Hacker News Reader

Comment by rcpt | Hacker News Reader

> The infamous Proposition 13, a 1978 ballot initiative that capped property taxes, meant that new housing could cost cities more in services than it would bring in through taxes. In response, cities privileged much more lucrative commercial development—setting the stage for the state’s severe jobs/housing imbalance—and tacked hefty fees on new housing construction.

Good take right here but it's not the main reason that prop 13 is making housing expensive imo. The insane market distortions causing landowners to never sell and instead stay put and NIMBY like mad is a larger reason that Prop 13 makes housing more expensive.

View on HN

This is the biggest problem with people who oppose Prop 13. They claim that owners "never sell", however if you look at the number of sales, there's nothing to suggest Prop 13 stops house sales. It's basically a lie, and there's no actual data to suggest that California house sales are drastically lower because of Prop 13.

California has 39,512,223 people and 441,900 homes sold in 2018. https://journal.firsttuesday.us/home-sales-volume-and-price-...

Texas has 28,995,881 people and 344,030 homes sold in 2018. https://www.prnewswire.com/news-releases/texas-housing-marke...

Florida has 21,477,737 people and 277,827 homes sold in 2018. https://www.prnewswire.com/news-releases/flas-housing-market...

New York State has 19,453,561 people and 134,066 homes sold in 2018. https://www.democratandchronicle.com/story/news/politics/alb...

I used 2018 data because I couldn't find consistent 2019 data for all those states.

California has 1 house sold for every 89 people and Texas has 1 house sold for every 84 people, Florida has 1 house sold for every 77 people and New York state had 1 house sold for every 145 people.

Per capita, the rate of housing sales in California is not so disparate compared to the other large states, so anti-Prop 13 people need to come up with real data to show how Prop 13 is actually affecting things instead of whining about how existing home owners don't pay their fair share.

There's nothing to suggest that Prop 13 has affected real estate transactions in California. And especially in the Bay Area, the amount of turnover is healthy. In my city alone, I used Redfin to calculate that about 50% of the homes changed hands over the last 10 years. That means that the property tax was getting reset to more current levels.

If you look at the property tax rate that California pays, it's higher than Florida and New York, but less than Texas. However, Texas doesn't have state income tax, so overall the taxes being paid in California are exorbitant compared to other states.

Thanks for the links - I’ve heard the bit about prop 13 causing people to never sell

Bay Area owners of multiple dwellings call them "my children" when interviewed. I think that's all that needs to be said.

That is what every non-commercial landlord everywhere thinks of their properties, they become an obsession.

> It's basically a lie, and there's no actual data to suggest that California house sales are drastically lower because of Prop 13.

There is real research and data backing my statement. This kind of stuff has been published in serious economics journals for years now. There's no reason to rely on back-of-the-envelope estimates of housing turnover. Please take a look:

https://www.nber.org/digest/apr05/w11108.html

“From 1970 to 2000, the average tenure of California homeowners and renters increased by 1.04 and .79 years relative to that of homeowners and renters in the control states. These figures represent increases in average tenure of 10 percent and 19 percent, respectively.”

10% for homeowners, hardly the smoking gun.

Adding a year of house ownership equates to "lock in"? That's hogwash and you know it. It's obvious that the so-called Prop 13 effects are total BS. You would expect a much more pronounced effect but the per capita number of house sales are in line with other states without Prop 13. There is zero evidence that Prop 13 is the cause of home prices skyrocketing.

Do some people have a massive advantage? Sure, just like everything else. But I prefer to have property tax stability because as I get older, if I get priced out of my house because I can't afford my property tax because Googlers and Facebook employees are raising the house prices, that would be completely unfair.

I appreciate the data here, but this is a pretty weak argument.

It’s not clear how an extra year of ownership between sales would cause home prices to skyrocket, especially compared with the dramatic imbalance between new development and in-migration to California’s urban centers!

SF, for example, built 24k new units since 2010, but added 83k new people. I’m willing to bet that more than 83k people would’ve moved in had SF built more housing!

