[1] https://astralcodexten.substack.com/p/your-book-review-progr...
[1] https://astralcodexten.substack.com/p/your-book-review-progr...
It’s not even residential that’s the most disturbing though. One of the biggest beneficiaries of this tax break is Disney: https://www.ocregister.com/2010/06/03/disneyland-businesses-...
> so the barriers to entry are so much higher for those who didn’t have the foresight to purchase a home 40 years ago.
40 years ago it was still expensive to buy otherwise everyone would have bought, including the investment funds
Interest rated have fallen 10x
> Buyers in 1981 benefitted enormously from high interest rates.
They didn’t benefit from paying more for a money loan. They benefited from being able to refinance on always lower rates, and the corresponding rise in asset price
It was a wealth grab. They're the ones that voted for prop 13, and they're the ones benefitting. Meanwhile it's the Millennials and all subsequent generations that are stuck paying for their social security.
> I’m sure your feelings will change as you get older.
Yes, this is the problem. Extreme self-interest and entitlement to massive windfalls.
And if house prices go down do they get a refund?
Don't assume. That person had to live somewhere, possibly at equally inflated prices. Now add in the the cost of two unnecessary moves.
> and if you sucked it up and paid the state? Maybe you had a sick family member that you were taking care of and the chaos of a move would have been too much to deal with. Sorry, chum. Bad luck of the draw.
The other program some counties around here do is property tax exclusion for low income seniors.
There is very little controversy over not taxing unrealized gains when it comes to income tax [1]. I'm not sure why doing the same thing for unrealized gains in property value is controversial.
It's not like most of the things property taxes pay for are proportional to the value of the property. The changes each year in costs to provide roads, schools, libraries, police and fire, and utilities to my house and my neighbor's houses generally has little to do with the changes in the market value of our homes. So why should the taxes that pay those things be tied to market value of the house?
More sensible would be to take the costs to provide the services the tax pays for, and divide it among the houses that receive the services, equally or taking into account usage (e.g., the amount for sewer might be proportional to the number of bedrooms). If we want it to be a progressive tax, apportion it according to the relative market values of the properties, but determine the total amount for the neighborhood solely by how much money the tax needs to raise to provide the services used by that neighborhood.
[1] There is controversy over tricks and schemes used to effectively realize them while escaping taxation.
Exactly! The extraordinary taxes on property are a result of unfair distribution of cost of services. A city needs to collect for a budget of $X... so they distribute the costs the best they can.
I don't think we need to remove it completely but some adjustments like applicable only to a primary residence and not investment or commercial properties would probably go a long way.
Properly distributed, they should not be high.
Property taxes are not a slush fund for the government, nor should they be deferrable. They are intended to be running expenses.
That's right. And why would it?
But also: your example is imaginary. When was the last time that house values dropped 10x or even 5x? It's counterproductive to make tax policy based on the extreme cases that have never happened.
Oh great! I'll take one of those. Maybe two. Where do I sign up?
Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.
Well, they do deserve those houses. If we expect young people to work, pay taxes and raise new generation. This is yet another middle finger to young people. No wonder birth rate is in toilet.
The "won't somebody think of granny?" argument doesn't really work when advocating for a policy that disproportionately subsidizes non-grannies.
My house today is worth 2x what I paid for it a decade ago. Which is great except for the fact that housing costs around here are closer to 3-4x what they were a decade ago. Even if I wanted to sell, I couldn’t find any livable housing for the same price within the same area.
Buy. Borrow. Die.
At one point, I'm fairly sure all those old people you're talking about were young people who felt like they deserved to live in their house. The difference is that, well, they were able to. I don't think you're intentionally saying "You came of age after 1980, kiddo, so suck it," but that's nonetheless the outcome. Proposition 13 certainly isn't the only reason that housing prices in California have skyrocketed, and housing prices have always been more expensive here than the US median -- but the gap between the California median and the US median started increasing immediately after Proposition 13 was passed and just kept accelerating.
I own a house in California. I have substantially less than $1 million net worth. Not complaining, to be sure, but it simply isn't even remotely true that all California homeowners are millionaires.
There’s plenty of turnover in California on par with other states. If prop 13 were somehow so powerful a factor not to sell, you would see a lot less house sales which you don’t.
In my city, half the houses were sold in the last 20 years which sounds pretty good to me. The idea that property taxes are frozen to 30 years ago and governments are starving for money is fiction.
