This is a huge reason that property values are cheaper in Texas. Either you pay high property tax rates on (relatively) cheaper property or you pay exorbitant rent to your landlord that just keeps escalating.

There is very good evidence that property taxes are capitalized into property values. Land taxes in specific are fully capitalized (which is to say, they lower the price of the land, and the landlord can't pass on the tax to tenants), right in line with long-standing theory:

https://web.archive.org/web/20201108135554/https://dors.dk/f...

Paying property tax might sting, but those ruthless assessors and high rates are one of the few things keeping housing affordable in Texas.

A decade ago, I owned a 200k house in Austin while making a 6-figure salary in California-- I paid more in property taxes on the house in Austin than I did on income taxes on my income in California.

This is really only the case if you had substantial deductions of some sort.

Assuming you made exactly 100k as a nice lowball you'd have owed $6947.92 in 2011 California income taxes. Harder to quickly find 2011 Austin property taxes but using todays rates without the homestead exemption you would have paid $4653 presuming you lived in Austin proper with Austin ISD taxes.

This is obvious a simplified calculation assuming basic W2 income and may very well not have applied to you, but for others reading it's nice to see some actual numbers.

No homestead exemption. Roughly 3.1% tax rate. Northwest corner of Austin, in the 78717 zip code. Leander ISD if I recall correctly.

California taxes were affected by CA deduction, CA personal exemption, and 401k (which I didn't max out, and even without it I think the original claim still stands although just barely)

This is a good thing

I agree! Also the fact that TX has much more lax zoning laws (Houston has none whatsoever) than CA, and a general lack of NIMBYism compared to the Bay Area in even the cities, you get a much more affordable metro area.

Unaffordable housing prices are as much a policy choice as a function of the market.

Good luck finding a million dollar house in the Bay Area.

And TX has a sales tax of 6.25%, while SF is 9.25%.

And no state income tax in TX.

It’s not even close.

That's a state sales tax of 6.25%. Austin and Dallas are at a minimum of 8.25%, for example. Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+.

Cities have their own sales tax. And so can school districts (and they can have their own property taxes, too).

And sure, you're right, there's not much housing under $1M in the Bay Area. That doesn't change the fact that a $1M home in TX still pays about the same in property taxes as a $2M home in SF. Or the fact that in SF your property taxes are essentially frozen at purchase price, and in TX they will increase every year.

OP was referring to sales taxes in TX in general, not the highest cities, but point taken.

And sure, property taxes for a $1M home in TX is the same as a $2M house in SF, but that's a mansion in TX and a 2 bedroom apartment in SF. You get way more for your money.

And google tells me that TX does cap property tax increases. Not like Prop 13, but we all agree Prop 13 is terrible, right?

And everyone is ignoring the state income tax which is 9.3% in the $60 to $300k bracket (and goes up to 13.3%). So if you’re making $250k, that’s saving of $20k alone, which is about the property tax in TX.

It’s not even a close comparison in terms of the tax burden between the two.

"Though if you're in a specialized planning district, you can be looking at sales taxes of 10%+"

The maximum cumulative rate by law is 8.25%.

No, SF is 8.625%, which is, as a sibling poster mentions, roughly the same (and in places lower) than in Austin.

Additionally as someone who did some casual redfinning around Austin at the start of the pandemic, I'd say my own natural inclination was to shop pretty close to the price of the California single family home (i.e. $1M) and envision what it'd be like to live in/grow into the Texas mansion (i.e. $1M) at the equivalent price range. I probably wouldn't have downsized to a $400K home and I probably would have been sticker shocked by the property tax bills.

Another thing that makes the home buying / mortgage comparison not 1-1 is Fannie Mae:

Austin/Dallas/Houston/San Antonio are not classified as "High Cost of Living" areas, as SF/LA/NYC are. This means that a conventional mortgage as of 2021 in Texas is capped at $548k, while in LA/SF it's $822k. The practical effect of that is any mortgage higher than $548k in TX is classified as a "Jumbo"/non-conventional loan, which usually comes with a higher interest rate and/or higher percent down required.

You want a $1M house in TX rather than CA? Be prepared to put $400k+ down or accept a higher rate + PMI, rather than the normal 20% down in CA. All on top of the fact that you're paying the equivalent in taxes to a $2M+ home in CA.

