Dear HNers, please note: I understand Prop 13 is hugely controversial and the "third rail" of California politics. I don't have a dog in this fight, I'm just sharing information.
It’s a completely sick system that is literally creating a landed gentry
California already has super high taxes that are skewed towards taxing the rich more.
Seems like a joke at this point saying that they need even higher taxes.
Also California's system of propositions is one of the closest forms of direct democracy available anywhere, if you like democracy then you should like this system. It is sort of inconvenient that the system was used to stop tax increases for home owners, but these are exactly the reasons why the system was created in the first place, to give people power over their own lives.
One (of many) serious problem(s) with Prop 13 is that it removes an important feedback mechanism whereby inflating property values result in higher taxes which gives even those who currently own property a financial incentive to support policies that keep housing prices in check. With that feedback mechanism removed, a property-owning homo economicus's rational move is to support policies that drive property values sky high (e.g. very restrictive residential zoning to limit competition while simultaneously seeking intense commercial growth to boost demand) at the expense of other members of the community (e.g. renters and future generations), and that's exactly what has happened in California over the last several decades.
Thankfully this was significantly curtailed by 2020's Proposition 19.
You are absolutely correct that this is the problem. But the solution is not to disincentivize home ownership with a tax, it is to fix zoning itself. Homeowners will still have an incentive to restrict housing supply even with a tax.
However if you restricted the power of local zoning boards to tell people what they are allowed to build on their own land, then you would fix the housing crisis virtually overnight. There is a strong incentive for developers to build as densely as possible because they can make more money per acre, but the problem is that local zoning boards stop most development.
https://www.almanacnews.com/news/2023/02/01/atherton-guts-mo...
>The council removed multifamily housing plans that were met with ire by residents, and softened changes to a lot on Oakwood Boulevard in Golden State Warriors' star Steph Curry's neighborhood
^ that is just one of a million examples of what I'm talking about. This has been going on for decades and the housing crisis we have now is the result.
Plus, that's not the only supply problem that comes from Prop 13. People don't want to ever sell their houses because that means their property tax will be reassessed when they move. That's another huge problem caused by Prop 13.
I'm saying there is already an incentive to build densely, developers already want to do this because they make more money by doing so. They are literally not allowed to build anything other than single family homes though, the local homeowners actually control what is allowed to be built. That is to say: the people who have an incentive to keep housing supply low are the ones deciding what is allowed to be constructed in their town.
If I go buy a piece of land in Cupertino and I want to build an apartment complex, I have to go apply for permits and get approval from the city of Cupertino zoning board. The people on that board are all people who live in Cupertino that own single family homes, they have a strong incentive to deny my application if I am building my apartment complex anywhere near their neighborhood.
Basically every single city in California has zoning laws that prohibit you from building anything other than suburban single family homes in most of the town.
What I'm saying is that you can fix the housing crisis by passing a law that limits the power of the zoning board to deny permits for these types of housing.
Take a look at the Cupertino zoning map: https://map.gridics.com/us/ca/cupertino#11.67/37.3159/-122.0...
if you click layers -> planning -> zoning you can see an overlay of the zoning for the whole city. The light beige color is "single family" zoned, meaning that nobody is allowed to build anything other than low-density homes. Notice how _most_ of the city is designated "single family". This is the cause of the entire problem. Nobody is allowed to build anything more dense than the single family homes that are already there.
Not-so-coincidentally, Cupertino is one of the most expensive places to live in the US.
Look at Houston, TX. They have no zoning laws (it's not perfect they still have deed restrictions which sometimes act similarly to zoning laws), and it is a massive city. The median house price is ~340k, something that most normal people can afford. There is a clear correlation between reduced zoning restrictions and lower housing costs.
