yonran

In case you were unaware, there were two proposed constitutional amendments that would reduce Proposition 13 benefits this past November:

Proposition 15 (which would have eliminated commercial property tax breaks) failed 48%-52%. I think its biggest political flaw is probably the fact that it would apply July 1, 2022, with no phase-in for small businesses whose lease passes through the property tax. So hopefully in November 2022 another attempt can be made that addresses the political shortcomings.

Proposition 19 (which eliminated tax breaks for inherited investment property in exchange for increased tax portability for the elderly) only barely passed 51%-49%, and that was after it received overwhelming support from the legislature, and a $45 million advertising campaign from the California Association of Realtors that some people criticized for only highlighting the goodies for old people and not the costs for inheritors.

No one is attempting a full repeal of Proposition 13 including residential property.

It could also be attacked judicially; see this episode of the Henry George Program for a discussion of Nordlinger v Hahn and whether different legal arguments could be tried (e.g. does Proposition 13 impinge on the American freedom to migrate under the US Constitution?) http://seethecat.org/ep/2017-07-11.html

For Proposition 19, if the house is in a trust that the beneficiaries can “share and share alike”, then the trustee can give the house to one sibling (the one who will live in the property) and give cash to the other siblings to avoid reassessment.

Or you can transfer the property before February 16, 2021; see https://blog.yonathan.org/posts/2020-11-proposition-19-paren...

> Funny that there's not a single mention in the article about natives and long-time locals who have constantly voted against new construction or any progressive housing measure, which is the root cause of the crisis to begin with

Not only is there political opposition to housing that the article omits, but the two quoted “affordable housing advocates” (Chirag Bhakta and John Elberling) themselves demonize privately constructed housing and are complicit in exacerbating the housing shortage. Though to be fair, they have their own theories of how they think new housing causes gentrification, and they typically try to encumber developers with low-income housing requirements and other community benefits rather than opposing new housing for the sake of benefiting incumbent landlords.

In particular, John Elberling has been the biggest proponent of increasing low-income housing requirements in new construction up to the point where apartment buildings are expected to be only marginally feasible (https://sfcontroller.org/inclusionary-housing-technical-advi...), and he dismisses the effect that this would have on preventing new housing. He also opposed with farcical arguments statewide upzoning that would have allowed more construction in wealthy neighborhoods (opposed SB 827 https://www.facebook.com/TODCOgroup/posts/435262493564720 and opposed SB 50 https://48hills.org/2019/12/supes-to-vote-on-wieners-develop...).

The problem with San Francisco’s “value capture” ideas as seen on 48hills.org is that they often want to capture the value of the choice that has positive externalities (e.g. riding a bus down highway 101, or building housing) while not capturing the value of the choice that has negative externaltities (e.g. driving a private vehicle, or underutilizing land during a housing shortage). This blind spot often undermines their self-proclaimed label of “Progressive”.

Ironically, the article also compares buses to a “$250,000 fee San Francisco charges taxi operators for a medallion”. That’s a payout to the previous owner with an initial 5% transfer tax, not a fee, and it was actually a big mistake for the city to have made it a payout rather than “value captured” rent to the city (which could be adjusted), since the city is being sued and is about to go to trial for it (https://webapps.sftc.org/ci/CaseInfo.dll?CaseNum=CGC18565325).

> High land appreciation taxes are essentially indistinguishable from Georgist LVT

A capital gains tax is not “essentially indistinguishable” from a land value tax if rents rise and the owner never sells the property. The owner gets to collect increased rents for as long as his family owns it, and even his heirs don’t have to pay the tax on transfer (since capital gains are untaxed on inheritance in America due to the step-up basis and apparently also for the Chinese Land Appreciation Tax). Kevin Erdmann has written a good series of articles on focusing on the rental value of land rather than only sales prices: “A Conceptual Starting Point for Housing Affordability and Public Policy” <https://www.mercatus.org/bridge/commentary/conceptual-starti...>

State law prohibits local governments from using progressive income taxes <https://leginfo.legislature.ca.gov/faces/codes_displaySectio....>. San Francisco therefore uses a combination of gross receipts taxes (whose rates vary depending on business NAICS industry code and are graduated), payroll taxes (now repealed), real estate transfer taxes, sales taxes, and parcel taxes.

