated, sometimes enormously.

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.

If your home becomes much more valuable in 2018 to 2028 but then falls sharply in 2029 to 2034 and you become ill in 2035, who will pay the high tax then due?

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.

There are various ways to set this up. What I would propose for California would have these properties:

() 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.

Why cap it? Removing caps allows the market to properly price property with regard to taxes and will give the market stability. Caps are a distortion and will hurt some and benefit others.

The modification to Prop. 13 that I am proposing will already be an extremely hard sell to California voters. Outright repeal is just not realistic.

In my opinion, Texas gets this right (as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently). If you're over 65, you can defer property taxes on the home you occupy as long as you continue to own and occupy the home. They aren't even just frozen, you can simply not pay the taxes at all. This means you can't lose your home due to inability to pay property taxes. But you don't get to play both sides and get a property-tax reduction while also passing on a big capital-gains windfall to your heirs. The taxes are deferred, and when the home is either sold, or transferred to heirs upon your death, the deferred taxes are assessed against the capital gains and/or the estate. (If the estate ends up being worth less than the deferred taxes, the state eats the difference, but deferred taxes are recovered from whatever value it does have.)

Cool, sounds very similar to what I was thinking! Glad to find out that someone has implemented it.

> 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. :)

Preferably there wouldn't be these sides at all. Just a bunch of different people that support different things.

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.

That's actually really neat. If anyone else was interested in reading the details, here's the relevant statute: http://www.statutes.legis.state.tx.us/StatutesByDate.aspx?co...

What happens to someone who lets the taxes build up but needs to sell (medical bills, say)? This screams of unintended consequences where the state taxes a windfall from someone forced to sell.

unintented consequences... like what we're dealing with right now with the current california housing market...

Taking out an HELOC against the property might be one solution.

The property taxes take precedence over loan collections, so no one will give you a HELOC when you have a bunch of back taxes.

I don't see how it's a windfall on the part of the state, it's just collecting what's owed to them in arrears. It's not required that you defer the taxes. You could pay them up front. It's simply an option, that if you lack liquidity (because your assets are tied up in your house), you can defer payment until a "liquidity event", as they say in the startup world. There isn't any kind of right to both not pay property taxes and turn your property into liquid cash in your bank account. The purpose of the deferral option is that even if you have no liquid cash with which to pay property taxes, you can never be forced out of your home for that reason. That's the stated purpose of Prop 13, too, though perhaps not its real purpose.

If the government didn't make them pay taxes it would be basically writing giant checks to home owners who own expensive houses, don't pay their tax bills, and rack up large amounts of medical bills. And the government would pay those people with money from renters, tax payers, and the insured.

The taxes deferred as a lien, but the lien accrues 8% interest. If there's any value in the house, it would be cheaper (at current rates) to refi and pay out of that.

Holy CrapOla this is a big asterisk

Why the over-65 requirement?

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.

Letting people defer indefinitely may let them run up more deferred tax than the value of the property. Restricting it to over 65s limits how much of a bill people can run up.

If the tax could add up to more than the value of the property, doesn't that mean the tax is way too high and should be capped?

No? Whatever rate you set it at, if you let people defer it indefinitely, it can eventually exceed the value of the property. That in itself doesn't imply the rate is too high.

I also think that the retirement-age might also be part of that.

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.

Especially if, assuming what's reported in this thread is true, they have an 8% lien on the property.

You already have to pay capital gains tax when you sell. Adding on to the state's cut at sale with even more taxes would be exceedingly unpopular.

The first quarter million (half million for couples) dollars of profits are exempt from capital gains tax.

I think this has the problem of trapping people into houses on declining property values. You've got some elements to mitigate that somewhat, but prop 13 really seems like a cleaner simpler way to do the accounting because there is no hysteresis effects. Anything else, and you really provide a disincentive for many people to sell just for the added headache.

How would people get trapped? If the property value is declining they can just get it reappraised and pay an even lower tax rate than what they were expecting when they bought it. From a tax perspective that should be a windfall for them.