When property taxes don't rise, people are disincentivized from selling their home because if they buy a new home they must pay property taxes at the new rate, not the grandfathered one. This creates a bottlenecked supply of housing because no one sells. Growth stagnates and then you get these wild fights about who's allowed to build where, how much they're allowed to build, and what kinds of undesirables might move in and "change the community". It's really a clever ploy to use people's conservative instincts to juice the real estate market since scarcity brings about insanely high costs. Now those with Prop 13 homes are even less incentivized to move because their house's worth just keeps rising. They can use that and borrow against it to play financial games and make their money make money. All because they happened to have bought a home before this law passed: entirely luck, nothing to do with merit or skill.
https://journal.firsttuesday.us/home-sales-volume-and-price-...
https://njar-public.stats.10kresearch.com/docs/lmu/x/EntireS...
https://www.financialplannerla.com/transfer-california-prope...
> All because they happened to have bought a home before this law passed.
Again, do some research. Prop 13 passed in 1978, 45 years ago. The number of current homeowners who bought before then is vanishingly small. House prices were escalating before 13 passed, and the jumps in property taxes were in fact a prime reason why it passed.
> they can use that and borrow against it to play financial games and make their money make money
Do you have any data at all to support that assertion?
> This creates a bottlenecked supply of housing
there are all kinds of reasons why there's too little building. Grandfathered house values are only one of them. Regulations and high costs are much more important.
This is incorrect, there are still county restrictions. Counties must opt-in to the tax transfers, and the purchased home must be of equal or lesser value. 10 of California's 58 counties permit it, most do not because they don't want to miss on tax revenue.
> Again, do some research. Prop 13 passed in 1978, 45 years ago. The number of current homeowners who bought before then is vanishingly small. House prices were escalating before 13 passed, and the jumps in property taxes were in fact a prime reason why it passed.
This is not relevant at all. The point is that people's effective property tax goes down over time, regardless of whether they bought before or after prop 13 was passed. Someone who bought a house in 1990 is probably paying less than a third of the normal property tax.
> there are all kinds of reasons why there's too little building. Grandfathered house values are only one of them. Regulations and high costs are much more important.
Great, we should eliminate restrictive regulations and Prop 13!
Prop 13 freezes your tax rate when you purchase the property. So the subsidy isn't given only to those who buy before the bill was passed -- it is given to anyone who buys before housing goes up, at any time while the law is in place.
It's extremely common for people to borrow against the equity of their home (even moreso if you are very wealthy). I think the parent is arguing that those who own property are borrowing against the value of their (subsidized) asset. Another thing to consider is that a yearly tax on an asset can significantly affect the valuation of that asset, far in excess of the amount of the tax itself.
Of course there's many reasons for the embarrassing lack of ability to solve the housing problem. Prop 13 is a big reason, certainly one worth looking at when considering solutions to this problem.
It's also just unfair. Most people who are subsidized by prop 13 are subsidized for no reason at all, just market timing. And there's another layer to it, which is that the earlier you have bought, the more you are subsidized. Guess what was more difficult for minorities to do 30 years ago? That introduces an additional dimension of racial unfairness to this. Not to mention, it's a subsidy for the rich (homeowners) paid for by the poor (everyone else).
Prop 13 is an anchor around our neck. It's kind of like that excruciatingly painful disease that causes your bones to fuse together, except for growth and prosperity in the state of California.
The only thing that would happen if Prop 13 were repealed is: all other taxes would stay the same, but that one would rise, and so would spending. That's why your arguments get no traction at all in CA.
Factually wrong. Prop 13 limits your tax increase to 2% per year.
Turns it into molasses? Coagulates it? Congeals it?
Property tax on a 10 year home might be half of what it should be. Property tax on a 20 year home might be a quarter. I sure would love a 75% discount on my income taxes!
> all kinds of reasons why there's too little building
And you think that providing incentives for people to move houses has no effect on any of the other components? Come on.
The other commenter laid out the other reasons well enough so I won't repeat them.
The current system is extremely conservative. Any time a piece of property changes ownership, it gets hosed by the assessors. If you move to California you will be paying insane sums in property tax while living next to people who are paying almost nothing. This is an effective subsidization of people who hold property for a long time, which creates market distortions.
For example, people normally sell their house and move when they retire, because they don't need as much housing and can save money by downsizing. This means more houses on the market, which pushes down prices and keeps people from living in their cars. But not in California, because a lot of people are getting the best property tax deal available in the country there.
Climbing a ladder and then pulling it up after you is anti-social and shameful.