In my opinion, the state legislature should amend RTC 17041.5 to allow local income taxes, but only on rent, imputed rent, and capital gains within the city. Rents are the thing that local governments can tax without distorting the market.

As for this performative CEO tax, I think that the only positive effect that it will have, if any, would be to raise awareness of an issue whose solution has to come at the national and state level.

> Why should your property taxes go up just because the market around you skyrockets, when this is completely outside of your control?

The fallacy of the argument for tax breaks to homeowners is that the problem of rising prices is entirely orthogonal to homeownership. Renters face the exact same challenge of affording to live in an increasingly popular place, except without the cushion of an appreciating asset and without any tax relief under Proposition 13. If renters and homeowners face the exact same problem, then clearly subsidies to property owners is not the solution.

The finances of homeownership should be decomposed into two parts: 1) the rental cost of the property, and 2) what fraction of the rent goes to the government in property taxation.

The remedy for rising rents is obvious: more construction of housing and rental subsidies to the poor. This is how to address the underlying problem for homeowners and especially for renters. Temporary rent controls and tax caps can also be helpful to provide relief for people who were caught off guard by the rapid changes. Note that the solution should help all those who are affected by the problem, not only the ones who own more assets.

When property values are rising, this is not an excuse to enact regressive tax breaks for property owners; that just makes inequality worse without solving the underlying problem of lack of housing, which then becomes worse for renters and future homeowners. Property taxation is the most progressive form of taxation available to local governments, and if anything tax rates should be increased when there is a property value boom in order to reduce the incentive to speculate on land prices and to raise money to solve the problems associated with inequality such as homelessness. Basically, when I bought a house in San Francisco, I paid a windfall of a few hundred thousand dollars to the previous owner, who took that money out to a different county. It would have been better for the city to collect that money and use it to incentivize housing construction and subsidize the poor in the city, rather than to let it be lottery winnings to the person who left.

Property taxes are a consumption tax on the property that you occupy. Even better, the land portion of the property tax can also be considered a Pigovian tax because it is a tax on the natural resources that you are depriving others of occupying.

As of sometime in 2020, the old CORS spec (https://www.w3.org/TR/cors/) now redirects to the WhatWG Fetch Spec (https://fetch.spec.whatwg.org/) which I think is unfortunate because the old CORS spec (https://www.w3.org/TR/2014/REC-cors-20140116/) contains more exposition and also defines “simple method” and “simple headers” which everyone still uses but aren’t even mentioned in the Fetch spec.

A lot of people have condemned Uber and Lyft for violating the new law, but I’m wondering whether there is any correct way to apply the law. Does anyone know how AB5 has affected taxi drivers (who typically cannot set their rates), particularly those who use hailing apps (flywheel.com)? Are taxi drivers guaranteed minimum wage, and if so is it on waiting time or only driving time (like in the proposed Proposition 22)? Do taxi drivers get health insurance coverage? If Uber and Lyft instituted a driver cap (medallion), would this bring them into compliance with AB5, or is AB5 compliance impossible even with a driver cap?

The housing supply has been very inelastic in the Bay Area. And every business and individual who wants to be here starts out life short on housing. So I would group his approaches to staying in the Bay Area into three main categories:

#1, #6: Cover the short by hoarding enough of the fixed amount of housing for yourself and taking that out of the market.

#2, #3, #4: Help employees cover their short. I think it is smart that of him to try to do so in a targeted way to help new employees with downpayment and loans rather than ratcheting up everyone’s salary.

#5: Build more housing. This is the positive sum approach. I wish he elaborated on this because there are many roadblocks to San Francisco’s failure to convert high incomes into more housing (zoning restrictions, slow entitlement process, high fees, high construction labor costs), and it would help for more leaders to be part of the conversation on how to solve these problems for everyone, not just for his own nonprofit.

The broken embedded video that he says he had the idea for has been moved here: “Judge Rules White Girl Will Be Tried As Black Adult” https://www.theonion.com/judge-rules-white-girl-will-be-trie...

As someone who receives new subscriptions daily from people around the world mistyping their email address (or intentionally entering an address they don’t own), I ask that you please DON’T remove the step of verifying people’s email address!

Avalos is running for the same office that he held 12 to 4 years ago. In San Francisco, BoS members are termed out after 8 consecutive years but can come back after waiting a term.