In places like Toronto where property taxes get assessed every year, the property taxes 1/3 for an equivalent house price.
In the current tax climate, we will never sell our houses. It's an amazing way to transfer wealth while avoid capital gains.
And if they don't want to sell, the kids keep the original prop 13 tax limitations as well. The current housing policies and tax system is a disaster.
Some jurisdictions allow you to defer property tax indefinitely in the form of a lien against the house which seems like a reasonable way to do it.
What stops people from selling their homes isn’t prop 13, it’s the ridiculous rise in house prices in the last 15 years. It creates no mobility. Stop bitching about Prop 13, that is a lazy and short sighted and wrong explanation for house prices. Look at the inventory these days. It’s low because no one wants to sell their homes because where are they going to move to?
When they choose to sell, or their estate sells, the property tax is settled first from the proceeds of the sale.
I'm saying this scheme is in place in other locations to address the same problem you describe, and seems to be working better than prop 13 (at solving that).
I have no idea why people who are living off of social security should be in the most desirable housing in the entire country
But frankly I don't understand why a retiree who is living off of social security would sit on a multi million dollar asset, rather than cashing out and increasing their standard of living many times over by moving. And I don't think they are a victim by having generated 10-20x returns on their home
Also - they wouldn't be paying $30k per year. If you had a rational government cost distribution among people in the area, you wouldn't need to charge people $30k just in property taxes.
And then - they also haven't paid their fair share of taxes in decades, so why do they get to be in a highly privileged position?
Imagine if I didn't pay any income tax for 50 years - would you excuse me, if I turned 60?
With proposition 19, approved in last election, seniors can move to a different place and carry their original property taxes with them.
https://ballotpedia.org/California_Proposition_19,_Property_...
The suggestion is to make them no pay that annually in cash, but rather on the future gains of the house.
Their house (or rather, the land) is going up in value far more than that per year. Asking them to forgo a fraction of their speculative real estate gains, when they never even plan to access it (according to you), does not make sense.
So what it seems like you are really saying is that they deserve to have full speculative real estate gains accessible to them, just because they are wealthier than younger people and were able to get into the capitalism game earlier. That due to their unearned wealth, that they did nothing to create, that comes purely at the expense of others being able to live in the area because land is zero sum. They should have to pay less just because they have greater power? Absolutely not.
Saying "I'm so wealthy that I can't pay taxes, and I'm not willing to even delay paying taxes until sale" is fundamental wrong-headed.
The solution isn't to let wealthy older homeowners get away with not paying proper property taxes though, which is how it is now.
Prop 13 is wholly unnecessary
And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes, I'll have less income and still be paying through the nose, because the city needs money and half of its residents are paying virtually nothing. If anything, I'll be even crankier about the whole situation.
It will, in real terms, since the assessment increase limit is the lower of 2% or the rate of inflation each year, guaranteeing that over the long term the assessed value and tax go down in real terms.
Which isn’t to say your opinion should change, just that the self-interest equation does.
No, Prop 13’s rate limit makee your taxes low upfront — the 1% cap on nominal rates is far below the national median effective rate, and the nominal rate is before applying the effects of the assessment limits — and the limit on annual assessment increases to the lower of inflation or 2% makes it even lower later on.
A lot of people focus on the second in isolation to say new home buyers subsidize existing owners in CA, but really both types of owners are subsidized by income and sales tax payers, its just new homeowners are slightly less subsidized.
> This is counter intuitive, when you want to encourage people to buy homes.
“Barely taxed now, and even less taxed later” does a very good job of encouraging people to want to buy homes in California, and also of discouraging them from wanting to sell homes in California, as evidenced by price trends.
What it doesn't do is make homes affordable to buy, but then encouraging people to want to buy and making them affordable are goals that are inherently in some tension, given the effect of demand on price.
There are plenty of other solutions. Some states allow you to just pay the same amount each year and put the difference as a lien on the house until you sell. Some states have something like prop 13, but it is applied to entire counties. ie. They allow the entire county to raise their income from property tax by 1% annually. So everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%. This means that in some cases people's property taxes actually go down if one area had a massive increase in value.
Every other state figured out a way to avoid this problem. California just loves its "rent control for the wealthy" which is what Prop 13 is.
Prop 13 is the single worst law in California and must go.
