If I can't find a place in the next few years that is affordable on an $80,000/year salary in California, then I have to move. I'd like to move to a place where a 3-bedroom house in a safe neighborhood costs no more than $400,000, and where there is a diverse population. Ideally I'd like to live in a place that doesn't get too cold in the winter; I'd rather deal with very hot summers (I grew up in Sacramento where it regularly gets above 100 in the summer) than to deal with cold winters.
I could live in very little space. Not into owning a lotta stuff, entertaining crowds. 15x25 is more than enough. Noone's building cottages these days. Let alone on nice streets with trees, away from traffic, walkable. A couple of US cities have opened that up. Neither is in CA. My family of 4 was once quite comfortable in one apt. in a quadplex. We did this to ourselves, and invested in a lot of infrastructure to be locked into.
They have good jobs, just not good enough to rent more than a two bedroom hovel.
This is the story with pretty much any friend that doesn't either come from a family with enough wealth to manage down payments for all the kids, or a crazy-high income from the right type of job.
If we keep in pricing out everyone except for those with family wealth or high incomes, we will lose most of the people that make California great and interesting.
Not short-term helpful, but keep in mind that a mortgage only ever goes down due to both refinances and inflation. So the first few years are tough but it can only gets easier. So you don't need to maintain high income for 30 years.
Your mortgage payment can go down quite significantly over 30 years while paying rent will go up quite significantly over 30 years.
Very true. This is the key that makes buying so attractive.
Also, professorships are notoriously difficult to obtain and many professors move to far away rural and otherwise undesirable locations for that “privelege”. I’ve known several distinguished professor couples (not in CA) that live separately to pursue their careers … think twice before taking that route.
Personally, I'd rather pay a property manager to take care of everything rather than have to do it all myself, or have to find landscapers and plumbers and all that other drudgery. But I bought purely for the security that we only provide to those who own their own place.
However, owning has massive drawbacks like less flexibility to move, increased transaction costs, risk of decline in home value, mortgage costs, home maintenance costs, hoa assessments, etc
Also, taxes on housing increases every year as do maintenance costs, insurance, hoa fees … rents sometimes decrease by the way.
It's interesting how AZ and FL get the reputation of being great places for retirement, even though their tax system highly encourages current income and penalizes home ownership through higher property taxes.
So California isn't a great place for retirees. It is among the worst and far inferior to Florida.
I think you are either too optimistic in what a professor can earn in California, or you are missing that taxes are marginal. I know a CS professor at UCLA who just makes around $120k, so single filer California taxes would pay just be around 6.5%. If you throw in a spouse with an additional $80k of income, you’ll hit 6%.
To pay an effective 10% rate in California, a single filer would have to make $700k/year and a married couple would need to make more than a million.
A school like UCLA deals with their faculty not making enough to buy a house in LA (or especially Westwood) by giving them access to special kinds of loans.
None of that is unique to California. Your overall tax burden in California will be about one percent higher than Texas, according to https://wallethub.com/edu/states-with-highest-lowest-tax-bur..., though Californians typically lay spot more taxes because they make more money.
In general, people put ~5% of their (pretax) money into 401ks because, on average, companies will match that ~5%, effectively doubling your retirement savings instantly.
A common thing to utilize after that is a ROTH IRA, which is paid with after tax money, but the money grows tax free. The max ROTH IRA contribution per year is $6k, $12k if you're married.
Tax-exempt would be never paying tax on it.
He should have tenure. The UC system doesn’t pay that great, and there is also a lot of competition for faculty positions. Your best bet is to make some money on the side , legally of course, advising some company, but even that has a lot of restrictions.
Those aren’t low rates compared to other states, especially considering the COL.
But with the boomer generation approaching EOL (sorry, a bit macabre) does anyone think prices will have to cool a bit as supply slowly starts to trickle up a bit? Or will that just attract other wealthy people from elsewhere into the market? The current price trend can’t possibly keep up at its current pace or no one will be able to buy…
https://en.wikipedia.org/wiki/1978_California_Proposition_13
It makes absolutely no sense to have the older, wealthier, luckier, "I got here early, therefore I'm set for life" generation pay $300/year, while the couple in their thirties who moved in two years ago, have a new baby, and can barely afford the mortgage and daycare despite both parents working in tech have to pay nearly $15,000/year.
I know the original argument for prop 13 was about how awful it was for poor little old ladies to lose their houses, but that is by far not the common case, and this level of inequality, stealing from the young to give to the old, is completely insane.
One way or another, this has to end.
Renters voted for it because they were told that their rents wouldn't go up if property taxes were capped, but of course that's not how market rate rents work. So pissed off renters voted in rent control on SF, Oakland, and elsewhere.
If the taxes get locked in, then you get the "2 neighbors with near identical houses paying totally different amounts in taxes" problem.
If the taxes are not locked in, then you get the retired lifelong home-owner (or renter) on a fixed income, unable to afford the increasing taxes (or rents).