This November a supervisor will lose re-election, since both the current incumbent Ahsha Safaí (who supported SB 50 as well as housing developments in his district) and the previously termed-out John Avalos (who opposed SB 50) are running for re-election in District 11 (Excelsior and Ingleside).

Not quite all of the BoS. Of the 4 misleading resolutions that the SF BoS passed to oppose SB 827 and SB 50 (https://sfbos.org/sites/default/files/r0084-18.pdf https://sfbos.org/sites/default/files/r0172-19.pdf https://sfbos.org/sites/default/files/r0541-19.pdf https://www.sfcta.org/sites/default/files/2019-12/R20-25%20S...), only Sup. Ahsha Safaí and Mayor London Breed (and Jeff Sheehy and Vallie Brown, who are no longer in city hall) voted against the resolutions and in support of SB 50. It’s important to pay attention to which supervisors do what so that they can be held accountable on election day.

By “principled,” I mean that the RHNA sends the signal from the state government to the local governments of the state interest (regional quantity of housing to promote housing affordability and availability), while preserving local control over legitimate local concerns, which is what the opposition to SB 50 wanted. It makes sense theoretically; it just doesn’t work in practice due to the lowballed numbers and long time frames.

California has a more principled approach to housing capacity planning called RHNA, in which the state sets a zoning budget (like that proposed by David Schleicher https://digitalcommons.law.yale.edu/fss_papers/4955/) and then delegates to local governments the responsibility to zone to allow enough houses to meet that budget. Unfortunately, the RHNA has numerous flaws including vastly underestimating the “need,” lax enforcement, and having very long cycles. Scott Wiener has previously addressed the flaws somewhat (SB 35 (2017) and SB 828 (2018)), but there is still a lot that must be done to fix the RHNA; see this good overview for more information and potential administrative improvements (https://law.ucdavis.edu/centers/environmental/files/Elmendor...)

The appeal of Wiener’s SB 50 was that it would have quickly increased the capacity of housing using fairly good heuristics to improve access to opportunity (already residential, near transit stops or jobs, not high fire risk). It’s unfortunate that the state senate doesn’t seem to want to treat the housing shortage with the urgency that it deserves.

Yes, there are several details that I did not mention (Proposition 8 reductions, appraisal of improvements, base year value transfers, etc.)

> The actual rate of inflation is not a factor.

Incorrect. The change in base year value is less than or equal to inflation. Proposition 13 allowed annual adjustments to the base year value by “the inflationary rate not to exceed 2 percent” (California Constitution XIII A http://leginfo.legislature.ca.gov/faces/codes_displayText.xh...), which the legislature implemented as the lesser of “the California Consumer Price Index for all items” and 2% (RTC 51 http://leginfo.legislature.ca.gov/faces/codes_displaySection...). See the most recent letter to assessors for the actual numbers (https://www.boe.ca.gov/proptaxes/pdf/lta19050.pdf). But I take your point that I should have said “adjusted by up to 2% per year” instead of “adjusted for inflation” above, since it usually isn’t fully adjusted for inflation.

The property tax bill is calculated as rate × assessed value. In almost every other state, the assessed value is directly proportional to the current fair market value, but in California, Proposition 13 lowered the legal tax rate and also changed the assessed value to be the price that you (or your ancestors thanks to Proposition 58 and 193) originally acquired the property, adjusted for inflation. What this means is that some people pay outdated property taxes that are a fraction of what their new neighbors are paying, while they benefit from receiving market-rate rents or benefit from modern amenities (schools and jobs). The effective tax rate is the property tax amount divided by the fair market value, which allows us to compare fair market tax burdens given the unfair property assessments: https://www.trulia.com/research/prop-13/.

To my point above, property taxes are intertwined with the debate about homeownership because Proposition 13’s low property tax rate increases wealth inequality (since landowners instead of governments capture the value of increased rents), increases wealth inequality (since governments are forced to increase regressive sales taxes and fees instead of property tax), increases wealth inequality (since the US income tax often does not capture increases in imputed rent and capital gains), disincentivizes cities from zoning for more housing (since the property taxes from new housing no longer pays for the infrastructure costs), and encourages NIMBYism (since homeowners have to purchase the land at a high price and then become extremely risk-averse). In addition, Proposition 13’s unfair asssesed value system further encourages NIMBYism (since landlords and homeowners get to benefit from displacing the poor without having to pay any higher property taxes) and encourages long-term property speculation without investment (since long-term property owners have low holding costs despite being in expensive locations). In another state, where homeowners have to pay taxes for the privilege of excluding others, homeownership would not be harmful to society.