And I say this as someone who owns multiple properties in CA, and in fact for one of them, the profit comes entirely from the fact that the tax rate was set in the 70s. If I had to pay property tax on the current value, I'd just sell it because there would be no profit to be had. And in my primary home, my neighbors subsidize me by paying twice what I do even though their homes are worth less. And I subsidize my neighbor who has been here since the 60s and pays 1/10 of what I do for the same services.
And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes. There is absolutely no reason a rental property should be protected from property tax increases.
Prop 13 is bad in at least half a dozen ways, but I'm not so sure this problem isn't coming elsewhere or even is absent. It seems to me California may have experienced a leading edge of metro dynamics that are going to come for other states soon.
> everyone's home gets reassessed for its value and then the tax rate is set so that the whole county goes up 1%.
That's interesting.
> And if you're still really concerned about old people losing their homes, at least support getting rid of Prop 13 for all non-primary homes
I think something like this is right (and wasn't this attempted by proposition a few years ago?). Residence-first real estate policy needs to include tax that increases on the number of properties owned (and maybe even more steeply in a supply constrained market).
Yes, in the last election. And sadly it was defeated because as usual with state propositions, the side with the most money (developers in this case) were able to convince the public with inaccurate propaganda.
People might try to get around this by forming corporations or trusts that hold max one property each. There is really no need to count how many other properties someone holds. Just do a re-assessment every year and ratchet up the assessed value on all housing that the owner does not occupy, including vacant property and renter-occupied. Seems a lot simpler.
I'd be especially easy in California because every foreign (out of state) corporation has to register with the state and tell them who the beneficial owners are. It would be fairly easy to trace it back to actual people.
No, a much more limited reform that would have effected some, but not all, commercial and industrial property (but not any, even non-primary, residential) was, and was defeated.
Or maybe, make it so that property tax increases are limited but only if the owner:
1. Is past retirement age 2. The owner lives in the property. 3. The owner does not have the means to pay the normal property tax rates.
This is how most other States' solve this problem. Instead of freezing property tax rates across the board, they narrowly limit property taxes of old residents that don't have the means to pay the normal property tax rate.
Seems like a lot to ask, so clearly the best way forward is to just continue shoveling more wealth onto the already-wealthy at the expense of people entering the workforce and housing market, and even then still not actually solving the original problem we sought out to solve in the first place.
Believing that tax bills should be equal doesn't imply that; one can believe in equal taxation of same-value property and not think that property tax should ever force people out of property they own. Deferrable-by-default property tax (either entirely or increases above base year) are better than assessment increase limits at avoiding people being forced out, but do less to transfer wealth up the to already-wealthy elites.
Not “never move”, just never sell. When you are ready and able to upgrade to a new home, you convert the existing one to a rental property with rents to cover costs with a suitable risk premium (but don’t worry about additional profit), and then benefit from the appreciation and protection from full-value reassessment on both properties, rinse and repeat as needed.
AKA "segregation with extra steps"
https://harvardcrcl.org/wp-content/uploads/sites/10/2018/11/...
Norlidger v. Hahn (worth a read https://www.law.cornell.edu/supct/html/90-1912.ZD.html) didn't make it but also didn't address the Fair Housing Act.
Prop 13, especially the extensions that preserve tax rates through bloodlines, disparately impacts minorities even though that wasn't the explicit intent of the law. Turns out that intent doesn't matter on issues of race so there's legal precedent to overturn the law.
- Billboard posted in an empty lot, Rockford Illinois, 1914
But it's not.
That investor could've spent the 3600 on hookers and blackjack.
Investors freezing their money in communities in the form of real estate or other investment is a key part of those communites becoming richer and more complex.
There's a real risk of losing your money - there's no worse financial nightmare than holding real estate that you're trying to sell for years... but no-one is buying
I'm sure we can agree the vacant lot never improved itself. It's not unearned -- it's earned by the surrounding community improving things -- which make that lot more attractive.
The incentives don't align. If that community was to massively regress e.g. unfavorable rezoning -- the value of that lot would plummet.
However in this case it's likely to be partially addressed by paying land value taxes which disincentivizes leaving it vacant -- what Henry George was getting at and wasn't there at the time.
IMO, the problem could be fixed by having stricter laws prohibiting people who aren't residents from owning homes in another country. The requirement to become a resident is only to live in a country for over 6 months out of the year. Before that, you can just rent. We could also do things like limit the number of houses a person can own, and tax every house sale based on capital gains (even primary residences).
