I don't know that it's more "unfair" to the younger generations to not increase property taxes than it would be to the home owners to do so. Why would someone who bought a house for 100k be expected to pay taxes on 2M years later? A lot of these people probably had normal jobs and incomes, they didn't chose for Google/Apple/Facebook to move into town and send the property prices sky high. Yes, they benefit as owners but this rule only takes effect if they don't sell their house and continue to live in it.
The alternative is that we basically force people out of houses they've bought by gouging them with taxes. That seems much more unfair than the alternative.
> The alternative is that we basically force people out of houses they've bought by gouging them with taxes.
I would argue that being able to afford a place in the 1970s does not endow one with an inalienable right to remain there forever. Locking the property taxes creates an artificial incentive to hold onto property forever, thus creating market stagnation.
A more palatable argument is that it would create incentives to keep housing prices stable, rather than expecting a lifetime skyrocketing windfall at everyone else's expense.
The counter argument is: If a widowed elderly woman lives in a 900 sqft home bought in 1963, how is it her fault that the world went crazy and values it at $1,200,000+ today? Have you seen a 1963 house? They’re a fire hazard not worth 1.2M.. And yet, you want her owe tax on that crazy value, yet she is stuck with a static retirement income? Where should she go? Idaho?
I’m for increasing tax on income earners, but not on retired elderly who just want to die in peace. The younger generation could move to other geographies much easier
> The counter argument is: If a widowed elderly woman…
Proposition 13 does not target widowed elderly women; it only benefits property owners regardless of whether they are widowed elderly women. For example, widowed elderly renters are harmed instead of helped. If we wanted an entitlement for low-income and elderly people, we should have made one that targeted these groups instead of the one that only incidentally helps low-income people (https://www.law.cornell.edu/supct/html/90-1912.ZD.html)
The old lady made $1m in unearned value in her house. She can use a part of that value to pay taxes on the increase, live and die in the house, and her heirs still make free money.
Unless she resorts to a reverse mortgage, it's surprisingly difficult to refi when you have no earned income. I have over 1M equity in my house but can't access it while unemployed (according to lenders I've contacted, including credit unions with whom I have 30+-year ties.)
Let's say property taxes are 2%. She's got a $1M house so thats $20k per year for the rest of her life. Is it really that hard to borrow $200k against a $1M house?
And then die me not pay back loans? Or what if there is a market downturn and now the lenders are stuck holding it? Maybe they don’t lend I’m the first place?
It sounds like keeping housing prices stable rather than expecting/encouraging housing prices to skyrocket indefinitely at everyone else's expense would solve both problems, no?
I honestly think it has less to do with money than the younger HN community realizes. Older people don't like change, especially significant changes like moving. Most of the people who have been here for decades stay because it's their home and they have no where else to go. Getting rid of Prop 13 and raising taxes to tech market rate is the equivalent of deporting someone from their home.
Why are we bending over backwards to appease them though. Renters have to leave their residences all the time due to rental increases, often after being financially stressed to a limit. The home owners could at least take out credit against their property to pay for the taxes if they don't want to move. In fact I think that's a good thing! A large number of California home owners all needing large lines of credit backed by highly valued properties could devalue the properties or cause a crash.
> Getting rid of Prop 13 and raising taxes to tech market rate is the equivalent of deporting someone from their home.
The correct solution to address both the problem of growing property taxes (due to growing land values) and the housing shortage is to zone the lots to encourage growth, as promoted by Strong Towns (https://www.strongtowns.org/journal/2017/6/12/the-power-of-g...), not to give a special tax break to long-time homeowners at the expense of renters and new homeowners. This would enable homeowners to pay the higher taxes without being displaced as well as serve more households.
I would argue that buying a house does give you the inalienable right to live there forever (if you so choose). Anything else is basically the elimination of the concept of private property.
Kicking people out of their houses is not a sign of a healthy society.
You're confusing the "fee simple" notion of land tenure that we have in the United States with "allodial title" which doesn't happen anywhere anymore because it turns out that's a terrible way to run a society.
> buying a house does give you the inalienable right to live there forever (if you so choose)
That's simply not how it works in the United States. The government here is allowed to levy taxes on you for fencing off a portion of our land from other citizens.
No. I don't think the government should be manipulating the housing market directly like that.
I do think it should invest more in building low income houses and that zoning should mix incomes though. I think that would make for a healthier environment for everyone.
> Why would someone who bought a house for 100k be expected to pay taxes on 2M years later?
