Forget older Californians, you can get priced out of your house just from property value increases in the last decade! Also keep in mind that there's no great system for appraising houses. As someone who has bought two houses and sold one, the appraisal system comes down to "can I find a few houses in this neighborhood that have roughly equivalent room count and square footage that have sold in the last 6 months." So now you hate your neighbors for moving out, you hate the new neighbors for paying whatever market rate is, and you start having to figure out how to move to Sacramento and whether or not you'll be able to get a teaching, policing, fire, nursing, etc job there -- all this despite the fact that you may not actually be able to sell your house for even 80% of what the appraised value is.

What Prop 13 did was to say "the best indicator of the value of your property is the amount the market settled on at the last transaction". It also tries to cover some edge cases (the biggest of which is the McMansion remodel -- look at Palo Alto where $2M gets you a teardown and then you build a $6M house on the lot). Still seems reasonable to me, although of course it's not perfect.

Locking in the property tax rate is a reasonable policy for reasons you explain. But it should not have been extended to non-residential, non-owner-occupied properties, and also it should not have been transferrable.

But, being non-transferrable would exacerbate the low-turnover problem by preventing those retirees from downsizing for fear of a big property tax increase.

I meant that the tax rate should not be transferrable to another person, say, a hier.

The problem is the last transaction might have been decades ago. This leads to some people paying several times as much property tax as their neighbors who own houses of similar market values, simply because their neighbors bought their homes years earlier. That's not reasonable.

It also means you could sell your home, move across town into a home that costs the same as the one you sold, and your property tax could quadruple. That's not reasonable either.

Both of those things sound imminently reasonable compared to the alternatives, at least to me. Both of those things are a product of choices that a market-participant made. The alternative pre-Prop 13 was that a non-participant was financially affected by the behavior of their neighbors. In the scale of reasonableness, this is less reasonable than life under Prop 13.

Homeowners are market participants. They benefit from increased home equity caused by increased market prices. They get to capture that equity when they eventually sell their homes, and in the meantime they get to borrow against it. And the homeowners who rent out their properties get to charge more.

Listen, no offense, but you're not going to convince me that it's cool to price people out of the homes they live in simply because they've been in them for 10 years and the market has moved that much. There's an older minority couple that live across the street from us who have been in the neighborhood for over 30 years now. Community like that is part of why we bought here. If my wife and I moving in means suddenly everyone has higher property taxes, I'd have a serious problem with that.

Well the solution for that would be to allow the taxes to be deferred in part or in whole in the form of a lien.

Actually there are many ways of appraising houses, and they track the market pretty well (own multiple rental properties so I keep an eye on it)

> here's no great system for appraising houses

To me a "great" system would be independently verifiable. As in, you appraise your house and you then find you can sell it within 5% of that number. This is not how it actually works, though. The appraisal is often spot on the offer you got for your house, because the appraiser clearly knows the number they need to hit for the loan to go through.

Maybe the system is great for some slice of the market, but for owner occupied detached homes it's pretty shitty.

>The appraisal is often spot on the offer you got for your house, because the appraiser clearly knows the number they need to hit for the loan to go through.

You're talking about the appraiser hired by the lending bank (at your expenses). Their job is not so much "blindly come up with an independent valuation", their job is more to justify the selling price already agreed upon to the lending bank. It also makes sense to take into consideration a price both interested parties already agreed upon - that's important information when trying to determine what something is "worth."

The appraiser's real job is to protect the bank's money by ensuring that the house is sufficiently valuable to serve as collateral for the loan you are taking out.

Right, exactly. And they use real data to make that justification.

We are saying the same thing.

And, to add insult to injury: the ones paying 3000 a year in taxes rather than 30k, are the ones who made millions of dollars in equity off the gain. That's extremely Regressive and completely the opposite of what CA supposedly stands for: Progressive income taxes.

What I don't understand is why they can pocket that appreciation. When you sell the taxman should come knocking for all the abatements you've received over the years.

Not sure why CA doesn't do what a lot of cities do. Tell homeowners they can either pay the higher property tax or put a lien on the property, payable when the house is sold (take it out of the appreciation).

I agree it's ridiculous when the people getting tax breaks are the ones that made $1M on their home in a decade.

That is a fascinating point that is obvious but until you said it outloud it hadn't crystallized for me.

