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Comment by skybrian | Hacker News Reader

This is better both for San Francisco and Texas, from a load-balancing perspective. Unless housing can catch up, large companies shouldn't be expanding in San Francisco.

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Housing and taxes in CA are close to oppressive. The housing situation will not change unless CA voters agree to a change in property taxes and they won't.

I would also bet that the move will come at the expense of Texas tax payers and to the benefit of Schwabb.

Part of the problem with housing prices in California is that property taxes are too low. Prop 13 means existing homeowners are shielded from higher property taxes, so growing property values are only good for them, no matter how high. Thus, there's no incentive to increase housing supply, which could lower prices.

The problem with housing in California is that we do not build it because regulations prohibit new housing. Look at a zoning map in San Francisco. Housing is illegal.

I believe the full reasoning is that (1) if property owners paid property taxes on the full market value of their property, then (2) they would lobby for (or at least cease opposition against) upzoning for density, and (3) more dense housing would be legalized and built.

Can you help me understand how #1 becomes #2?

In most parts of the country, there's both an upside and downside to increasing property values to landowners. Upside: they're worth more, they could sell and move somewhere else cheaper, pocketing the money, or they could rent out their place for more. Downside: they have to pay higher ongoing property taxes. Most landowners still like increasing property values, but it's not all good for them.

With prop 13, the downside is wiped out. Increasing values are only good; they could increase 10x overnight and this would only make landowners filthy rich, there's no negative effect for them. Ergo, they have every incentive to keep housing supply constrained, to keep voting for politicians and policies that limit housing density.

And to bear specifically on the sub-point that blights the Bay Area -- by removing increasing property taxes, you are removing market pressure for highest and best use.

Another way to think about property taxes is that they're annual nudges to encourage best use of the property.

Without that pressure, as TulliusCicero notes, why would I ever sell before retirement? And furthermore, why would I even try to make money off the property (say, by renting)?

That's probably not in the city's (as in, all the people living there) best interest to have a substantial portion of homeowners so disengaged from the actual market.

PS: Which isn't to say there aren't gentrification and affordable housing debates to be had. Simply that Prop 13 doesn't really help with that -- it just removed risk from those who are already homeowners.

It would be a lot less painful and a lot less expensive for us if we just increased the density. But people have to have their beautiful bay views.

Existing homeowners don't care about new housing because their property taxes don't rise due to a constricted supply. If they did, I'd bet you those zoning laws would change pretty darned quickly.

Yes, and why is it illegal? It's almost like there's no political pressure to allow more housing, because there's no incentive existing homeowners to support that. Almost as if...

That's why it is sometimes necessary for state governments to step in and override local laws on zoning, regulations on housing etc, that just hasn't happened in California yet.

Whoa! Didn't even know about Prop 13 - that basically means no house can currently have a higher taxable value than basically double what it was worth in 1978. Insane!

Huh? I think you're mis-reading something. Your assertion is true only for houses that haven't changed hands since 1978. In most cases, the buyer of a house is assessed taxes on the market value of the house at the time of sale, and further increases are limited from there.

This is true but it’s insane that California allows children to inherit the lower tax basis:

https://www.latimes.com/politics/la-pol-ca-california-proper...

Yes, "in most cases" was my hedge around the various ways in which property can be transferred while keeping its tax status. The majority of prop 13 is insane IMO. If I had to pick a single thing to change, I'd much rather stop applying it to commercial property than remove the inheritance provision.

Yeah, commercial property makes no sense either, especially if you consider the original intent of the law, but it bothers me less than residences as at least those properties, in theory, are doing something productive for society.

Long-term residents are also doing something productive for society -- they are providing stable communities around which longer-term plans can be made, in which cultural memory of e.g. local climatological risks can be preserved, etc. Housing is definitely way too expensive in the bay area, but calling existing residents "unproductive" is pretty astonishingly, callously, selfishly offensive.

Residences, not residents. Buildings, not people.

Eh, I'd say I've met quite a lot of long-term residents of San Francisco. Pretty much no correlation between ownership and how worthless that person is to the community. I know renters with their 30-year lease that don't even live here anymore. I know homeowners with their 30-year old property tax assessment that also don't even live here anymore.

Both just pop in every now and then to enjoy the Bay Area for cheap and then let the home sit vacant the other 300+ days of the year.

I also know renters and owners that have been very active in their local communities.

If the metric you care about is "societal productivity" there are better ways to measure and reward that than based on "how long have you owned here."

The property tax rate is capped at 1% (plus some small extra.) The property value is reassessed with change of ownership. Yearly increases in assessed value are limited to no more than 2%.

It's worse than that. Those people with the very most equity gains, are paying the least taxes relative to their house value. Those with the least equity gain (like recent buyers), are paying the very highest taxes relative to their house. It's basically like saying the person who earned over 1 million dollars in equity gain pays far less taxes than the one who earned 10k in equity gain. It's extremely regressive.

