Property taxes in California are among the lowest in the nation.
Thanks to Prop 13, many homeowners do pay quite tiny property taxes. But this turns out to be extremely nefarious because along with removing a fair tax base and liquidity from the market, it also means that the disproportionate burden for paying California property tax is placed on new home buyers, who are often younger people/young families.
New entrants are often paying incredible levels of property tax (as it's a percentage of the already highly inflated prices), and because they're disproportionately more likely to be working, they're also the ones paying state and federal tax, along with the miscellaneous municipal taxes which can also be quite high in cities like San Francisco.
Meanwhile, legacy owners make off like bandits. I looked up the property I rent in once, owned by a large real estate holder that's decades old, and it was assessed at a few hundred thousand — for a 5 unit building in central SF. I don't know what the actual value would be, but it'd be closer to a ballpark of $3 to $6M. A differential of ~20x, and this isn't uncommon.
It's this framework that gets you to "lowest in the nation". I tend to think about it as _both_ the highest and the lowest in the nation, largely determined based on when your family moved here.
If you’re earning over $1,000,000 per year, yes.
SF median income is below 100K.
The 1.5% tax they're talking was the 1.5% payroll tax that SF had in place until 2012 [1]. Payroll tax isn't quite the same as an income tax because the onus isn't on the employee to figure it out like state and federal, but it still did cost most businesses in SF an extra 1.5% on every employee's salary to be there.
Prop E shifted most of this to a gross receipts tax instead (although there's still a 0.38% payroll expense tax in place [2]). Again, the numbers your parent is talking about are out of date, but the spirit of it is right in that it does just fundamentally cost a company quite a bit more to have an employee in SF.
---
[1] https://sftreasurer.org/business/taxes-fees/gross-receipts-t...
[2] https://sftreasurer.org/business/taxes-fees/payroll-expense-...
Lets say that property taxes were 1 million dollars a year, per apartment.
What do you think would happen? What I think would happen is that property owners would abandon their property/destroy it/remove it from the market, because they don't want to pay that 1 million dollars a year.
This would effect support of housing, meaning that price would go up.
Yes, rents are effected by supply and demand. And property taxes can have an effect on supply. This is clear, in our extreme example of 1 million dollars a year, per apartment.
On the other hand we do know what happens if the tax rate goes to zero, because there are many rental properties in San Francisco which are essentially untaxed. These properties have the same rents as any other, following the market price up and down. We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
It helps us at least establish that property taxes effect supply.
If there is an additional cost for holding a certain supply, then this will discourage people from holding it.
For other examples, you can think about how it would discourage people from building new supply because that supply is less valuable, due to the additional costs of holding it.
> These properties have the same rents as any other
It is not about the effect on existing properties. Instead, this is about the effect that at tax has on the supply of housing.
Higher costs and higher taxes disincentives the ownership of, or creation of new supply.
> We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
No. Because you are ignoring the effect that costs have on supply of housing. The higher that costs are, for both building housing, holding housing, or any other cost at all, means that owning that property is less valuable, and it means that less future housing is produced, due to higher costs.
But, in general, if there are not laws that put a maximum on housing supply in the area, THEN property taxes would effect supply, as the bottleneck to new housing is costs and profitability, and not laws.
The situation jeffbee is talking about sounds like one where property taxes constitute a small enough percentage of annual rental revenue that, even in cases where they're very high, they're not high enough to create a genuine squeeze on the landlord. Thus, demand sets the price.
In a hypothetical situation where property taxes rose high enough that the landlord was no longer making a profit, then yes, they would probably have to raise their rents. In such a situation, it is likely, but not certain, that property taxes would be rising by similar amounts for that landlord's competitors, so rents would simply go up (even more) across the board. If they didn't, and that landlord was just very unlucky, then they'd end up having to make some other kind of structural change to their real estate business or exit the market.
As a tenant would you pay 20% more for a similar property?
Caveat: the rental market isn’t optimized, there’s the application process, long rental terms, penalties, etc
Private capital will chase the best money making opportunities regardless. They will just avoid buying property if they don’t think they can make enough money on it. Property tax rates definitely play a role in that.
If you bought your house a decade ago it's going to be worth WAY more now than it is now. In a healthy market you might then either try to roll that extra equity into another place by either upsizing to get something that more fits your needs, or downsizing if that makes sense.
However, because of the property tax mechanisms if you move from a $1m house to another $1m house your property taxes will go up substantially even if it is a side grade. That means that you are less likely to move (in fact you may not be able to afford even a side grade depending on your circumstances).
This keeps housing inventory low, which keeps prices rising.