This series of articles raises good questions, but for a series on how homeownership is the “biggest economic policy mistake,” I wish they would have spent more time on taxation. Adjusting the property tax (or equivalently rent and imputed rent income tax) rate allows the government to capture an arbitrarily high fraction of the rental value and capital gains of the property. It can be set anywhere from fully allodial (0 property tax) to fully social (tax on 100% of rental value). Homeownership wouldn’t a problem if homeowners had no privileges on the land rent. In California, we had an average property tax rate of about 2% before Proposition 13 cut it in half in 1978, encouraging homeowners to restrict supply and reap all the capital gains. So when comparing jurisdictions, I think it is also important to note what the taxes on the property are.

John Cochrane makes some very good points on measurement errors by Saez and Zucman and how much of what they're measuring is actually reduced interest rates.

I wish that progressives used a similar framework that they did 100 years ago--to tax unearned income (land rents, monopolies, windfalls) while encouraging earned income. If you care about unearned vs earned income, then it does make sense to try to tax the asset holders whose assets ballooned in value due to reduced interest rates over the past decade.

> How to solve the housing crisis: get the government out.

It’s not just government; private contracts often prohibit homeowners from serving more residents. In Zoning Rules! (https://www.amazon.com/Zoning-Rules-Economics-Land-Regulatio...), William Fischel describes how zoning can substitute for private CC&Rs, which are worse than zoning in that amendments often require supermajority of all property owners in the neighborhood instead of simple majority. Property rights that are too strong can be just as big of a problem as government regulations that are too restrictive.

> Though I’d also like to point out that whether the policies are liberal or not is not very important to me, they are just natural reactions people will have… Maybe it is fair. Maybe it isn’t

In my opinion, a liberal society with progressive taxation (including the property tax) tends to provide more opportunities for those who are born without assets than a society that overly protects the privileges of feudal estates (“passing on a home to your kids”), and would be a better society to live in behind a veil of ignorance.

> One of the issues here with doing something like building an apartment complex means now you have to live in the apartment or move your family and become a landlord

You can also build a condo building and own one of the condos instead of managing rentals.

> With respect to rent, I’m not sure. Maybe it makes more sense to tax rental income than the property

The problems with the income tax on rent are that 1) it penalizes renting out land while rewarding speculators who leave land vacant, and 2) it punishes renters who bear a higher burden than owner-occupiers who do not pay tax on the imputed rent (incidentally, the fact that imputed rent is excluded is basically a mistake of the original Form 1040; see Lawrence Zelenak, “The Early Income Tax and the Imputed Rental Income of Homeowners” https://doi.org/10.1017/9781108377157.008). The property tax is a fairer and less distortionary tax than an income tax on rent.

> If you’re a home owner a lot of this just seems like a bad idea. It makes more sense to maintain things how they are.

From a Bay Area resident to a Great Lakes resident, I hope people there heed the cautionary tale that is the Bay Area: maintaining the residential housing stock almost unchanged despite strong economic growth and agglomeration effects, and protecting property owners by discriminating against later generations, is an absolute disaster for lower income and even middle income households.

> I was thinking on the way home that maybe you lock property taxes in but then you have to lock your home price as well, but that probably wouldn’t work.

I think this might be an interesting improvement on Proposition 13: you can choose to lock in your low assessed value, but then you have to sell at that assessed value or pay taxes on the difference. This would allow homeowners to opt out of the free market for property tax purposes, but without having their cake and eating it too. I believe cities or the state actually have the authority to impose price controls under the same constitutional authority that allows them to impose rent controls; see https://blog.yonathan.org/posts/2018-09-proposition-10-rent-... for details.

> Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons… On an individual level there isn’t too much I can do.… Maybe I sell my home to a developer who turns it into a mall or a 5 story apartment building.… And if I can’t afford it you force me out of my house, away from friends and family?

I think what you said is somewhat contradictory. You said you don’t know what you could do if your land value were to increase, but then you list a couple good things that you could do (develop an apartment or sell the house), as well as a couple illiberal policies you would pursue (immigration restrictions or limits on children). I would add that you could rent out a bedroom or build a modest extension to rent out. And I think it is contradictory to say that you could build an apartment and be displaced; it is exactly apartments that would prevent you and your neighbors from being displaced.