We should expand it and repeal income taxes and prop 13.
But really, Prop 13 is among the most ham-fisted damaging legislation you could possibly point to...
(1) initiatives which are exercises of legislative power reserved by the people to adopt a law initiated by citizen petition,
(2) referenda which are exercises of legislative power reserved by the people to approve or reject measures passed by the legislature, either with the assent of or over the veto of the governor.
(3) legislation referred to the people by the legislature (often because it would impact a previously passed initiative statute in a manner which the legislature has not been delegated the power to do without popular assent.)
Prop 13 of 1978 (proposition numbers get reused, so “Prop 13” alone is technically, though only rarely practically, ambiguous—though confusion from that ambiguity has been suggested to have helped the defeat of Prop 13/2020, which was on the ballot with two measures that would have modified Prop 13/1978, Prop 15/2020 [which failed] and Prop 19/2020 [which passed]), specifically is an initiative constitutional amendment.
Taxes are a matter of choice - a (democratic, even vaguely) society makes a choice to spend a certain amount of money, and as a reflection of that, they levy taxes on a variety of things to raise something roughly equal to that amount of money. These taxes will affect different people differently, and they will affect different kinds of income and different kinds of wealth differently. Some taxes are based on what a person is paid for their labor. Some taxes are based on a person's ownership of something valuable. Some taxes are based on what a person spends. What matters is who pays what and why, not whether "the money was already taxed".
But you're right that we have a choice in whether or not we levy a tax on the ownership of land/buildings. Personally, I'm more a Georgeist in such things, and I think that taxing the ownership of land is an excellent idea, much better than taxing income or spending. But I don't feel that Georgism itself answers the question of how to determine how much tax a person would/should pay for owning a particular piece of land.
I suspect you don't believe that there can be society-wide collective goals, and I just don't have any time for that nonsense. I spent too much of the 90s on Usenet arguing with people who thought that, and it just isn't worth my time anymore.
The reason property taxes are based on value is that it acts to tax wealthier people at a higher rate than poorer people. Plus, just because the money that purchased the land was taxed means nothing to the local community. Sure, the federal & state governments have already taxed that income, but that means nothing to the local community, who has to pay for schools and EMS every year. And these services act to make the property more valuable, so why shouldn't the residents of the community pay for them?
1. There are places in the civilized world without property taxes.
2. I am not proposing a regressive tax system, I am proposing a tax system based on actual consumption and frugal mindset. People are always equal until they are not - one man one vote is good, but one man one dollar tax is bad, 'cause some men cannot afford to pay for the services they get, but they have equal right to vote. That is hypocrisy. In some circumstances I am fine with people living on state care or UBI, but they should completely give up their right to vote as they are incapable of having a solid life for themselves, so they are incapable of deciding for community.
3. When you pay per service, you are a lot more careful with what you ask for and what you get for than when you pay a sum for a bucket of "something". A colleague that lived somewhere in a small town in Ohio told me they did not have a police force in their community by choice: the cost-benefit ratio was not good. A different colleague told me she was paying about half of her salary (low level manager in a big company) as property tax for the small farm her family had for generations, somewhere in West Virginia. In my part of the world most of the tax money are wasted on things that are not necessarily the biggest priority for the community, but the politicians are rarely competent and most people don't mind the waste, while others like me do. This is why I am looking at a zero tax and pay per service to eliminate waste.
In a progressive tax system, the burden of taxes is related to the marginal utility of money. That is, an extra $1000 for a person who earns $15k a year has enormous utility, whereas an extra $1000 for a person who earns $150k a year is of much less utility (and this trends to zero utility as base-line income rises).
Consequently, when you collect $1000 in taxes from a person who earns $15k, you have a dramatic impact on their life. When you collect $1000 in taxes from a person who earns $500k a year, it has very littl eimpact on their life.
This notion of "progressivity" in taxes has been at the heart of most taxation in most western nations, including the USA, for centuries.
Your suggestion does not follow this, and is thus called "regressive" - people are taxed without attention to the marginal utility of money.
And BTW, there are some cafes/restaurants (not many, but a few) that do offer progressive pricing.
That's fairly exagerated. It means the recent buyer paid 1.5M for the same house the older buyer paid well under 30K (since their tax has been increasing 2% every year since then).
It might be true somewhere, but finding a house worth well under 30K in 1978 (start of prop 13) and 1.5M today, isn't that common.
My neighborhood is 25 years old and the largest real spread between property taxes is ~2x, very far away from the 50x of your example.
But this perpetuates the problem, and makes it much worse for the next generation! You do realize that this can't continue indefinitely, right? I mean, maybe this doesn't bother you, which I suppose is fine. Does it bother you?
Look, you're technically right. I also own a house in California, and am far better off because of it. But it still bothers the hell out of me.
I'd much rather fix the problem in the general case than adopt this "I've got mine, therefore everything is fine" sense of entitlement.