Well why would someone who bought a 2M house today be expected to pay taxes on it? Because the community has a lot of expenses - fire fighters and police will protect their valuable asset, the school system needs to pay its teachers to live somewhere in the vicinity of this expensive neighborhood, the lawmakers (who these homeowners have elected) need money to regulate vaping and plastic straws and run the most inefficient homeless services in the country.
Someone who bought a house 30 years ago is getting all these same benefits as someone who just bought a house. And since they've been voting there longer, they're arguably an even bigger part of the reason that all these costs exist than the newcomers. They're also a much bigger part of why the housing supply is so constrained, they've been going to community hearings for decades to block any new construction.
Why shouldn't they have to pay for it?
If anything I would be more convinced by an argument that newcomers should pay a lower tax rate than people who've been there a long time. But that's obviously quite an extreme position, I would settle for everyone paying the same property tax rate that our elected officials have set. If we think that's too high, then lower it for everyone equally.
A question I have here is are we asking for people to pay taxes on the value of the home because it is at some dollar amount, or are we asking to pay taxes for the cost of services?
If my modest home (really it’s modest) doubled in value, I’m not using “double the services”. Why would my property taxes increase? What if it’s an entire neighborhood? Maybe salaries go up for firefighters and teachers... ok? What if they don’t live in my neighborhood?
Let’s say we want higher property taxes to subsidize/provide services for other areas. Why not just raise their property taxes as well? This would offset the price of the homes and make them cheaper.
I’m getting the feeling part of the issue lies in people realizing the true costs for things. I don’t have the first clue how much it costs to have a fire department, or a school. They always just want more money (which I basically always vote to give them - maybe I shouldn’t ?).
Like all progressive taxation, the property tax is not solely a fee for government benefits received by the taxpayer. The property tax is a tool to reduce inequality—especially when it is applied to gains in land value. If we did not have property taxes (or when we protect existing landowners regardless of land rent increases under Proposition 13), then increases in land value from increased population would be entirely a zero-sum transfer from the new renters or buyers to the old owner, resulting in greater wealth inequality, since unlike capital the supply of land at a particular location is purely inelastic (see the first 4 chapters of Rethinking the Economics of Land and Housing for more https://www.amazon.com/Rethinking-Economics-Land-Housing-Rya...).
You’ll have to summarize any key points from the book, since I don’t own a copy.
You say that property tax is a tool to reduce inequality, but I’m not 100% sure about that. For example, I don’t even know where my property taxes go. Maybe some small portion goes to the state, but I believe all go directly toward local projects, firefighters, police, and schools.
Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons. The fact that the property has increased in value is an unrealized gain, are we sure it makes sense to increase property taxes? If my income stays the same, and as you say, property taxes is a progressive tax to reduce inequality, what more income do I have to give?
> if my home value doubles just because of natural reasons.
There's a lot to unpack with just that. Decades of aggressive downzoning and increasing regulatory hurdles to make building more difficult & costly, is not a natural reason (even if it is the status quo). Just as an analogy, that would be kind of like saying the tens of thousands of automobile deaths per year in the US are deaths from natural causes, since it's a status quo that we don't even blink twice at anymore.
You're arguing that your lifestyle has not increased just because your home value increased. It definitely has, basically by definition, now you live in a more expensive house and more desireable location. If we were to itemize the additional value you're getting, the big line item is the cost of keeping other people out of the neighborhood and keeping the density low. 30 years ago that was pretty cheap, now that is an extreme luxury that you are getting. Not to mention other tangible benefits, like access to home equity credit or the ability to sell and move to a much bigger or fancier house almost anywhere else in the country. Just because you aren't going to exercise your ability to do that doesn't mean you aren't getting the value from having that flexibility.
This seems to really get at one of the most fundamental things driving NIMBYism, that people's expectation is if they buy a house they have also bought the right to freeze time in their immediate vicinity and remove themselves from the continually evolving outside world. So if they don't perceive that their lifestyle has doubled in value, they're free to just decide that it hasn't and carry on living and paying property tax as if it hasn't.
To be clear (and this is probably my fault) when I said natural reasons I was thinking along the lines of naturally occurring economic reasons. For example, if people move to my town that will drive property prices. On an individual level there isn’t too much I can do. Maybe I vote to restrict immigration or enact anti-growth policies such as a maximum limit on children. Maybe I sell my home to a developer who turns it into a mall or a 5 story apartment building. Many reasonable courses of action here. By the way, we don’t seem to have much of a problem with prices decreasing, even if that causes a larger financial impact (if you buy a home for $300,000 and policies out of your voting control cause you to lose value, you’re just screwed with no recourse).