The problem for the retirees is quite often they have a fixed income - solution to "unlock" that equity is maybe it's held as a liability against the equity @ the eventual sale price.

I think the problem is that you're thinking of it in purely economic terms. Ending Prop 13 will increase home turnover because it prices people out of their homes but I don't think that's really what we want in our housing market.

Telling people to think of their homes as a commodity upon which market forces should be brought to bear in order to ensure production of housing services at competitive prices is obtuse. People purchase property, rather than renting, largely to gain security and control, to escape the vicissitudes of the market.

https://www.interfluidity.com/v2/6287.html

(It's actually a really good article, I would encourage others to read it for a contrarian view on housing deregulation.)

People want to be able to buy a home and raise their kids or grow old in it. If your ideal market structure doesn't allow for that then you're missing the point.

You cannot escape the vicissitudes of the market - you can only externalize the costs onto other people. In Prop 13's case, it was largely a one-time benefit to property owners at the time of passage, at the expense of both future residents and the economy in general.

>you can only externalize the costs onto other people.

For a marketeer this seems quite a lot like zero-sum thinking.

Besides you absolutely can escape the market. Not everything has to be a market, for example healthcare can be provided using market or non-market logic. You can also shrink the impact of markets, for example look at this [1] example of food-banks run using a market-ish system. They removed the parts of the market that they didn't want ie. everyone starts from a level playing field and cash is distributed regularly based on need but then they kept the price discovery system. We have this same power over markets, we can just get rid of the parts we don't want through laws. In homeownership we want to get rid of most of the frictions of the market that rub up against long-time asset holders. In investment securities we don't mind a structure that compels people to sell to produce market liquidity because most people don't have an attachment to their shares of $VTI. In home ownership people have as strong an attachment as you can have to a physical commodity so we don't want a structure which compels people to sell.

[1] https://www.npr.org/sections/money/2017/11/22/565736836/epis...

>Not everything has to be a market, for example healthcare can be provided using market or non-market logic.

There's still physical limitations on resources available; picking a different distribution doesn't lift the limit of how much stuff we have.

>we can just get rid of the parts we don't want through laws

Successful market design is quite a bit more complex than that. Every market intervention has all sorts of second-order effects.

>In homeownership we want to get rid of most of the frictions of the market that rub up against long-time asset holders.

I'm still quite aggrieved that homeowners in 1978 decided to vote themselves a structure that enriches themselves at the expense of newcomers to the area. More generally, it's a mistake to focus on the benefits of a policy without considering the costs - prop 13 does good for long-time homeowners in the region, but at the expense of literally everyone else. I don't think that's a tradeoff worth making, especially given the dead-weight losses from restricting sales and price communication.

Wow it's almost like the free market could've solved this problem but government laws got in the way and distorted everything and caused more problems than they solved. Weird.

I think the transferring of the low tax basis is bogus but Prop 13 does protect blue collar families. I personally know someone who works for a low hourly wage and now owns his home he bought in the 1970s. If he did not have those tax protections he would lose the home he raised his family in and have to move immediately.

I understand it's frustrating to outsiders who are new to the city and are trying to "make it" but forcing families out of their homes isn't right.

on average prop 13 overwhelmingly benefits wealthy homeowners. So why not add an income level qualification to prop 13 so that it only benefits people that actually need it?

That's the first time I've heard this suggestion but it seems to make a lot of sense

This might well be a good thing to do, but it should be noted that income qualifications come with their own entire bag of tricky problems and potential perverse incentives.

What income level do you set it at? Is it a cliff or phased out? If the latter, what does the curve look like? How does it change with inflation? Are these questions set up front or negotiated by politicians at some frequency? How is wage vs. capital-based income handled? These are the kinds of tricky questions that come up (and are usually not answered very well) with any program that attempts to inject some income-based fairness into some government system.

So I think the answer to your "why not?" is that it will be hard to get it right and is likely to become a political football that may end up making things worse in some way. But the argument for doing it may still be stronger (it seems so to me, without knowing much about it), I'm just saying that there is also a fairly strong counterargument to this sort of thing.

If you would get it wrong, such as setting the income level too high, how would it be worse than now?

And it’s not set in stone, why not try? You would increase tax revenue and thus have more resources to deal with the problens. And there’s lots of examples across the world that have done this and can share experiences of what to look out for.

But it would selectively drive out productive members of community. Adding more rules to an already broken legislation would not work in the long run.

