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I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move. Two people can be living in houses next to each other valued around 1.5m, and one of them will be paying 1/10th the tax. If anyone wants to buy a house, they have to first be able to afford the property, so the barriers to entry are so much higher for those who didn’t have the foresight to purchase a home 40 years ago.

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-...

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> I’ve ranted about this before but CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move.

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.

This assumes that you don't need the equity in the first house to get the mortgage on the second house.

No, the price has gone up so much you remortgage and get cash out to buy the next place.

> CA Prop 13 not only makes housing a good investment, but one that you’re extremely incentivized to hold onto forever and never move

AKA "segregation with extra steps"

Prop 13 is so ridiculously unfair and distortionary. I wonder is there a way to legally challenge Prop 13 on the basis that it confers a kind of durational residency benefit (see Shapiro v. Thompson)?

Yes.

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.

It's also a huge grant to older generations, which violates the Equal Protection Clause of the 14th amendment, IMO. But I'm not a Supreme, so I dunno.

I agree with Justice Stevens that it's a violation of equal protection, and the state supreme court of Delaware recently did to when they struck down their version of Prop 13, but as you'll see in my Cornell link above the rest of the court upheld the law.

Or, anyone who didn't have the foresight to be born 60+ years ago and buy land in their early twenties.

California used cheap migrant work force for decades, but that stream is drying up. This pyramid scheme is one of reasons.

Prop 13 biggest beneficiaries are corporations.

> 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

40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x. Buyers in 1981 benefitted enormously from high interest rates. I know they whine about it now, but objectively it was a massive windfall for buyers.

> 40 years ago a home in the Bay Area cost about 3x median income. Now it is more than 10x.

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 massive windfall for buyers

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.

You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.

Paying taxes on unearned gains is not "driven out of your house". You can keep the house and pay taxes on the gains.

> I’m sure your feelings will change as you get older.

Yes, this is the problem. Extreme self-interest and entitlement to massive windfalls.

How are old people with no income supposed to afford capital gains taxes?

And if house prices go down do they get a refund?

Mark to market property taxes do go lower when assessments go lower.

You don't get a refund for the intervening years of mania. Oh we're sorry we almost kicked you out of your house because everyone else was paying out the nose for houses because they speculated Amazon would build it's hq there that year so sorry about that. Here's your 50k in taxes back with interest.

In that scenario it sounds like the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back for much less than they sold it for at the height of the mania.

> the person "forced out" would have received a huge windfall of cash, and could ostensibly buy their same house back

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.

What has happened (at least in my locality) is in years of high assessment increases they cut the rates so the increase is buffered. They typically don't set the tax rate until they see how the initial assessments are coming in.

The other program some counties around here do is property tax exclusion for low income seniors.

Or working class people. For a large fraction of people if their taxes are going up faster than their wages are going up they do not have a reasonable way to get higher wages to pay for the tax.

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.

> It's not like most of the things property taxes pay for are proportional to the value of the property

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.

It's not a tax on the gains, it's tax based on the estimated current market value, which could go up or down.

Prop 13 is a limits how much property tax can increase in a year. So hypothetically without prop 13 it would possible that the value of your house jumps 10x and then you're stuck with paying 10x the amount of property tax that year.

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.

If the value of my home jumped 10x in a year, I would be ecstatic. Are you kidding?

Why so? You don't see that gain unless you sell, at which point you'll probably buy another house that has also risen 10x.

In a lot of places, if not most, property taxes are based on the assessed "current market value" of your house and audited annually, which can change a lot from year to year. Property taxes are paid annually, not when the house sells. If the house goes up 10x in a year, the property tax also rises which makes it very hard on a fixed income when you're retired, especially when the gov't artificially calculates inflation at a lower rate so they don't have to pay as much in social security benefits to those seniors reducing their purchasing power over time.

Property taxes are supposed to cover your local government's running services - police, fire brigade, trash/sanitation, water and roads.

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.

And the fact property taxes are often used as a slush fund makes those of us paying attention very sensitive to their increase. With those taxes comes bureaucratic power and control, often leading to more taxes and less of a say over how one lives one's life.

If the value then drops 10x, you won’t get your property tax refunded. If prices end up going up and down like bitcoin, you’d need to have some protection.

> If the value then drops 10x, you won’t get your property tax refunded.

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.

I'm planning on living in my house for a very long time, it's my home, not an investment. I don't want my home value going up 10x unless I'm planning on selling it. In this market, I couldn't replace my house if I sold it anyway.

> it's my home, not an investment

Oh great! I'll take one of those. Maybe two. Where do I sign up?

Shouldn't pass on to your heirs either.

Someone who owns a house in cali is a milionaire. I am not sure it applies to immigrant who just moved to California.

The old person would have sold the house a long time ago because of the rise of their property tax. They wouldn’t be millionaires. They would have to sell their home for a small gain and then rent for the rest of their lives. And since they are old they have no income so they need to keep moving to cheaper and cheaper apartments.

Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.

> 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.

If their property taxes increased to the point where they cannot afford it, then that means that their property value increased significantly. Excuse me if I don't feel too bad for somebody who just reaped a massive windfall.

The "won't somebody think of granny?" argument doesn't really work when advocating for a policy that disproportionately subsidizes non-grannies.

The greatest day of my life will be the day I owe the IRS $1 million dollars.

People generally buy a house because they want to live in it. The nominal value of the house does nothing to benefit them.

