Comment by Kronopath | Hacker News Reader

Comment by Kronopath | Hacker News Reader

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It bothers me that so few people mention the role of Proposition 13 and low property taxes for housing in all this. Proposition 13 makes it so that property taxes are fixed when you buy the house and only ever increase with inflation, whereas most other places make property tax rates proportional to the current market value of the home based on things like recent sale prices of other nearby homes. For example, in Toronto property taxes are set based on the assessed value of the property relative to the city average, and rates are set based on the municipal government’s budget and expenses.[1]

As a result, it’s costly for local municipal and county governments to zone for residential areas, because of the need for schools, parks, libraries, and other public services needed. If property taxes don’t balance out those needs, then zoning for commercial buildings instead ends up being far more attractive to local governments. The results: more office buildings, more jobs, but insufficient housing to support them.

Increasing property taxes is tricky because of the risk of further displacing long-term residents, or older residents, who have owned their homes for a long time. But in my view the impacts of property taxes on cost of living and the housing crisis are undeniable, and it’s unusual to me that so few people ever even _mention_ it in these discussions.

[1]: https://torontoist.com/2014/01/everything-you-ever-wanted-to...

That combined with rent control laws that have been shown to increase rent costs result in much less natural liquidity in the market and therefore higher prices.

But it goes well beyond that. A landlord can own a $4 million dollar shithole but only be collecting $3000 a month from tenants because they've been there for 12 years and the landlord can't increase rent. If they try to sell the building with long term tenants it becomes an intractable problem because there are few ways to force anyone to leave an apartment and tenants know this - it is not uncommon to offer tenants more than $50k to leave an apartment, and it actually doesn't make economic sense for tenants to take less because if they have been there >5 years they are probably saving at least a thousand dollars a month in rent.

So the end result is that a lot of landlords simply have no incentive to fix up a place. Roof is leaking? Too bad. Your landlord might not fix it and sure, you can take it to the courts and win BUT that means you have to leave your apartment until they fix it the issue and any other thing the inspector finds. Which tends to stretch out for years while renters have to find a new place. So renters generally deal will all types of illegal and unsafe housing issues so they don't lose their "good deal" on rent. So both renters and landlords are incentivized to accept shittier and shittier housing while the letter of law for housing inspections gets more precise and costly for owners when things finally get bad enough.

The lifecycle of a house in San Francisco is 20-40 years of disrepair followed by a complete teardown (except the facade so they can still call a "remodel", yes this is a well-known SF red tape workaround) then a new bigger house is put in it's place and sold for top dollar ($3-5 million is the going rate for a nice new rebuild). This is why shacks are still commanding $1-2 million because the land itself (and the facade) is worth it.

Prop 13 is rent control for land owners, and the same issues apply. One crazy thing is that you can get reassessed for improving a place.

> One crazy thing is that you can get reassessed for improving a place.

As far as I know, the property tax based on reassessment is only increased for the marginal improvement. For example, say I have a house that's currently assessed for $200K, but it's true market value is $500K. I then add a room to the house and the market value jumps to $600K as a result. The new assessed value would be $300K — the original $200K plus the $100K I added by improving the house.

So still undervalued tax-wise, but my property tax increased by 50%.

Presumably when the landlord rented the place out they did so at a price that would cover their mortgage and other expenses including maintainance. That landlord's problem isn't covering expenses, it's that they're envious of the increasing profits of other landlords.

How rent control regulations deal with the increasing (varying) cost of maintenance?

> it's that they're envious of the increasing profits of other landlords

Opportunity costs. Of course rent control policies try to offset the external cost of pricing out people from their homes.

The problem with Proposition 13 is that it also applies to commercial real estate.

A personal residence can only be about 30 years out of date in terms of assessment. And, when the owner dies, that assessment corrects.

Commercial real estate will get buried behind layers and layers of sublease agreements in order to avoid triggering a reassessment. At one place I worked, we had to find the actual original building owner because someone drove a car through a support beam and the rework was going to cause everything to come up to code. We moved out because nobody could actually get through all the layers of subleases (11 layers when I last checked) and guarantee a completion date.

The solution is to remove the Proposition 13 protections from commercial real estate. Good luck. Every company with real estate on the books in California is going to fight you tooth and nail.

> when the owner dies, that assessment corrects.

When you inherit property from your parents the Proposition 13 tax basis is preserved. Many of the kids I grew up with still live in their childhood homes for this reason. Seems a bit ironic: those who can afford to keep inherited property continue to benefit from the Government subsidized tax break, while those who can't afford to are forced to sell.

The assessment can live on after the owner dies, if the property is inherited by a child or grandchild. Nobility titles are a thing in California.

https://assessor.lacounty.gov/proposition-58-and-proposition...

But companies don't vote.

If the people wanting that very change simply organized the requisite petition drive, I'm guessing it would pass easily. That's how Prop 13 was installed in the first place -- the Jarvis-Gann initiative amendment. Same with the California Lottery and legalized marijuana (I think the latter was just statute law, which has a lower number of required signatures.)

It requires a 2/3 majority to change it. Good luck.

No. An Initiative Constitutional Amendment requires only a simple majority of 50%+1 of votes for passage.

For example, Prop 13 itself passed with "only" 62.6%.

California has very serious economic policy issues in housing, not only prop 13, but the ability to NIMBY and the high cost of regulations (building and construction is most onerous in california).

The economists of both SF and California agree on the issues. Its official. The problem is political.

The conclusion is that unfixed, california will hit a ceiling on its growth, and people will move out.

If Prop 13 was the problem, it would have affected all of California vs. only SF. Why is LA, San Diego and Sacramento relatively so affordable vs. SF?

The issue with SF is amazingly complicated zoning laws which prevents building up and the NIMBYism which continue to support it.

LA also has a pretty massive affordability crisis. Rent and housing costs aren’t as bad as SF in absolute terms, but incomes are lower. https://www.nahb.org/en/news-and-publications/press-releases...

LA is even less affordable than SF. Rents are lower but the median income is much lower.

https://www.housingwire.com/articles/41786-los-angeles-surpa...

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