If that was slowly phased out, prices would come down as more houses came on the market, and the houses that those people wouldn't represent such a huge jump in ongoing property taxes.
The people who can't move because of increased taxes would be forced to flee the state maybe?
Housing prices take into account the amount of taxes one expects to have to pay, so if they're no longer locked, and one expects prices to rise, then the price one will be willing to pay will be lower. Also, prices will fall as more supply opens up, since there won't be such a big advantage to sitting on houses anymore, and people are more free to move to less expensive areas. Currently there's a bit of a rent control situation where the low rates can be passed on to your descendants, and there's a big incentive to stay in it rather than selling it and moving farther out, even if the place farther out is half the price. This effect is more pronounced on the high demand areas where prices have risen more.
Over time, the prices would adjust and settle. People may end up paying more tax overall, but we can play with the rate, or we could decide that the schools could use more funding (in many places, they could), and that we should keep the rate where it is. As it is now, the people who are just moving to CA are heavily subsidizing people who have lived here for a long time, and the lack of liquid housing supply is causing prices to shoot up.
In Michigan, it's a bit more complex. The assessor calculates a State Equalized Value (SEV) on which the tax is based, and that cannot rise faster than the rate of inflation, or 5%, whichever is less. I assume lots of states have odd property tax quirks.
It's funny that people accept taxes of up to 40% on wages (things the middle class earns), but can't understand how taxing vast landed estates (things the rich owns) would "help." Suggest thinking this through more clearly.
That's a nice theory, but it's wrong. The city is requiring buildings to get retrofitted with earthquake safe structural foundations. It's every building with greater than a few units, so the rather small 100+ year old Victorian I'm in will be required to go undergo retrofitting by 2017.
There were 1,987 unreinforced masonry buildings in SF in 1990, and all but 158 were fixed by 2013. That's why, all over SF, you see diagonal steel beams inside brick buildings, sometimes across windows. There are now supposedly only 29 unreinforced brick buildings left, mostly ones that are abandoned or scheduled for demolition. A few are still occupied, including some non-patient buildings at SF General Hospital.
In a really big quake, many buildings will be damaged, but structural collapse in SF should be rare. The occupants get to survive.
P.S. Thanks for all the good work you did at Reddit.
Re: reddit, pshaw, I was only there two and a half years. :) Most of the hard work was done before I showed up and after I left.
Even if we assume zero retrofitting of old homes, what about the future residents of currently-new homes which persist for another 50 years?
How tied is this to the business model of banks?
I think part of it is credit (money) creation out of thin air, and it has to go somewhere. Another part is the massive productivity gains of past decades, that also has to go somewhere, and it isn't going into rising prices of consumer goods for the most part.
To me, it seems logical that the ratio between median housing prices and median wages has to be rather constant over time, and if it isn't, there should be a measurable offset somewhere else, especially when the housing is by far the largest purchase 90%+ of people will ever make - yet, I see no proportional offset (of decreased spending) elsewhere.
They can't sell at a loss because all mortgages given were put in books at the 100% repayment price and now they need to wait not only for the house to recover the price lost since the crisis but also to raise in value to match the expected mortgage gain written in books, to avoid negative impact on their ratings
What ought to happen is proposition 13 ought to be repealed, along with the restrictive zoning laws. Then people who are sitting on lots of undeveloped property would have to sell it to developers, because the taxes would be unaffordable otherwise. And developers would put up new properties. Prices would then come back to earth and poor people would be able to live in houses again.
But the prevailing mentality in the US is that houses are investments, not places to live, so don't expect this to happen any time soon. Instead, you can expect politicians to intervene if housing starts to become affordable again, like they did in 2007. ("Oh no! Housing prices DECLINED!") It's basically a giant transfer of wealth from the young to the old. But people are too ignorant of economics to understand how and why it's happening, so you can expect it to continue.