However, another problem we have is that interest rates are too low, and there isn't enough construction. Those are harder problems to solve. I really think we should build more, but we'd need denser construction as well. What do you do if you need land to build and there's already a house there, or someone already owns the land? Maybe it's kind of silly to have this idea that a person can "own" a piece of this planet we all live on, but we probably don't want to live in a communist country where the government owns every home and everyone is renting either.
As for interest rates, this is driven by our current economic policy and money printing. Maybe there's a way to somehow detach the interest rate used for mortgages from that in other areas. Surely, the government could print stimulus money and direct it where it's needed without interest rates being artificially controlled? The main problem with these near-zero interest rates is that they completely kill the free market. We keep zombie companies alive and we allow people to speculate on home prices endlessly. That's not natural. In a "true" free market, there's a natural equilibrium between offer and demand, both home prices and rents will fluctuate but they will balance out. My ex's parents bought a home in the 1970s, they only had high school education and were both making minimum wage. Said home is now worth over a million and out of reach of anyone not making 200K+ household income.
You need people to be able to build and flip properties without being taxed at all. The current taxes are carving a modest profit down to "not worth it" for a lot of people who could otherwise build and revitalize affordable housing.
More taxes on home sales results in less homes for sale.
Speculators wanting to buy a house, redo the kitchen, and mark up the price 20% 6 months later though? We could just let older, unrenovated houses be cheap. That opens up deals to new home buyers. You can redo the kitchen after buying the house if you really care. You don't need some middle man to do it and mark up the house.
That’s the service flippers provide, IMO. (I’m not one but I think they’re more helpful than not in terms of providing housing that owner-occupants want.)
Stable and long term living arrangements are something the government should be incentivizing so primary residences should be taxed minimally.
Vacation houses and income properties should be taxed higher.
Yes, like the famously communist state of, checks notes, Singapore.
Sorry for the snarky reply, but I don't think calling the breaking of monopoly power/taxing unearned rents is communism.
Not everyone wants to own the place they live in. Lots of people plan on only being in a location for a year or two or four, and would rather just rent.
Some people would just rather rent indefinitely.
The problem is free handouts for homeowners in general.
The handouts entice the landlords, because for the last 30 years with the exception of 3 years (2005-2008) - housing on leverage has absolutely destroyed equities as an investment.
If you got rid of the handouts, this wouldn't be the case. Then you wouldn't have people like Blackrock gobbling up houses. They'd just be buying equities (the things that are supposed to be investments?) instead.
Sadly, this very fact provokes enough superficial resistance to keep it out of the Overton window. Whenever it comes up, shouters on either side have plenty of ammo to blast it, saying things to the effect of "how could you propose giving the other side what they want!?!"
It's not like you or I get to decide what goes in the window.
This is more about NIMBY attitudes and zoning laws, which are separate issues.
> their pension won't cover the tax burden of the house they spent their lifetime saving for
An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
NIMBY issues and zoning laws are very much not separate issues when one of the chief selling points of LVT is building denser. It's a selling point the public aren't buying because they mostly don't want the value-maximising development next door, and being taxed as if they could develop it whilst still living in a zoned area so they can't is obviously worse. Sure, an LVT can be designed with deductions and exemptions for land use restrictions (and would have to be), but that's conceding away one of its key purported advantages.
> An LVT won't tax the house, only the value of the land. If the plot itself is hyper-valuable, that's not a bad place to be, financially speaking. Beyond that, "won't someone think of the poor landowners?" doesn't strike me as a very compelling argument in this day and age.
"Let's ignore the poor landowners" is a much worse place to be if you're trying to win over the large portion of the electorate which owns some land, which in most cases is probably the second most valuable thing they own after the house they live in (which is separate from the land for tax valuation purposes, but not in the reality that if they can't afford the land it sits on, they're under pressure to sell their home) and not closely coupled to their current income. The general principle of Georgist efficiency is that people on low incomes relative to the value of the land their house are forced to sell and this should drive down land prices for everyone, but the prospect of devaluation or forced sale of very expensive stuff they've already paid for is even less appealing to voters than being taxed on next year's unspent income. (Also, the entities which own the majority of the land turn out to be both less profitable and more relevant to the cost of basic goods like food than the businesses liberated from tax)
Regardless of whether you think these are not insurmountable problems for LVT or not, the thought of being caricatured as the guy who wants the tax system to force people to develop their homes into nice efficient apartment towers or sell in a great hurry to someone with deeper pockets is a much bigger concern for politicians than the thought people with different economic philosophies might actually agree with them for a change.