What are "productive members of the community"? People who seek profit, hide their wealth, and flip houses to make more money?

Oh be serious...is this the new reasoning, homeowners are mustache-twirling villains?

Yes? I mean, as a perma-renter who's continually demonized for being a renter and suggesting the construction of more housing so I can afford to live somewhere in commuting distance from work, most of the people yacking in city meetings about how I "ruin the community" are, well, homeowners. And usually really nativist ones with a nasty undercurrent of racism, which doesn't even make any sense since I'm usually the same race as them.

... I think they meant people who work, who make more income than retired people.

Then homes would simply get deeded only in the name of the stay-at-home spouse who has no income.

Someone with little to no income can still be very wealthy. You're also discouraging people from getting better paying jobs. You also gotta deal with properties deeded in trusts and stuff.

That discourages people from moving up in pay. It'd likely be cheaper to make less money.

You'd also encourage rich people to hide their money. Especially trust fund kids who's income is low as they only take out what they need to spend.

>That discourages people from moving up in pay. It'd likely be cheaper to make less money.

It discourages people from moving up in pay AND selling their homes.

>You'd also encourage rich people to hide their money. Especially trust fund kids who's income is low as they only take out what they need to spend.

Still creates more friction and difficulty for the wealthy.

This also makes sense to me.

How would your friend feel about property taxes that scale with market value, but can be deferred until the moment the home is sold, at which point the deferred taxes are paid from the home's appreciation? We could even add a provision capping the maximum tax bill to the actual amount of appreciation since the home was bought. That way nobody is priced out of their home, but the taxes to pay for services that everybody uses are still distributed equitably among all residents.

Housing changes hands much less because the tax gap means all other factors things being equal the house is worth more to the seller than the buyer - they can't live in a similar place for the same money. Deferring taxes just makes that gap in value bigger. And there's not necessarily a point where the city gets money for services, tax rates are passed down with inherited housing.

"How would your friend feel about property taxes that scale with market value, but can be deferred until the moment the home is sold"

I can't speak for him but this makes sense to me.

I think that would be an essential part of a comprehensive solution but on it's own wouldn't incentivize efficient land use in the interim.

But why wouldn’t you just have the mill rate decline with increasing property values across the community? The city shouldn’t need orders of magnitude more income just because the value of homes blew up.

>If he did not have those tax protections he would lose the home he raised his family in and have to move immediately.

He would not “lose” his house immediately. He would be forced to sell it for an outrageous profit and move somewhere he can afford to pay the taxes. Subsidies are subsidies, and I have zero sympathy for those who don’t feel like they’re getting enough when people are literally being forced into homelessness from the knock-on effect of this policy to low-net worth renters.

You can't force people to move this way, there is no way Prop 13 will change with this stance.

It's essentially the same sentiment as "Don't like the laws and don't want to pay more than natives? Leave the Bay Area then, you have the whole rest of the country to move to."

Both sides are extreme, comprises need to be made to get anything through.

>You can't force people to move this way

There's 49 other states in this country where that's exactly what happens every single day. Should the city of Palo Alto subsidize them, too?

>Both sides are extreme, comprises need to be made to get anything through.

This is just a false equivalence. Prop 13 is the extreme here. There's nothing even remotely comparable anywhere else in the country. Asking people to pay their fair share of taxes is not "extreme". If we need to subsidize older homeowners who can't afford their homes, that's another discussion to be had and another funding source should be found. Doing it through property taxes has made this place unlivable.

>There's 49 other states in this country where that's exactly what happens every single day. Should the city of Palo Alto subsidize them, too?

So there's 49 other states __you__ can move to and not deal with Prop 13?

That's reality right now and if you're going to be headstrong that's how the community will respond to your reasoning.

>So there's 49 other states __you__ can move to and not deal with Prop 13? That's reality right now and if you're going to be headstrong that's how the community will respond to your reasoning.

Ah yes, and there's the classic "I got mine, so screw you" mentality of California. What a nightmare.

Or if low-density zoning didn't hold sway everywhere, that person could sell up to a condo developer, get a condo in the new building + some cash. Win-win.

