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Comment by xtacy | Hacker News Reader

Expanding on the comment below, it's an unfortunate combination of many prevailing issues.

1. One of the things Prop 13 does is to cap the maximum rate at which a property tax grows per annum to 2%. However, due to housing demand, the property values grow at a much faster rate (7% is not unheard of). The property tax can change when there is a sale.

2. Bay area prices have skyrocketed.

3. The peninsula topography and zoning laws make it hard to expand housing capacity.

So, if you are an aging home owner, sure you can cash out of a sale. But where would you go? Unless you can afford another place in the same area, existing home owners do not have incentives to sell their property, which results in a very low inventory. And, low inventory further puts pressure on the prices and drives it up.

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Not disagreeing with the basic gist, but see this:

https://sccassessor.org/index.php/tax-savings/transferring-y...

http://www.sfchronicle.com/business/networth/article/Bill-wo...

The flip side to that is without prop 13, families like this would quickly find they can no longer afford to pay the taxes on their house and are forced to leave. Which is also not a great situation.

No, this doesn’t happen in other states that don’t have Prop 13. Instead in California the property tax burden is shifted to new home owners, young families just starting out.

It does happen in other states, though not to the extent it was happening to seniors in California when the measure was enacted.

Just because it’s a real phenomenon doesn’t mean they had to adopt the most destructive solution I’ve seen.

Other states have a deep discount for seniors’ property taxes, while others have a lien on the property that the buyer has to pay (thus reducing the sale price). Other states just have very low tax increases due to stagnant property values.

Or...homeowners might become slightly less NIMBY? They would be less enthusiastic about house price increases outpacing inflation and would be less likely to vote down new development?

That's why the Dems have been courting "split-roll" for a long time, to prevent the corporate abuses of Prop 13 - which can bee pretty powerful, but keep the homeowner version.

Here's how a corporate Prop13 exploit goes: first identify land you want to own that's owned by another corporation. Make a private agreement to buy the property. Over time, replace board of directors of property-owning corp with folks from buying corporation. Eventually you have full control of old corporation, with old tax rates. This happened with Ernst & Julio Gallo for millions of acres of arable vineyards.

This happens all the time with private LLCs and S-corps that do nothing but own boats, planes, equipment, or other stuff where sales or use tax is supposed to be paid on transfers.

You don't sell the boat, you sell the LLC that happens to own the boat. And when buying a business entity or business interest, you don't pay sales tax. The boat was always owned by the same LLC, it never changed hands - it was the business that changed hands.

"Forced to leave" is a bit strong, evoking images of someone thrust into debtors prison.

What would actually happen is they'd sell their house for 5x the price of the same house in a more reasonable housing market, and 10x what they paid for it, and move to a different location with a nicely multiplied bank account.

I'll acknowledge that some stability is good. But it has a cost, and that cost is currently much higher than the benefits it provides.

But what if they don't want to leave? Many of these people have lived here their whole lives. If they must leave due to the market, I'd argue that's being forced out. Even if they do make a tidy profit.

Anecdotal, but I've heard this is happening in Hawaii now with vacation home prices skyrocketing, causing natives to get stuck with property taxes they can no longer afford.

So random contrived example based on appriasals I've seen around here (east bay). House paid off a while ago, paid $250k who knows when, property taxes $4k/yr (prop 13), house currently could sell for $1.7M. Person is 65, kids have long moved out. Without prop 13 lets say they would pay $17000 property taxes, maybe less since it would be equitably distributed. So that's $13000 they need to find to not get kicked out.

You say they don't want to move out, can't they simply refinance? Take out $1M against the house. Then draw down on that money to cover the excess taxes you owe and pay the mortgage, this should get you 20 more years in the house, maybe more depending on how the market plays out, could be less if there is a recession but then you the alternatives are you lost the house already since you couldn't afford the higher taxes or the current system where all the new comers/people who relocate are covering for you.

That's weird - I was just in Kauai, and every third house has a "for sale" sign on it, which would indicate a strong buyer's market - i.e. downward pressure on home prices. Probably folks who bought with the intention to rent out to vacationers, but there is a glut of vacation rentals due to AirBNB.

The solution there is to restrict operation of vacation rentals to certain neighborhoods, limit total percentage of housing stock allowed to be converted to vacation rentals, extra property taxes on vacation rentals (versus regular rental properties, which still contribute to housing stock). If you make vacation rentals more expensive to own, you drive down the ROI on them and make them less attractive to investors.

It's sad. But it's also for the greater good. Capitalism automatically makes the most efficient use of land through the use of property taxes. It's also the only reason we have cities at all- all development necessarily displaced people living in lower density structures.

Cities change. It's inevitable. If you can't make use of the resources your city or town provides and someone else can then you are forced out. That's a good thing for society overall and it benefits you too.

But if they have family or regional business networking connections, they would make money on the house and have a life reset everywhere else.... all to sell a house at market prices that are just has high as the other high priced properties. I'm skeptical that the added turnover will do much more than shift the demand curve by a negligible amount while putting people out of their homes.

Or they might realize that building more medium-density housing near major transit corridors might actually be a good thing... sure, the Undesirables might move closer, but if that slows down the increase in taxes, maybe it's a negative feedback loop that helps people see Those People aren't that scary after-all and there's a certain vibrancy to medium density housing instead of traffic-clogging suburban sprawl.

Honestly, Prop 13 created an unsustainable market distortion that pulls out the rug for anyone wanting to start a family.

In such a situation they would have to favor housing policies that lead to a sanely priced market for other people to acquire homes, no?

Why not just have the state put a lien on the property? Taxes aren't payable until either own dies or the property is sold.

It's not very fair to give someone a break on their property taxes and then when they die/sell get an absolute windfall.

Prop 13 should be allowed only for the primary residence, not for secondary residence or rental properties.

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