I move to a cheap, small town. I embed myself in the community and help build it up over decades. And then, at the peak popularity, in part due to my presence, I am forced out, because someone who has never been here says that they would like to live here.
You don't see a problem with this?
Why would you be forced out? Yes, taxes on the underlying land would increase because it is more valuable, but you would be able to move into a new property in the same community, as housing would increase in density. Now if you don't want to live in a denser community, that's fine, but you don't really have a right to prevent the densification.
This is exactly what is happening in parts of Utah. Planners accounted for natural growth and a standard rate of in-migration, but there has been a flood of people from out of state forcing out the locals who made these places what they are by living in them for decades.
1. Don't assume
2. If you are poor, which do you think is easier? A higher initial capital expenditure? Or a higher upkeep cost?
Another factor: it'll encourage apartment construction, which will increase housing supply, which should help poor people.
Higher upkeep cost is the easier one. Many poor people have a steady an income, but no saved wealth. That's why there are many people able to pay 1800/mo for rent for years, and never able to buy their own home.
And this would make LVT the better option for a poor person, since it would turn "buying" a home into "renting" the land from the state, along with buying the building, which is obviously possible (as seen by the existence of poor renters).
I see you've not been poor.
Where are these places where the buying prices of land is cheap, but the land tax would be high? The buying prices is simply the year rent divided by some discount rate, so typically, the buying price would 20x the yearly rent/tax. That’s a large amount to have to save up (assuming a mortgage is out, like you say).
My statement is not one of apathy, but a prediction of worse comparative outcomes with mechanistic backing.
The trick is to find a system that, despite attempts to game it, has an incentive structure that isn't already explicitly tilted in favor of the rich. Geoism is one such system.
A generation ago : trade policy => offshoring of shippable jobs
This generation : monetary policy => institutional ownership of the common home
Or put another way, many of the same tactics can be used to distort/contest appraisals "dark stores" and deed restrictions that prevent other uses, but without an objective way to combat them
The ability to loan large amounts of money like this detaches people from the actual buying power of their money and the price of the property they're buying. Two grand in the bank is a nice amount of money. A two grand price increase on a property amortised over 20 years is considered to be nothing because the repayments are almost the same.
The solution to bring prices back down to ground level in my view is to end mortgages. Require the money up front and therefore force prices to drop until an equilibrium of affordability is reached. Needless to say this will never happen because the people who have the power to push for this are the ones benefiting from the status quo.
NB: I am not an economist.
What we don't want is a 50 year old who fully owns a $2 mil house and has $15 mil in the stock market and $1 mil in cash to be exempted from most property tax, but a 30 year old with $200k total assets to be on the hook for the full property tax rate. That doesn't make sense.
https://www.pcpao.org/?pg=https://www.pcpao.org/general.php?...
Just/Market Value: $108,535,551
Land Adjusted Value: $46,160,000
A Georgist-style land tax proposes a tax on solely the land, so a 2000sq-ft lot is the same regardless of a $10mil home or not.
This would require an appraiser that regularly re-evaluates the value of the land-- but we already do that! But with homes.
Furthermore, a property tax still leaves open lots of tax-shenanigans. "Look, my home is actually worth half the appraised price, thus I should be taxed half." It's harder to do so with land, since you can't easily "hide"/play tricks with its value from a regulator.
> Common property taxes include land value, which usually has a separate assessment. Thus, land value taxation already exists in many jurisdictions. Some jurisdictions have attempted to rely more heavily on it. In Pennsylvania certain cities raised the tax on land value while reducing the tax on improvement/building/structure values.
[1] https://en.wikipedia.org/wiki/Land_value_tax#United_States
Firstly it encourages urban sprawl, which is bad for the environment and bad for cost of living and housing access.
Secondly it penalizes productive value add. Build something beautiful and you're punished for doing so.
Thirdly it doesn't have the same logical justification as the Land Value Tax, which is to tax ownership of scarce, zero sum, excludable, naturally occurring resources that aren't the product of labor.
https://duckduckgo.com/?q=site%3Aeconomist.com+land+value+ta...