The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Also, an increase in housing values is proportional to the worth of the house so even rich people are affected. Your vision of old widows on the streets doesn't match reality.

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.

> The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing.

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...)

The primary residence owners get the same perverse incentive to illegally rent and never sell the property. Why wouldn't they? It's literally free money.

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

I think it's odd to base your policy for most people for what a tiny minority might illegally do. As for people keeping their homes for thirty years - I think that is a tremendous good in our society that we want to encourage in terms of stability of people and their relationships to their neighbors and cities, and suspect we're going to hit a fundamental disagreement beyond there.

It sounds nice, but in California it has created a landed gentry who fight tooth and nail to keep things completely unaffordable for everyone else.

What about enforcing the laws about illegal renting? Turn the property over to the current tenants, perhaps fine the prior owner and call it a day.

> 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...

Why does everyone that already has a certain kind of lease deserve cheap rent for life but not people that don't already have a certain kind of lease?

The reality is that the NIMBY's paying low property taxes were a contributor to the high prices in markets such as San Francisco. Why destroy your view when the only side effect is increasing housing costs for OTHER people?

If their house value goes up, won't that allow the little old ladies to take out a larger reverse mortgage to pay their taxes? At what point does this not become possible?

If we want to keep old people in our communities, then why are we only caring about old landowners? Let's just pay enormous amounts of money to all old people in general, so that they won't ever leave areas with decent commute times.

> That is the original intended protection

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.

Like the mortage-interest tax deduction, NIMBY zoning benefits so many people, once you do it, it's hard to undo without tanking the economy. It's a regressive tax, but so many voters benefit I doubt anything will ever change.

And the capital gains tax exemption on the first half million dollars of profit from home sales.

We could then re-evaluate rent control on the same logic!

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.

>We are trying to damp market oscillations (speculation), not remove them completely!

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.

Thank you for pointing that out. I still think it is useful to make the argument explicitly and separately and see where people land. The percentages of people that support limited term prop 13/rent control may be larger than the percent that support it as a general concept.

what do you mean "leveling the playing field" if you buy a house your property tax increase is limited to a fixed %. how is that not level.

It's leveling it between existing owners and purchasers.

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.

You could always rent the home so someone else could occupy it. Presumably you would've paid off the $100k home by now, and then you could get a second mortgage on a new property, or rent and break even (given the income from renting the first property).

Why should people owning investment properties be given huge tax breaks that wouldn't apply to someone buying the same home in the present day in order to live in it?

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.

I'm not disagreeing. I was attempting to show how you might make the housing market less rigid. Even if the numbers of units for sale is low, you could at least get people to rent them. A larger rental supply would help meet the demand in California and keep prices for renters and buyers lower. I completely agree, though, that Prop 13 isn't helping the situation.

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.

There is an active debate with people lobbying Congress to remove the second mortgage deduction.

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.

It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the inheritors get a house with a $500/yr property tax bill (1% of 50k) instead of a $10000/yr property tax bill. (1% of 1M) Meanwhile all their neighbors who had to buy their homes recently are paying that $10k/yr.

The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.

Yes I know that it's property tax. Sorry if that wasn't clear. I thought I had it covered by FMV appraisal.

Why would you buy a new property and lose 6% to realtors? Or take out a new possibly more expensive loan. I am not sure property tax is a big motivator. Do you have studies that show it's negative effect?

Why would it not be a big motivator? don't know about LA, but in SF tax is just shy of 1.2%, if you have a mortgage at 3.5%, and you've held your property for a long time, you can easily see your property tax triple and your cost of living go up ~10-20% in aggregate just by being assessed at the current market level in a new home (with the same value) on the other side of town... And that's every year, not just once on the sale.

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.

Your comment indicates you may not know about how Prop. 13 works.

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.

As someone living in a country without annual property taxes Im not really qualified to comment, but, it almost sounds like the solution is to allow people to transfer their low assessments on to new properties - this is obviously a huge advantage to older people but it would allow real estate to be used more efficiently.

