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Comment by jdhn | Hacker News Reader

I hear this repeated a lot, and I'm not so sure I buy it. Yes, Prop 13 limits how much taxes can go up, but if that's the case, then why wouldn't you try to build more to capture more tax? I'm willing to bet that easing zoning restrictions would help with revenue generation.

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You can, but more residents consume more services, which is a net cost in the long run if property taxes are locked in. As a result, cities in California prefer commercial development that generates sales and income taxes without the need to accommodate more residents. It's a vicious cycle of misaligned incentives.

Prop-13 limits the amount of building cities want to approve because the rate of taxation can't keep up with the revenue required to handle all the infrastructure costs associated with more buildings. I build an apartment building my tax rate increase is limited to 2%, but if new infrastructure required grows at greater than 2% due than that screws the city budget even more.

Many residents are opposing any new construction, fearing that this would lower their properties values (or even will just slow down growth). It's quite nice setup when you own very expensive property and don't have to pay much in taxes to own it (and that property gets more and more expensive without much hustle on your side)

In addition to what buerkle said, build more... what? The amount of property is fixed and already owned. The state isn't somehow making more land in places people want to live, so there's no real opportunity for the state to get more tax dollars that way.

Additionally, Prop 13 is kind of a disincentive to build higher-density buildings because if you tear down a building and build a new one, your tax base will go up to match the newly assessed property value rather than remain at the artificially low level it was at before.

But that building will be locked into current rates for a long time. So property taxes might hike from $500/yr to $50,000/yr, each rising by 3% pa, but revenues could spike from $40,000/yr to $400,000/yr rising at like 8-12% a year. In 30 years, a $100k/yr property tax bill will be peanuts compared to the $7,000,000 in rent revenues they'll be earning.

Developers understand this, they want to build, but they are having trouble getting the permits to replace low density SFH with medium- to high-density housing.

I agree, but at the same time there are also a lot of SFH owners who literally could not afford the property tax bill if they even significantly improved their homes, so you get ridiculous situations like entire neighborhoods in LA that are basically ghettos despite the tiny lots being worth close to half a mil each.

Any real solution needs to be a combination of changing zoning/permitting and fixing Prop 13.

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