I thought Prop 13 no longer applies to current purchases? If you own a house under prop 13 it’s under way low property tax, but if you sell it, it get reassessed at the new current value. Is this not the case? When we purchased our house years ago the taxes weren’t cheap and we had to pay the additional Melli-Roos tax.

Prop 13 still applies (though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving).

When I bought my home this year, it got re-assessed at my purchase price, yes. But for as long as Prop 13 is the law of the land, no matter how much home prices in CA inflate, my property tax is more or less capped at the price I paid for the house.

> though I personally think it inflates home prices in CA above their "true" market value and disincentivizes anyone from selling/moving

Exactly. And this is important for potential homeowners to understand. It is one of the things that makes California real estate so attractive. One has to view their house as an investment, not just a place to live.

If California somehow repealed Prop 13, you would see their property tax rate zoom up to the point where Texas property taxes wouldn't seem that outrageous by comparison.

> If California somehow repealed Prop 13...

In November 2020, California scaled back on some of the benefits of Prop 13 for families. Prior to Prop 19, properties could pass from parents to children and the property tax basis would not increase. Now, the benefit is limited to the parents' primary residence, the inheriting child or children need to reside in the property for one year as their primary residence, and the amount excluded from reassessment is limited to $1m.

The main proponents of Prop 19 were realtors who expected the change to result in more sales of properties after parents die. I haven't seen data on it, but they were probably right. There will probably be more sales as children who inherit their parents' properties can't afford to keep them after reassessment.

Prop 19 was titled the "The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act" because it allowed seniors and victims of wildfires to sell a home and buy a new one anywhere in the state and carry over their current property tax assessment, regardless of the sale price. However, it totally undermined one of the best ways for families to pass wealth on to their children, the acquisition of properties for investment. Corporations, of course, were unaffected.

Well, considering most of those heirs who are not using it as their primary home would just end up using those homes to rent out at market rate anyways, it makes sense to tax it. If they don't want to deal with that, they can just sell it. Commercial properties over $3 million were also affected. Those moving into the inherited home as their primary residence a̶r̶e̶ ̶n̶o̶t̶ ̶a̶f̶f̶e̶c̶t̶e̶d̶ EDIT (see comment below): *will be re-assessed, but includes a generous exclusion of the first $1 million.

I'm a would-be beneficiary of Prop 13 Pre-19 and a homeowner in Los Angeles, and even I voted for this reform. I would vote to repeal Prop 13 in whole if I could. Prop 13 was originally meant to protect middle-class Californians from losing their primary home (for which other alternatives exist: see TX. Your primary home cannot be taken from you for tax reasons or in bankruptcy) – not a tax loophole for generational wealth.

> Those moving into the inherited home as their primary residence are not affected.

Not true. Only $1m of assessed value is excluded for heirs moving into an inherited property as a primary residence. Inheriting property worth more than $1m is not a bad problem to have, but in places like Los Angeles it means that a lot of people not be able to afford to live in the property and will be faced with either fixing it up for use as a rental or selling the home they grew up in.

Thanks for the correction -- you're right.

It doesn't really change my point though – I still don't see why a $2M+ property deserves to get transferred tax free. A $2M property would still only pay a little over $10,000/year in property taxes after the $1M exemption (which you can deduct against federal taxes, even with the SALT cap, which itself will likely repealed!). A pretty nice discount for an heir compared to someone who just went through actually buying a $2M home and pays twice the tax.

Honestly, if you're inheriting up to a $5M home for free in CA, and are still reliant on a job to make ends meet, the payment probably comes out to more or less what you would pay in a mortgage+taxes for a ~$1M home. A pretty good deal! If you're inheriting anything more than a $5M home, then I don't really think Prop 13 was intended for you in the first place – people with $10, $50, $100 million+ properties, well, it's my belief that we shouldn't be basing our entire housing policy on what's best for them. They can likely afford the taxes.

Not to mention that you can only shield a house from re-assessment for 1 generation, so even if there was a multi-million dollar family home that this family simply couldn't afford to pay taxes on otherwise, the heir of the heir would have to pay taxes regardless. So what's so privileged about the situation that tax reassessment gets to skip a generation? The law as is is designed to benefit a shrinking sliver of the CA population while debatably actively hurting the rest.