And, since home owners are incentivized to stay in the houses that they bought a long time ago (whether or not it's convenient for them or not), it means there's far less housing turnover, less supply and less opportunities for everyone, and longer commutes which is terrible for the environment. It's a disaster.

No. Every time a house changes owners, it can be re-assessed at current rates.

It gets even better. Because commercial property taxes are so low, the state is forced to rely more on income and sales taxes. Unfortunately these taxes source are affected much more by recessions. Things go to crap, and the state's coffers empty out.

Welcome to why California has budget problems in recessions!

That’s not just part of the problem. That’s the single largest factor of the problem.

Unfortunately it won’t be changed until the State is at the brink of financial collapse. At that point I can see a “millionaires reassessment” suddenly being very popular.

So if we want to tax illiquid assets and wealth instead of income, why stop at houses? Why not tax equity held in companies? Why don’t we tax employees based on the amount and value of equity they have in a company? Every time there is a new round of funding that increases the value of equity, impose a higher tax.

It's not really houses that are important to tax, it's land, because there's a fixed amount of it, especially valuable land, so it's useful to encourage economically efficient use of that land. No property or land tax means people can just sit on land forever if they feel like it with no real downside, besides missing out on potential revenue.

This is bad for society, because people need land for things, and unlike cars or computers or gold we can't just ship it in from elsewhere if some provider is being obstinate.

No you can’t just “ship land” elsewhere. But, there is nothing stopping people and companies from moving where land is cheaper. The land is only valuable because people want to live in California instead of places where it cheaper.

Its not just the supplier who is being “obstinate” the consumer is also refusing to look other places.

You have to remember that companies compete with others for human labor. If your company moves to a city nobody wants to move to, you'll lose labor resources to another company (in the case of SF companies, highly skilled labor that's not easily replaceable and has high training costs).

While I also think companies should spread out more, the very fact that so many companies are paying the significantly inflated property and labor prices in the SF area shows the tremendous economic value in having access to that labor market.

Do you really think that companies like Amazon, Google and Apple couldn’t move to any major metro area and convince enough people to move there if they paid them enough where they could offer potential employees enough to live well, pay then less and benefit from a much lower cost of living?

Anecdotally, I would never move from where I live - Atlanta - to the west coast. There is nothing appealing about the area or the cost of living vs salary. I’m not saying I wouldn’t move to another major metro area if the jobs somehow dried up here.

That limits my salary (not really the COL vs salary is very attractive to me here) except I’ve seen a few local jobs for MS pop up here and jobs at Amazon (AWS) for Solutions Architects, Professional Services, etc. that I may be interested in in a couple of years.

I could also argue that a lot of companies that think they need to hire “rockstar ninja developers” to write their yet another software as a service CRUD app are mistaken and if they had to actually worry about silly things like profits instead of being subsidized by venture capital they could find a way to either relocate to a cheaper area or allow more remote work.

The value of land, and the things that are on it, are tied together tightly. For much of California the price homes has much of the value in the home.

Even worse the assessed value of property, for tax reasons and insurance reasons can be abnormally low in CA (vs value). Many people in the fires have learned too late that they were underinsured and are no where close to being able to rebuild the same house on their property with their insurance payouts.

It is because of the unintended consequences if companies decide to relocate. You start with wanting to tax wealth and then suddenly you find your area in an unemployment crisis because the employers packed up and left.

Property taxes are taxing wealth - just a type of wealth that doesn’t affect the people who want more affordable housing.

If (metaphorical) you want to raise property taxes to force people to move to make housing more affordable, why go through the circuitous route? Why not just use imminent domain, take the land, bulldoze the house and put up apartments?

No one else here is arguing about the merits of a property tax. The issue is that people are paying wildly different tax amounts for the same asset. This is exactly the same issue we see in industries where the entrenched companies put up huge barriers for newcomers.

The idea that California property taxes are too low is completely wrong, they are too high.

In Vancouver, my family’s house was paying around $6000/yr in property taxes and the house was worth 1.4M only because the housing market in Vancouver has been crazy for decades.

My friend in Toronto pays $3800 on her $700k single family home.

My house in the Bay Area I bought for $1M and my taxes were $12,000 and in the last few years it has gone up to $15,000.

The idea that Prop 13 is somehow damaging CA is false. Imagine if you were a retiree in the Bay Area and your property taxes were indexed you the house price? It would drive out too many senior citizens and low income families because house prices have double in the last 7 years.

Also before you say that Prop 13 has a negative effect if you look at the actual house purchases, in my area at least half of the houses have turned over in the last 10 years meaning that the taxes being paid were reset drastically. Prop 13 protects homeowners by keeping consistency but doesn’t stop them from selling.