What country is this and how are local taxes collected then? I'm intrigued.

Also, this can cause some really interesting (not in a good way) issues with what those tax dollars get you.

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.

I understand how it works, I don't think if I bought a house for 100k that is now worth 1 million I would move across town for a shorter commute like the parent suggests. I would loose money from transactions costs and loan fees. My school district would change, along with other neighborhood amenities. It will more then likely work out better to commute a little.

Freeways also subsidize commuting. Would people sit in traffic every day if they had a choice? But if you suggest dynamiting a few stretches of interstate you get the same reaction from the public as you get when you suggest taking away prop 13.

Would people sit on public transportation every day if they had a choice? Cleary not - BART ridership is falling during leisure time (when people have a choice) even as it rises during peak hours.

because your property tax is no longer tied to what your house is worth, but instead tied to some arbitrary measurement (fixed % increase on what it used to be worth)

x != y

how is that not level? once someone buys a house they are in the same system?

Over time, you accrue a large tax benefit as a homeowner, if the actual value of your home increases more than 2% every year. By moving, you reset this benefit, which is a disincentive to moving.

The price you paid is no more less arbitrary than approximate current worth.

Proposition 13 declared property taxes were to be assessed their 1975 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done.

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...

Even more damaging is when housing prices go up much faster than 2%; then there is a disincentive to move or enlarge your unit, because doing so would increase your tax liability by oftentimes staggering amounts.

One solution for tax relief for elderly would be to remove or reduce tax payments at age 65 or earlier if one is handicapped. It seems to be a fare method to handle this for issue. For the rent inflation in LA I don't have a answer. That said allowing people to get homeless seems to be a great cost on society as a whole and their should be a smart and scalable solution.

When someone buys a property today, it is subject to the same 2% a year rule. I don't see how this is not a level field.

Age

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.

i hope you've looked into minimizing the property tax liabilities for when that house gets transferred to you.

My neighbor pays half the property tax that I do, despite our houses both being worth the same amount. My new neighbors pay %25 more than I do, also in a similarly valued house.

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.

Sucks if you at some point can't afford property tax because house prices went up 1000% around you. Think everyone can pay $20k / year?

Yeah it does suck. No I don't think everyone can afford that.

suck is all relative.

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.

That's a pretty shitty solution for everyone involved if they don't actually want to be separated from the rest of their family by 3,000 miles. And not just their families, but their friends and communities, which have a profound impact on overall well-being in their later years.

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.

You don't need to move 3,000 miles away, you just have to move outside of commuting range where the prices fall off a cliff. You can still live in the same quality house and see your family frequently.

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.

Eh, "community range" turns out to be pretty massive around the SF Bay Area, for example. Moving people two or more hours away by car can still do a lot of damage to their relationships, especially when their ability to drive is becoming weaker.

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.

If your house just went up in value by 1000%, then yes, you can afford $20K per year. Just do what Texas does and allow the home owner to stop paying property taxes and have the state get their money when the person dies or sells the house.

The only way to afford what you say is taking a reverse mortgage.

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.

So what you're saying is that without prop 13 this set of people would vote for policies that keep housing prices at sane levels?

NIMBY is a real thing, there is no denial in that.

Using your example, of 1000%, you're looking at a house purchased for $100K going to $1000K.

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.

Why is it any different if their property hadnt appreciated? One gets the burden, other doesnt?

All of CA has the prop 13, where we see it get blamed for high prices are in very high demand areas. How much price reduction would you really see without it? Looking at New York it doesn't look like much since the primary issue seems to be supply.

But in New York, if you find Manhattan to be unaffordable, then you can move to a suburb. In San Francisco, the suburbs are even more expensive than the city.

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 don't understand the downvotes. Using the term "leveling the playing field" implies that a new home purchaser has a different contract with the state then a home purchaser last year or 10 years ago. Yes what you paid for the house is more, and therefore your taxes are higher but the contract with the state is still the same.

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