It's not just SV that has similiar stuff to Prop 13, most places do so. If not, the locals will simply have to pack up and move just because their property value went up which can be quite disruptive. I personally think it's fair. You shouldn't be forced to move out of a city you are rooted in where you have family and friends. Imagine getting old and deciding you wish to downsize to a smaller house because all the kids are grown. Do you want to start over in a new city when you are now replying on retirement income and are old? Of course not. That's what Prop 13 tries to stop. I don't consider it entitlement, it sucks to not be at the receiving end, but hey that's the gain for being their first.

BTW, I don't live in the Bay area and never have. I live in Detroit area and we have this same rubbish and I've had to pay 3x property tax of folks who own 5x the value of my property. It sucks but I understand.

But this also means that without prop 13 or something like it local homeowners would have every reason to try to keep housing prices at sane levels rather than trying to get them as high as possible, would it not?

I'm not a fan of Prop 13 and I've considered what the effects would be if it was phased out in some way. I really wanted to gain a better understanding of the housing climate back in the 70's when this proposition came to pass. Apparently it was really, really bad. Found this NYT article from 1981 that did a pretty good job outlining what was happening[1]. I don't think we can possibly go along without it but I don't understand why Prop 13 has to be applied to businesses, landlords, and investors buying up as non-primary residences...

[1] https://www.nytimes.com/1981/08/17/opinion/housing-boom-goes...

What can a homeowner do to keep housing prices low? The only thing a homeowner can do is fight new development, but that isn't the only driver of cost. And depending on the area, fighting new development may not be all that effective.

Fighting new development is the cause of high housing costs in the first place, and they can stop doing that. The only possible way to solve a shortage is to add more of the things that there is a shortage of.

Having personally been a couple of city council/planning commissions meeting for a few SV cities, I can tell you the fight isn't always that effective. And the argument against aren't about money, it's about traffic, quality of life, character of the neighborhood, etc.

There are other forces at play when these decisions are made. City councils have an incentive to balance their budgets... they see commercial properties as revenue generators and residential neighborhoods as cost centers.

Look at all the commercial properties that have been built. Most of the larger ones also had substantial objections from the residential neighbors. But that didn't stop them.

Consider this: - If a city council (or whatever government body that allows/disallows development) is ultimately responsible to the voters... - If most of the (eligible) voters are the "have nots" who face scarce housing - Shouldn't this fix itself over time?

Yes, the model is more complicated that this, but I think you get the idea.

This is a long winded way of saying, it's not a case of existing homeowners vs not homeowners. There are other factors at play.

Short answer: no.

Why's that?

Why?

> It's not just SV that has similiar stuff to Prop 13, most places do so.

I do not know of any place that caps the property taxes of commercial or rental property.

new york used to do it but it's mostly phased out now

Prob 13 is meant to address the first issue. Repealing prob 13 would cause the existing housing to be redistributed in a new way, but it wouldn't address the underlying need for more housing. All it would do is speed up gentrification.

Barriers to movement causes an inefficient use of housing with respect to commutes and job sites. Someone locked in to a house in Mountain View with a job in SF cannot trade houses with someone locked in to a house in SF with a job in Mountain View - not without a huge increase in property taxes.

The redistribution gets rid of a deadweight loss in commuting, easing traffic and transit congestion and allowing more housing to be within commuting distance of jobs.

Sure, but that is just a symptom of the overall problem. We aren't going to get anywhere by just treating the symptoms while ignoring the cause of the problem that there are more people than there are places for them to live.

Repealing Prop 13 also removes another impediment to increasing housing stock. People who already own property and don't feel the effects of quickly increasing property prices will vote against new development more often than people who have to pay higher taxes when property values go up.

That argument relies on somewhat circular logic. You say one cause is that home owners don't want new housing. You solve that by repealing prop 13 giving them a financial stake in the market value of homes. However, why would the home owners support that repeal if they are against new housing in the first place? Either the home owners are against new housing or they aren't. If your suggestion was a feasible solution to the problem, it would prove that that your proposed cause was not actually the cause of the problem.

You missed the argument. The argument wasn't that homeowners should support repealing Prop 13 because it creates more housing. The lower taxes alone are enough to keep them from wanting to repeal it. The argument was that everybody else should support repealing Prop 13 because it gives homeowners one less reason to support more housing. There's nothing circular about it.

Ending Prop 13 would eventually result in 20% of the state's homeowners being forced to sell and become renters.

The US is full of affordable housing in places that are not (despite what you might think) utter cultural wastelands.

Do not wait for Prop 13 to be repealed, you will be in your grave before that happens.