I think a decent compromise that won't actively pull the rug out from anyone while also leveling the playing field is just ending Prop 13-related inheritance exemptions altogether. It wasn't even part of the original law. Then get rid of the exemption for all commercial and secondary/investment properties going forward. Let people live in their primary homes with a frozen tax basis, sure, just don't let them transfer it (and for the edge case, to encourage downsizing after becoming "empty nesters", allow people to transfer their assessed tax basis to a property of lesser or equal market value).

> the SALT cap, which itself will likely repealed!

What's your basis for this belief? My understanding around Biden's tax plans was that the SALT deduction cap would likely remain at $10k.

Just did a quick search for recent news, and nearly all of what I'm reading is doom-and-gloom around the possibility that the SALT deduction cap will be repealed. Which makes sense, since that would lower tax revenue, and that's not something politically palatable with the Dems trying to push through multi-trillion dollar infrastructure spending.

Well, it appears you may be right, there. As of last month, I read the consensus was Democrats wanted SALT repealed. It looks like that won’t be the case now, as the spending plan gets whittled down — now it’s looking more like a raised limit, at most.

Previously: https://www.google.com/amp/s/www.cnbc.com/amp/2021/09/08/mod...

Prop 19's targeting inheritance exemptions will have uneven effects. The very wealthy won't be affected at all because, on the advice of their estate planners, they will have transferred their properties into corporate entities long ago. (Recall that properties owned by corporations aren't reassessed when stock ownership changes and Prop 19 didn't change that.) Heirs to properties worth less than $1m who intend to use the property as a primary residence are also unaffected.

There is, however, a large group of ordinary middle-class people, particularly in cities like Los Angeles or San Francisco, who own what were once modest homes that are now worth more than $1m.[0] Their heirs will be burdened when the property tax bills double (or more) in one year, even if the heirs use the property as their primary residence. More heirs will sell inherited properties, which is exactly what the real estate brokers who promoted Prop 19 intended. $1m+ is also a sweet spot for broker profitability.

The intent of Prop 13 was to stabilize property taxes after the double-digit hyperinflation of the 1970s by capping annual increases in assessed value at 2%. That created stability for individuals and businesses that led to massive investment in and migration to California.

Prop 19 undoes that stability, but only for a narrow group of people: heirs to $1m+ properties from parents who did not have sophisticated estate planners. From Wikipedia:

    The Case–Shiller housing index shows prices in Los Angeles, San Diego, and San Francisco appreciated 170% from 1987 (the start of available data) to 2012 while the 2% cap only allowed a 67% increase in taxes on homes that were not sold during this 26-year period.

[1][2]. On average, heirs to $1m+ homes in those markets will be hit with roughly a 103% increase in one year (170%-67%). So, Prop 19 hits a narrow group of people with a 100%+ tax increase when Prop 13 was supposed to limit increases to 2%. A compromise rule could have been to spread out the increase over the course of a few years, but that wouldn't induce more sales like the brokers' lobbying group wanted.

Personally, I think it would be fair to increase the annual cap from 2% to 4%. In a decade or so, that would undo much of the tax discrepancies caused by Prop 13. And the effects would be spread out, so people could plan for it. Increasing the cap, however, would never pass because it is clearly a tax increase on everyone and doesn't benefit a special interest like real estate brokers.

[0] The median home price in Los Angeles is now over $900k. https://www.zillow.com/los-angeles-ca/home-values/

[1] https://en.wikipedia.org/wiki/1978_California_Proposition_13...

[2] https://web.archive.org/web/20191011004252/https://us.spindi...

Aren't they still half of what they are in austin?

homesteads are capped at 10% increase in valuation. City budgets are capped at 3.5% without a vote.

The largest share of property taxes is actually school districts which run roughly 50% of the property tax in austin. The city is 25% and the other 25% is the county, health district, and community college.

Tax rates float. If the valuations double, but the taxing entity budgets stay the same, then the tax rate will drop in half.

Rising valuations dont have much to do with the increase in taxes over time.