I don’t buy for a second though, that if your home value doubles that your lifestyle doubles. My mortgage payment and neighborhood are exactly the same. It can certainly have a positive impact, but it’s unrealized.
Largely I think people are too quick to focus on demonizing the NIMBY, without really considering the full scope. What if people in the state legislatures vote for something that increases my home value and I vote, write reps, and do anything a person has a reasonable capacity to do. Now my taxes should double or triple? And if I can’t afford it you force me out of my house, away from friends and family?
Life isn’t fair I guess? But then people can’t get upset if people go and vote themselves Prop 13 or to defund affordable housing. It’s in their self-interest. Economics is hard.
I don’t know the right answer, but as a homeowner in the Great Lakes Region, I feel more sympathy toward other home owners than some here may do.
> I don’t buy for a second though, that if your home value doubles that your lifestyle doubles.
That's just true by definition of how a price works though, it's not really up to each person to agree or disagree with.
I get that you're not realizing the gains when your house goes up in value. But a property tax is not a capital gains tax, it's a wealth tax on a specific type of wealth (that happens to be very important to society and easy to track). The rules that everyone else is playing by, are that you're taxed based on the value of the property. Whether you realize the gains or not, to give you a break on it at the expense of people who happen to be newer, is not somehow inherently more fair. It's a transfer of wealth that is very regressive on average and goes directly from those with less money to those with more. And it has been a huge driver of the housing and budget problems created in California over the last 40 years.
But it’s not true by definition. If my property value doubles tomorrow, whether I want it to or not, my salary doesn’t double. So taxing me means I make less money now. I think we can argue about it, but you can’t say that my “lifestyle doubles” it doesn’t.
I think we can argue about whether or not it's fair to you that this happened when you didn't necessarily want the value to double. But you really do have double the wealth, there's no two ways about it.
Another analogy, is imagine you paint for a hobby. If the price of paint doubles it's not going to double the value of your paintings, you don't realize any of thos gains. You could argue that it's unfair, you didn't ask for the price to increase, you should be able to go to the store with the same amount of money as you used to and buy the paints. But that would be silly, it's not how the world works.
In general people understand that it's not owed to them that everything will continue to work the same way it used to. But for some reason when it comes to home ownership, people think they are buying the right to keep everything about their home and neighborhood exactly the same, even the things that are not just affecting them individually but have a big impact on the rest of the community (like who else can live nearby, how much property tax they should pay, etc.)
The problem is that it’s a mismatch between wealth and income. Property taxes are taken from income, and if your income doesn’t increase in line with property taxes that may rise completely out of your control, you essentially may have to sell your house to pay property taxes. That doesn’t seem like a good solution to me.
I was thinking on the way home that maybe you lock property taxes in but then you have to lock your home price as well, but that probably wouldn’t work.
With respect to your last sentence, I think one of the issues is that we actually mix public policy into home prices. You can’t want a free market and also not want a free market. It seems like many home owners have chosen to not have a free market when it comes to home prices. It’s also not helpful because, like medicine, your home is a big deal. Uprooting you’re family is a big deal. Think about how a family feels if they buy a house, all of a sudden their neighborhood is “cool” and then they have to uproot their family because rich people push them out?
Not a lot of good solutions to a big problem here.
There are two solutions to the property tax income mismatch issue. Which often effects old or disabled people. One I think some places do is allow people to freeze property taxes when they retire. The other is just to allow people to take a property tax lean against their property. When it's sold the state gets it's cut.
> I was thinking on the way home that maybe you lock property taxes in but then you have to lock your home price as well, but that probably wouldn’t work.
I think this might be an interesting improvement on Proposition 13: you can choose to lock in your low assessed value, but then you have to sell at that assessed value or pay taxes on the difference. This would allow homeowners to opt out of the free market for property tax purposes, but without having their cake and eating it too. I believe cities or the state actually have the authority to impose price controls under the same constitutional authority that allows them to impose rent controls; see https://blog.yonathan.org/posts/2018-09-proposition-10-rent-... for details.
> Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons… On an individual level there isn’t too much I can do.… Maybe I sell my home to a developer who turns it into a mall or a 5 story apartment building.… And if I can’t afford it you force me out of my house, away from friends and family?