It’s worth reading rcpt’s links in a sibling comment, but this analysis ignores a) geographic distributions within California of Prop 13 effects, b) the differences in demographics and population growth between those states, c) in California, properties other than single-family homes, and d) differing rates of renting and homeownership.

I don’t want to imply that you are being intentionally withholding of data, as I don’t believe that — what I’m saying is that this type of analysis is quite hard to do correctly, accounting for all the factors in play!

This. There are some random plots of land in very desirable areas that would never be left like that without prop 13. Why yes I’ll keep paying $5000 per year in property taxes while my multi million dollar plot keeps appreciating at 8% per year...

Why would someone leave the plot empty and forgo potential rent?

Too much hassle to build and it limits your options in the future.

If you're only paying $5000 per year in property taxes on a plot of land worth $2M and going up, why not?

Imagine it is you that own such a plot. Can you think of reasons why you yourself might forgo potential rent?

To fetch rent, you typically need to build something, which requires capital. Even if you have capital, opportunity cost might make it more profitable to invest it in something else. Even if building something is best alternative at the moment, expectations of change in future market conditions might make the risk-adjusted return too low to justify the opportunity cost. If you don’t have capital, you need to take a loan, which might not be possible depending on your personal financial situation and credit worthiness, but even if it is, it makes the whole business even more risky.

Now, given it’s California, even if you have capital and actually want to build something, it might as well turn out that your development efforts might be stuck in a local planing and zoning committee limbo for a decade, and often be ultimately unsuccessful, which results in lots of money lost and opportunity cost paid.

As you can see, there are plenty of reasons why you might forgo potential rent.

Building will also trigger a re-assessment (which is why you'll see lot with existing structures stripped to the studs to avoid reassessment).

I'm sure the rules are complex, but even if you stripped to the studs you'd get reassessed on the improvement to the structure, correct? Not a reassessment of the whole property?

Say your property tax should be $10,000 per year, but you're paying $1,000 because of Prop 13.

If you were to put an addition on, with a value of $200,000, you'd have to pay property tax on that ($2,000 per year), but they wouldn't reassess the whole property and make you pay $12,000, I assume?

Property assessment is a single value, not a room-by-room piecemeal kinda thing.

Apparently not in SF.

No you get reassessed on the entire thing.

You will get re-assessed even if you left the frame (or one wall standing). And new construction is reassessed. And even under prop 13, tax can increase 2% / year.

Prop 13 is not why California doesn't have enough housing. This is a lie propagated by teachers unions who flood internet forums with falsehoods.

California's problem is there are hundreds and hundreds of little "cities" each with their own restrictive zoning laws.

They need the state to overrule zoning laws and allow denser housing.

These local cities also cut "sweetheart deals" for companies and give them property tax breaks. So Apple or Facebook or anyone building a new campus pays bargain rates -- not because of Prop 13, but because the local cities have the ability to negotiate tax rates for these companies to encourage them to move in.

Only the portion that is being remodeled or added to the existing home is assessed. The final assessment resulting from the new construction is then added onto the factor base year value.

They only assess the changes.

It makes sense.

Otherwise if you're paying $1000 per year in property taxes (instead of $12,000) and you put new countertops in, you'd be hit with a massive reassessment.

They even give an example in their fact sheet[2]. Adding two bedrooms would add $200,000 to your base assessment which is set by Prop 13.

[1]https://www.sfassessor.org/property-information/homeowners/n... [2]https://www.sfassessor.org/sites/default/files/uploaded/ARS_...

This is useful information, I was told differently, but thanks for the links.

Countertops wouldn't trigger reassessment. It has to be electrical, plumbing, or structural changes (e.g, changing the size of a window or door entry).

It’s right in the link what is assessable:

Kitchen - structural changes, upgrading of plumbing and/or electrical systems, changing the floor plan, increasing the size, replacing cabinets, countertops, flooring or built-in appliances with upgraded material and finishes

Replacing old countertops with same material, but new, would trigger an assessment, but upgrading them would.