> By the way, we don’t seem to have much of a problem with prices decreasing, even if that causes a larger financial impact (if you buy a home for $300,000 and policies out of your voting control cause you to lose value, you’re just screwed with no recourse).

I agree! This is actually another reason to want higher property taxes. In places like the Bay Area where the land value is so high, buying a house is a very big bet that the high values will be maintained. If taxes on land were higher, then the price would be lower and the government instead of individual homeowners would bear more of the risks.

> but as a homeowner in the Great Lakes Region, I feel more sympathy toward other home owners than some here may do.

And how do you feel about tenants, who face the same problems but worse?

What is the right level of privilege that owners should have above renters and future buyers? The property tax allows society to tune the amount of privilege that owners have over renters and future buyers. If the tax rate were 0% (allodial ownership), landlords would have a great degree of privilege over their serfs. At the other extreme, a tax rate of 100% of the rental value would be equivalent to leasing from the government, and landlords would have no privilege over other tenants. When we break the property tax by preventing it from adjusting to property value (as Proposition 13 did), then current owners become rich from the booming economy even as renters and future buyers become impoverished, or as the article puts it, “it’s especially unfair to their children, who are in effect subsidizing their parents’ generation.” In my opinion, the property tax rate should be moderately high, so that landowners and tenants’ interests would be more aligned and the government would have the resources it needs to address displacement and inequality.

> You’ll have to summarize any key points from the book, since I don’t own a copy.

The first few chapters of Rethinking the Economics of Land and Housing describe the distinction between competitive capital (whose price signals the economy to create more) and land (which cannot be created) and thus why they should be taxed differently. I think it is mostly based on this essay by Mason Gaffney: “Neo-classical Economics as a Stratagem against Henry George” (http://masongaffney.org/publications/K1Neo-classical_Stratag...)

> You say that property tax is a tool to reduce inequality, but I’m not 100% sure about that. For example, I don’t even know where my property taxes go

Broadly speaking, progressive taxation is all about taxing any income that is above and beyond what the average wage-earner earns from wages and competitive capital, and using it to fund services that are used by everybody. Virtually everyone has their own labor, whereas income from ownership of natural resources and monopolies is concentrated, so taxation of income above and beyond wages and interest reduces inequality.

Increases in land rent are unearned income that are not due to the owner’s wages and do not incentivize the creation of capital, so it is fair game to tax it as part of a progressive income tax system. If we don’t tax it using property taxes, then land value increases only become a windfall to the owner, leading to greater wealth inequality.

> Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons

The subject of this article is California’s ”severe shortage of houses.” What you are supposed to do in response to the price signal is expand the building so that more people can live on your lot.

Like all progressive taxation, the property tax is not solely a fee for government benefits received by the taxpayer. The property tax is a tool to reduce inequality—especially when it is applied to gains in land value. If we did not have property taxes (or when we protect existing landowners regardless of land rent increases under Proposition 13), then increases in land value from increased population would be entirely a zero-sum transfer from the new renters or buyers to the old owner, resulting in greater wealth inequality, since unlike capital the supply of land at a particular location is purely inelastic (see the first 4 chapters of Rethinking the Economics of Land and Housing for more https://www.amazon.com/Rethinking-Economics-Land-Housing-Rya...).

> The counter argument is: If a widowed elderly woman…

Proposition 13 does not target widowed elderly women; it only benefits property owners regardless of whether they are widowed elderly women. For example, widowed elderly renters are harmed instead of helped. If we wanted an entitlement for low-income and elderly people, we should have made one that targeted these groups instead of the one that only incidentally helps low-income people (https://www.law.cornell.edu/supct/html/90-1912.ZD.html)

> Getting rid of Prop 13 and raising taxes to tech market rate is the equivalent of deporting someone from their home.

The correct solution to address both the problem of growing property taxes (due to growing land values) and the housing shortage is to zone the lots to encourage growth, as promoted by Strong Towns (https://www.strongtowns.org/journal/2017/6/12/the-power-of-g...), not to give a special tax break to long-time homeowners at the expense of renters and new homeowners. This would enable homeowners to pay the higher taxes without being displaced as well as serve more households.