The issue is, someone who owns a house they bought for 260,000, 30 years ago, isn't paying tax on the current valuation of 1.4m, they're paying a much much lower rate because of Prop 13.

So that's your anecdote - and now mine: the building I live in is worth well over $5 million, and the property tax is currently $3500 a year.

Edit: just to add - I don't know where people get the idea that we need to evict people from their homes over property taxes. Just put a lien on the property for the tax bill. This isn't rocket science.

That's a great idea, especially if they don't evict people, but just take a chunk of the house that is the state's now if they don't pay taxes.

If house prices go up, the state profits when the house changes hands, or the state owns all of the house and then needs to evict people.

Again, no need to evict people. The state will get its money someday. For shorter term expense needs, they can issue bonds referencing that lien as the collateral. Everyone dies eventually.

In non California states, this is pretty easy, your hypothetical retiree takes out a home equity loan or reverse mortgage.

In places like New York, you don’t see mass displacement of old people.

Property taxes in fort worth are ~2.85%. What is bay area?

Closer to 1%.

Asterisk: Texas has no state income tax, but has a higher property tax rate.

Zero until the house is sold.

The Bay Area's problem isn't absolute tax rates. It's that taxes aren't calculated on current property value, but on original sale price. This keeps effective tax rates low if you bought earlier. It also discourages redevelopment, rezoning, or anything else that would bring more supply into the market.

While California taxes are high, this doesn't seem to be the main reason that building more housing is difficult? For that you can blame zoning restrictions and political opposition.

That is a piece of it. But the housing market lacks liquidity due to prop 13. When your tax basis doesn't reflect the value of your property and doesn't keep up with inflation it makes NO sense for you to move in response to market conditions.

Not building housing increases the value of what I already own, and the tax policy means I don't face the economic pressure to change any of it. The two are deeply linked and going to be nearly impossible to change.

Aren’t taxes highly regressive in Texas with sky high property taxes which exempt rich people ?

The property taxes are sky high, yes, but they most definitely do not exempt the rich. There is no state income tax. I wouldn’t call the state’s general tax structure progressive or regressive.

Property taxes are inherently more regressive than income taxes, since since property (either directly or through rents) nearly always consumes a larger portion of the income/wealth of lower-means individuals.

It's not obvious to me that you can't also have a progressive / marginal tax system for property taxes based on home valuations (e.g. home values >$1MM taxed higher than those worth $200K). So, I don't think property taxes are inherently regressive.

That said, I don't think it's enough to just look at one tax. We have to consider taxes and regulations as a whole to understand whether a place is overall regressive or not. This leaves room for different implementations of tax policy which if done correctly will benefit the people.

I would say overall California’s high income and sales taxes and low property taxes are far, far more regressive, see this at the extreme:

https://www.latimes.com/politics/la-pol-ca-california-proper...

Huh?

California’s income taxes are super progressive. They’re only high for high earners.

Here is a recent comparison:

https://www.motherjones.com/kevin-drum/2019/11/taxes-are-sur...

Short answer: yes, Texas is regressive, with tax rates being lower in California for the bottom 60%.

The problem is that the cost of housing (to purchase and rent) is so out of line. I would guess that the "bottom 60%" pay more for housing in ca than they would in taxes in Texas. That payment is wealth transfer to people and not taxes for services.

I was responding to someone asking narrowly about taxes, not chasing moving goalposts.

> I would guess that

That's why I posted data; it works better than guessing.

The commenter guessed at something your article did not address yet is not unrelated. Saying it's moving goalposts to discuss housing costs in relation to property tax percentage and then quoting the first part of the sentence pretending your link addresses the unquoted part is disingenuous at best.

I pretend nothing; the first part of my response made it obvious I'm not responding to housing-related issues.

I'm guilty of being a little snippy, which I'll own. I just get sick of these unmoored "housing sucks in California well no, it is taxes well really is is about..." conversations. The issues are complex, there's real lives and lots of money on the line, and yes, fully two thirds of these conversations involve moving goalposts, whether or not people realize that's what they're doing.

Sure there is another way for it to change. Companies start moving out of California, the employees follow and the demand lessens.

Giant companies get to personally negotiate their own favorable property tax rates. If people goose-step to the polls in 2020 to confiscate additional property from commercial property owners in the form of increased property taxes [1], the mega-corporations won't pay a cent of it. The mom an pop business that give SF its character, however, will be driven out of business.

[1] https://www.sfchronicle.com/politics/article/Change-in-Calif...

The attitude here is we are fully developed and thus done developing. I don't imagine a bright future for California with these housing policies.

I don't see a bright present:

"The poverty rate, when adjusted for the cost of living, is the worst in the nation"

https://www.bloomberg.com/graphics/2019-california-housing-c...