Most answers below are wrong on one thing. Yes, your house may be reassessed, but only the structure portion can be reassessed. If have a 1 M house, usually land is 800 K and house is 200 K, and in the case of a long term owner, it could be 300 K land + 50 K structure or something like that. County can’t re-access your entire land. They might add 300K for your structure improvement. Yes, it is bad, but not as bad as someone who is buying that home now.

Good points, but it's probably not "empty land" we're talking about. Instead, it is an existing development which is not the "highest and best use". Prop 13 means underdeveloped properties can still be quite profitable in CA, and that is what discourages redevelopment.

Also, I'll add that these places are often owned by a trust. Someone in Florida is getting a check (they need) every month, and they aren't bothering the trustees to maximize the investment potential.

This is extremely common, people will forgo $4k/month because they don't want the hassle of finding a contractor to fix a house, for example. It's extremely frustrating to see all the vacant houses in my city that are in family trusts and sit on the housing market for 12 months because they are inappropriately priced, or because the family has extra stuff going on and can't find the time to get a property manager.

These houses alone aren't enough to solve the housing crisis, but they are a symptom of the disastrous tax policy.

It's enough to make me into a full Georgist, and hope for all land rents to be taxed away.

It still amazes me that Henry George put all those ideas together in San Francisco

The most obvious answer, not suggested yet, is not having to put with the California Coastal Commission. Slap a high price on the land, sell the dream, and make the permitting and construction someone else's problem. An unimproved plot in an area under the jurisdiction of the CCC is in some ways a liability.

Another reason to forgo rent is in hope of a higher payoff. Especially in California with Prop 13 of 1978, if the property owner has had a property for a long time, they can be paying taxes as if it were a depression while charging rents (or taking out commercial loans) as if it’s a gold rush.

A single property with a long-term lease signed during an economic boom can pay the taxes for many vacant properties. That’s my guess as to why property owners insist on charging high rents even if it contributes to the epidemic of vacant storefronts in my neighborhood.

Another fun feature of Prop 13 is the corporate landlords' ability to avoid the "changing hands" reset of the property tax:

https://www.sandiegouniontribune.com/opinion/commentary/sd-u...

I thinks this is one of the main features of prop 13 and should have been rescinded a long time ago

No reason to give corporations preferential treatment on property taxes

They have it backwards too

> meant that new housing could cost cities more in services than it would bring in through taxes.

New or resold houses reset tax to current rate. Yes, there is this provision to transfer low prop tax to another house elsewhere in the state/county if you are above 55, but that is unrelated to Prop 13

Prop 13 is evil, it helps prop owning businesses mainly and makes it slightly more affordable for a bunch of folks to keep the house as a rental unit instead of selling. But in the end, state/schools lose the most.

Resale just resets to the current value, but then freezes it again. Cities have to plan for the value in perpetuity, which means it's at valuation at year zero, and then negative from then on.

Which means the house is taxed appropriately 1 year in 13. The rest of the time? The city's underwater.

https://www.valuepenguin.com/how-long-homeowners-stay-in-the...

It doesn't freeze it again. The assessed value, and annual tax, still increases, albeit at a max of 2% per year, which does lag inflation over time. The biggest limitation of prop 13 is that it caps the tax rate at 1%.

We wouldn't need to pass these special school bonds if property tax rates reset annually, like they do in virtually every other state. We're simply redistributing who's responsible for paying the bills.

It's not quite every other state. Several have some form of limitations California is just unusually strict.

https://www.lincolninst.edu/research-data/data-toolkits/sign...

I believe we have the most powerful notion of direct democracy which is why our voting demographics get the biggest tax cuts

Schools aren’t losing anything, they still are well funded, just by a high income tax instead of a high property tax.

Historically property taxes funded schools in CA and many other states. Yes, some recent other prop-related taxes like Prop-30 have been funding general funds in the pretext of supporting education (exclusive education funding was only for the first two years.. suckers!). Either way, Propery tax linked to education is something US voters are likely to support. Richer neighborhoods get slightly richer schools even though majority of the money is evenly spread.

Reply on news.ycombinator.com