A great history professor I had at university was very interested in California politics. His take after years of research was that the thing holding California back is Prop 13, which has to do with taxation: https://en.wikipedia.org/wiki/1978_California_Proposition_13

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.

So the thing holding back California is that they don't get enough taxes? There must be something more nuanced i'm missing, but it almost feels like a comedy sketch thinking of a California college professor explaining to people that California not taxing it's citizens enough is the thing holding it back.

The nuance is that with restrictions on property tax there is absolutely no disincentive for citizens to support local policies that restrict housing development. You are incentivized to keep the housing supply as low as you can possibly get it, because raising the price of your own property has zero downsides. This creates homelessness due to a restricted supply of housing.

>support local policies that restrict housing development

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.

Asking to change policy without changing the incentives that led to said policy is a fool's errand. You have to change what people are incentivized to do to actually change anything because people respond to incentives, not ideas. The way you fix zoning itself is by incentivizing people do to so.

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 completely agree with you about incentives.

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.

Hi, welcome to the conversation, I can tell this is the first time you've engaged with this topic, so I'd love to introduce you to the economic dynamics at play.

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.

Do you have data to support this claim? It doesn't appear to play out like this in practice. Compare CA vs a state like NJ and home sales seem on par per capita.

https://journal.firsttuesday.us/home-sales-volume-and-price-...

https://njar-public.stats.10kresearch.com/docs/lmu/x/EntireS...

Would assume this is due to the constant inflow of high income tech workers to california

Why do all these sites only consider from 2010 onward? Prop 13 was passed in 1978.

Do a little research. If you move in CA and you're over 55, you can now keep your property tax bill. Previously it was only certain counties that honored that; now it's all of them.

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.

27% of Californians are over 55. That means the majority do not get to have the benefit of keeping their tax bill when they move. To compound that, the most dynamic economic growth probably comes from under-55s moving, not over-55s -- new jobs, new opportunities, start a family, etc. Obviously it's good if it's easy for old people to move, but the economic value of a young family being able to move closer to a high paying job is probably many multiples more from a "net good for society" standpoint.

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.

Why don't you let him defend his own statements, which have little to no foundation at all?

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.

Hi Bob, you'd rather argue with a username you recognize rather than get to the truth? Here we are, closer to the truth than before, and you're maligning others for cutting you off from a witty gotcha on a person whom you seem to hold some grudge against.

> Prop 13 freezes your tax rate when you purchase the property.

Factually wrong. Prop 13 limits your tax increase to 2% per year.

OK. Perhaps freezes is the wrong word.

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!

You'll have one in 20 years!

> Do a little research. If you move in CA and you're over 55, you can now keep your property tax bill. Previously it was only certain counties that honored that; now it's all of them.

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!

We bought our house 9 years ago. Current homebuyers on our street are paying 2 to 3 times what we are in taxes for similar homes. Add in our extremely low interest rate and we have no plans to sell the home even if we buy another.

I'm confused why you would request data that explains that if people have assets they will borrow against them and invest to make more money. I'm not sure what data would satisfy your request because this just seems blindingly obvious to anyone who can reason about personal finance.

> 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.

Considering that lots of Californians pay practically no property tax... yes! Absolutely tax more!

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.

If you're a new homeowner, I recommend you never look up what others on your street pay in property tax.

I wonder how many of the non business properties are still under Prop 13? I can't imagine it would be that many at this point. Business property can probably be held in some sort of trust so it appears to never have changed hands over the years.

A huge number of residential properties are receiving massive prop 13 subsidies. Open up https://www.taxfairnessproject.org/map and go poke around a random neighborhood in Palo Alto. Blue means the assessed valuation is close to the market price, while red means the assessed valuation is a tiny fraction of the market price.

Lots. You can inherit prop 13 rates from your parents or grandparents.

It’s a completely sick system that is literally creating a landed gentry

The increasingly bad management of California (and SF/LA etc) is not about taxes, its about managing based on ideology rather than the common-sense well-being of the citizens. Hence the citizens leave to more favorable places. If prop 13 had anything to do with it, we would have had people escaping the state back then instead of only in recent years.

The only ones who get upset when you point this out are people who thought they could get away with and benefit from such a loophole. They see no problem with excluding others from the possibility of enjoying the same benefit as long as they already have it.

Climbing a ladder and then pulling it up after you is anti-social and shameful.

What are you talking about? Prop 13 applies to every homeowner.

Is the argument basically just "arg if only we could collect even more taxes we could use the money to fix all our problems"?

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 given people power over their own lives.

A better argument is "distributing the tax burden based on how long somebody's family has owned property in the same place has a large number of negative effects."

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.

It's not just more taxes. It's that Prop 13 effectively means your taxes go down over time. This encourages people to stay in housing units as long as possible. It also creates a big divide between people who bought early and those actually supporting the government through up-to-date tax rates. Most sickeningly is that privileged tax status can be passed parents and children, effectively creating a separate caste of people with lower taxes.

> Most sickeningly is that privileged tax status can be passed parents and children, effectively creating a separate caste of people with lower taxes.

Thankfully this was significantly curtailed by 2020's Proposition 19.

The taxes are skewed towards the rich, but also towards people who want to move for work. It's a wealth transfer towards the asset rich and immobile from the workers and the mobile. It's the economic distortion that's the problem as much as the lower taxation, but certainly part of it is shifting the taxes even more heavily onto the high income earners.

Republicans are the paragons of "boom now, bust later", alternatively "screw those who come after because I got mine". You're making a good point but don't seem to get it yourself.