>The US is full of affordable housing in places that are not (despite what you might think) utter cultural wastelands.

Have you considered that some people might be attached to locations in the urban core for pretty much the same reasons you're attached to those non-wastelands in Middle America? For instance, family history, or workplaces that don't do remote work.

Some extra color on Prop 13; a more sinister view is that it was a time bomb designed to "starve the beast" and limit tax revenues in the future.

California doesn't seem very interested in starving the beast overall. So it seems unlikely the motivation of this prop was that.

Prop 13 passed when California was a red state: http://www.latimes.com/projects/la-pol-ca-california-voting-...

And the prevailing reason for that prop (and the reason it passed) was to keep from pricing the elderly out of their homes. Not "starving the beast".

If that was the prevailing opinion, and your goal was to limit tax revenue, you would need to get creative and Prop 13 is just that.

What time bomb? California tax receipts showed a $9 billion surplus this past tax year. The state is collecting more revenue than ever.

Wouldn't it make sense to have higher taxes on old people? They have more significant money and wealth I believe.

it should absolutely not be based on age ... some old people are quite poor, while some young people are quite wealthy.

Wouldn't it make sense to have higher taxes on tech workers? They have more significant money and wealth I believe.

If you want to tax wealth or income just do it directly.

Property taxes are indeed a direct tax on one of the most significant forms of wealth in the US. Most equity for the average American family is their home. It doesn't make sense to tax people with greater property and generational wealth a tenth as much as younger people with less wealth.

And yes, there should be and are higher taxes on tech workers, inasmuch that there should be and are higher taxes on people with greater incomes. To an extent, at least. That is also directly taxing income, as you said.

We've already seen the prosperity of the mid-20th century in regards to high upper tax rates and social spending, and we've seen the Kansas tax cut experiments when it comes to dropping them all and absolutely ruining the state. These aren't theories or opinions anymore, they are fact.

To clarify, I don't think taxes should be based on age or anything. But when you have something like prop 13, it isn't explicitly worded to tax people based on youth, but that is the obvious outcome of the situation. And that's ridiculous. A wise nation do not devour their young.

I think this is too narrow a view, covering only the supply side. What about demand? Why does everybody only want to live on the peninsula?

Traffic is a big factor there. We have a total and complete lack of modern/fast public transport reaching out into the outlying areas and unlocking their potential.

They can also do things like re-zoning, or ending absurd and antiquated setback rules which require me to keep 700 sqft of dead grass in front of my house instead of more home.

There's a third option which is encouraging people to move elsewhere.

This advice is sound yet still evokes silent rage (i.e. downvotes) on HN or reddit. The rest of the country is just fine. Decent jobs, nice people, reasonable mix of climate. One thing every other place in the entire country has in common relative to the Bay Area is cheaper housing.

You might make 20% less in Seattle or Austin but you will have access to housing, which will have much a much more profound long-term impact on your finances than toughing it out as a renter in a "better" job market.

If you wake up at 45 still renting, you can probably forget about anything resembling a traditional retirement.

There is likely some truth to this as it encourages new housing stock to be built. I also suspect that it does lead to a more sustainable long term growth that's less likely to have major sell offs since owners will hold onto their property to maintain their tax advantage. I openly wonder if this is the reason that California housing, particularly in the Bay Area, did not implode during the dotcom bubble.

Ending Prop. 13 will not solve anything. If more people want to live here they need to build more housing. You instead proposing to kick out people who already live here just because they cannot afford to pay much higher taxes. Sounds pretty close to genocide to me.

And in the first place who said that taxes proportional to property prices is the best economically viable option? Are schools or police or roads become proportionally more expensive with rising property prices?

> Ending Prop. 13 will not solve anything. If more people want to live here they need to build more housing. You instead proposing to kick out people who already live here just because they cannot afford to pay much higher taxes. Sounds pretty close to genocide to me.

Uh, no, that's nowhere close to genocide.

Gentricide then :)

No.

$3,000 sounds almost reasonable for property taxes. $30,000 sounds like daylight robbery.

On a $2 mil FMV? Give me a break.

If they are both 1500 sq ft homes, what makes the other house $27,000 more taxable? Are you getting that much more municipal service?

Municipal services is not the point of property taxes. It is a fee paid to the community for occupying that space of land. It makes sense for the fee to be based on the desirability or value of that land.