“Reaped a massive windfall” if and only if they sell their house. The problem is unless they’re both looking to sell and move into a lower COL area, that doesn’t do them much good.

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.

> if and only if they sell their house

Buy. Borrow. Die.

> Sounds like a great way to live a life, just because younger people feel like they deserve to live in their house.

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.

All people deserve to be housed.

> Someone who owns a house in cali is a milionaire

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.

That may have been the case when Prop 13 was sold to the public, but at this point it's mostly being used to accumulate wealth, not keep people on fixed incomes in their lifelong homes. If that was the goal, there is a much better solution - let the elderly accumulate the tax bill against the value of the house, and collect from the estate when they pass.

When houses get sold, capital gains need to be paid. This is nothing new.

Meanwhile, in many neighborhoods, the older, wealthy, established residents are paying 1/3rd the taxes needed to support infrastructure and services, compared to newer, younger residents who are trying to establish a nest-egg and raise families without the benefits the older generations had. There is no one solution that will work for every neighborhood, but prop 13 is economic warfare on the young. Portraying it as young tech millionaires against poor, old retirees is not true for a large portion of those affected here in the present.

Citation otherwise this is just your biased anecdote.

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.

California could have increased their property tax revenue by 12 billion if they had passed the partial repeal last year: https://dornsife.usc.edu/assets/sites/242/docs/Updated_2019_...

Not if the house gets sold by a kid after their parents died. At that point, the capital gains tax basis gets reset.

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.

I think this is something that is really under appreciated. When there is inherited property, the cost-basis is reset to when the parents died and the Prop 13 basis is also inherited now if it becomes their primary residence. This is a huge advantage for those people who happen into this sort of situation.

Something like prop 13 isn't the only way to avoid that.

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.

Some of my neighbors are seniors who are on social security. Their houses were bought for about $160k in the 1970s. Which is expensive back then. Now they are worth $2M but they have no intention to move. Where would they live? And how can they afford the $30k/yr property tax?

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?

You misunderstand - the whole point of the scheme is they don't have to pay the property tax. It gets (partially or entirely) accumulated in a lien against the house, and the seniors stay as long as they want.

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).

Where would they live? With a budget of 2 million dollars- they could own an extravagant home practically anywhere in the US while pocketing hundreds of thousands of dollars.

I have no idea why people who are living off of social security should be in the most desirable housing in the entire country

Why should they be forced to sell a house that they earned and paid for?

Nobody is forced to do anything. They can certainly leverage their significant equity in the home to pay those taxes, they can take a lien like many other states allow for in these situations, etc.

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

Why should they get services, that are paid by people with no money?

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?

> Where would they live? And how can they afford the $30k/yr property tax?

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_...

> And how can they afford the $30k/yr property tax?

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 law should take into consideration those cases and not charge them $30k/yr in cash for property taxes if they don't have the money in cash to pay it. One solution mentioned elsewhere is a lien against the inflation-adjusted value appreciation of the house.

The solution isn't to let wealthy older homeowners get away with not paying proper property taxes though, which is how it is now.

the California Tax Postponment Program protects low income seniors and the disabled. They have 0 risk of being displaced by property taxes no matter what.

Prop 13 is wholly unnecessary

I own a house in East Bay, and paying >$10k/yr of property tax. While I don't mind tax in principle, it greatly annoys me that I'm paying much more than my neighbors just because I bought it a few years ago.

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.

>why would my opinion change when I get older? Your opinion might change if property price around East Bay continue to appreciate and your new neighbors are paying even more.

A pitch copied straight from pyramid scams.

It's a pyramid scheme, people newly entering the housing market radically subsidize the asset values of those who entered before them.

> And why would my opinion change when I get older? Prop 13 won't do shit to lower my taxes

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.

That's BS. If I pay $10k in property taxes(excl school taxes), that means I cannot invest that money into something more tangible. Thus depriving me of working investments to subsidize wealthier individuals is worse, than steadily increasing taxes.

That taxes compete with other potential uses of money is obviously true, and equally obviously irrelevant to the discussion of whether Prop 13 will or will not lower your real tax bill over the time you own a home.

That's the problem. Prop13 makes your taxes high upfront, with lower taxes later on. This is counter intuitive, when you want to encourage people to buy homes.

> Prop13 makes your taxes high upfront, with lower taxes later on

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.

Or maybe property tax shouldn't be a thing... Or be substantially smaller.

This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.

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.

> This was a red herring when prop 13 was passed, and is a red herring now. 49 other states don't have prop 13, and yet seniors aren't priced out of their homes.

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).

> and wasn't this attempted by proposition a few years ago?

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.

> 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).

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.

It's pretty easy for the taxman to detect such shenanigans. There are a bunch of corporate laws that only apply when certain limits are met, like minimum revenue or 50 employees, etc. It's illegal to form extra corporations to get around those rules, and the regulators usually catch on.

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.

If a corporation own a property - that it should pay the full tax, no exemptions. Primary residence clauses must never apply to corporations

> I think something like this is right (and wasn't this attempted by proposition a few years ago?).

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.

> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses. I’m sure your feelings will change as you get older.

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.

What you're suggesting is that the solution to the problem should be targeted at the actual problem trying to be solved.

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.

These poor millionaires!

> You’re saying that old people should be driven out of their houses because younger, richer people deserve to live in their houses.

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.

Except that prop 13 tax rates can be inherited.

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