Do you really want to be 90 years old in your $50 million NorCal farmhouse paying your grandfathered in $15,000/year property taxes when everyone else paying $500,000/year decide that enough is enough and torch the place?
A retirement strategy that depends on screwing over a younger generation and hoping that they don't manage to get revenge before you die is a risky bet.
The root of the problem is California is a very desirable place to live, and adding sufficient supply would decrease what makes California so desirable (per the local voting populaces).
The solution is non existent, as you’re not going to be able to come up with more Californias, but people are accepting some pieces of it by moving to various other cities in the West.
Technically right is the same as right.
It is extremely difficult to change all of society. It is honorable to try.
But meanwhile while waiting for that change, the OP could shoot themselves in the foot by renting, or improve life by buying.
But SF housing dropped 30% in 2008. No reason it can’t happen again.
Is there risk? Sure, but its hard to find a 5-10 year period where you lose even if you hit the bottom of one of the drops, which are usually only a year or two from the peak.
Again, not saying you can make good money but there is no reason why the opposite can’t happen.
And yes, you need a ten year time horizon for the risk to be small. By 2014 the SF home prices were above the peak in 2007.
That’s...not true.
For the ad valorem part of real estate taxes (classic “property tax”), the assessment will rise with value increases to a level capped by a cumulative annual increase of the lower of 2% or the actual level of inflation from the date of purchase or qualifying improvement eligible for full-market valuation. The tax rate for those taxes can also change in principal, but the other part of Prop 13 limits the ad valorem rate to 1%, so most jurisdictions are maxed out.
But California has another form of real estate taxes not subject to the limits on classic property taxes, parcel taxes (Mello-Roos fees) which are assessed at a flat dollar amount against all properties in a taxation district.
Well it will rise 2% every year.
Less (excluding potential new or increased Mello-Roos fees), no matter how the real estate market goes, if, as has often been the case recently, general inflation is <2%/year since the cap on assessments is the lower of 2% or the actual rate of inflation.
They invested all those years ago and we damn well best recognize their sacrifice with eternal servitude, and be thankful our buying power is deflated to prop up theirs!
However, this is not the primary problem in California. The primary problem is that the wealthy are doing all they can to make sure that housing prices rise as much as possible. And because of the 5x leverage that a mortgage with a 20% down payment earns, any small shortage of housing greatly amplifies prices even further, accelerating asset price inflation for the landed class, giving them even greater gains.
So we have two structural problems 1) the one you mention where wages are not enough to produce or maintain housing, and 2) those with the resources to build housing for themselves are not allowed to use those resources for more housing, instead transferring all wealth to the landed class instead of productive uses.
If we don't solve 2), we will never have enough resources done 1) because the landlords will still take all the money of the working class.
The problem is middle class America has their entire net worth in the property, and it must appreciate. If that goes down, the entire middle class evaporates.
China has the same problem except 100x worse. Canada and Australia too, to a lesser degree. What happens when the music stops?
edit: mispellings, possibly due to poorly aged scotch
But I also separate out this sort of wealth from, say, stocks or highly liquid wealth in a bank account. Land, and even structures themselves in a supply constrained location, act as a far more insidious form of capital than dollars or stocks. They are used to extract rents from people, just as monopolies are used to extract wealth, or capitalists with a monopsony on labor can extract the excess value of labor, far more than capital interest would normally demand.
There's a solution to this, capture the excess value that real estate commands and redistribute it, either through taxation, or modified forms of limited ownership. This has two effects, the primary one being that it eliminates the motive to use housing as an appreciating asset. People can still use their homes as a store of value, meaning that they can put work into their homes to improve them to their liking, and not have it all taken away. But they do not take the value that comes merely from excluding people from access to the area, the increase in land values. (Though in places where there is not change in land use allowed, the homes themselves start to behave as land does, commanding excess rents merely due to the inability to let more people have access to an area.) The secondary effect is that these socially created land rents get distributed to all of society, who generate the value, rather than the person who is speculating.
There are two end games to the bubble in land prices that we are currently seeing. A slow deflation, or a sudden pop. However, since so much of our wealth is predicated on housing values, and since so many of our banks are dependent on high valuations, there will always be a strong enough political coalition in the US to stop a pop. We need to build a coalition that prevents the growth of the bubble, committing it to steady deflation.
If we try to take money from income taxes, it won't work.
We need to stop transferring wealth to unproductive rentiers (landlords), and instead transfer it to labor which will produce what we need.
The reason this doesn't happen is that the rentiers control the zoning boards.
Also: if you are willing to pay more taxes don't even consider forcing others to do the same, that is rude.
You might want to read the history of Chicago's ugly, tall, public housing projects. Cabrini-Green, Robert Taylor Homes, Stateway Gardens, Henry Horner Homes, etc. That they've all been torn down will give you a clue how it ended. In short, they were horrible shitholes.