I think what you said is somewhat contradictory. You said you don’t know what you could do if your land value were to increase, but then you list a couple good things that you could do (develop an apartment or sell the house), as well as a couple illiberal policies you would pursue (immigration restrictions or limits on children). I would add that you could rent out a bedroom or build a modest extension to rent out. And I think it is contradictory to say that you could build an apartment and be displaced; it is exactly apartments that would prevent you and your neighbors from being displaced.
> By the way, we don’t seem to have much of a problem with prices decreasing, even if that causes a larger financial impact (if you buy a home for $300,000 and policies out of your voting control cause you to lose value, you’re just screwed with no recourse).
I agree! This is actually another reason to want higher property taxes. In places like the Bay Area where the land value is so high, buying a house is a very big bet that the high values will be maintained. If taxes on land were higher, then the price would be lower and the government instead of individual homeowners would bear more of the risks.
> but as a homeowner in the Great Lakes Region, I feel more sympathy toward other home owners than some here may do.
And how do you feel about tenants, who face the same problems but worse?
What is the right level of privilege that owners should have above renters and future buyers? The property tax allows society to tune the amount of privilege that owners have over renters and future buyers. If the tax rate were 0% (allodial ownership), landlords would have a great degree of privilege over their serfs. At the other extreme, a tax rate of 100% of the rental value would be equivalent to leasing from the government, and landlords would have no privilege over other tenants. When we break the property tax by preventing it from adjusting to property value (as Proposition 13 did), then current owners become rich from the booming economy even as renters and future buyers become impoverished, or as the article puts it, “it’s especially unfair to their children, who are in effect subsidizing their parents’ generation.” In my opinion, the property tax rate should be moderately high, so that landowners and tenants’ interests would be more aligned and the government would have the resources it needs to address displacement and inequality.
Yes, you’re right I mentioned some things that you could do. Though I’d also like to point out that whether the policies are liberal or not is not very important to me, they are just natural reactions people will have. Restricting immigration or child rearing is a logical consequence, and it doesn’t make people bad. If you like things the way they are, you’ll protect against population explosions.
One of the issues here with doing something like building an apartment complex means now you have to live in the apartment or move your family and become a landlord. You do become displaced, and you have to sever neighborhood ties you have. In an era where many people are searching for meaning and community, I’m not sure that having your neighbors move and build an apartment complex on the lot next to you is a good thing.
You will potentially have conflicts with increased road usage, or maybe property taxes increase to pay for a dozen more children to attend a school that previously didn’t. Although some here have suggested property taxes are meant more so for distributing wealth than to pay for services. At some point somebody pays to build a new school. If you’re a home owner a lot of this just seems like a bad idea. It makes more sense to maintain things how they are.
With respect to rent, I’m not sure. Maybe it makes more sense to tax rental income than the property. Ultimately we have a few problems that aren’t easy to solve, and unclear goals. I don’t think apartment buildings everywhere is a good thing, and that’s the future of the Bay Area. I’d want to develop a tax and property rights structure that encourages medium density mixed use development. We have to question home ownership too - passing on a home to your kids means because you happened to be here first locks others out of the market. Why is it considered fair that I can’t afford ably buy a home in Tahoe just because someone was born before me? Maybe it is fair. Maybe it isn’t. Tough questions. And even if you raise property taxes, rich people won’t care. They’ll still live in Tahoe and I’ll still only be able to afford to life next to cornfields.
> Though I’d also like to point out that whether the policies are liberal or not is not very important to me, they are just natural reactions people will have… Maybe it is fair. Maybe it isn’t
In my opinion, a liberal society with progressive taxation (including the property tax) tends to provide more opportunities for those who are born without assets than a society that overly protects the privileges of feudal estates (“passing on a home to your kids”), and would be a better society to live in behind a veil of ignorance.
> One of the issues here with doing something like building an apartment complex means now you have to live in the apartment or move your family and become a landlord
You can also build a condo building and own one of the condos instead of managing rentals.
> With respect to rent, I’m not sure. Maybe it makes more sense to tax rental income than the property
The problems with the income tax on rent are that 1) it penalizes renting out land while rewarding speculators who leave land vacant, and 2) it punishes renters who bear a higher burden than owner-occupiers who do not pay tax on the imputed rent (incidentally, the fact that imputed rent is excluded is basically a mistake of the original Form 1040; see Lawrence Zelenak, “The Early Income Tax and the Imputed Rental Income of Homeowners” https://doi.org/10.1017/9781108377157.008). The property tax is a fairer and less distortionary tax than an income tax on rent.
> If you’re a home owner a lot of this just seems like a bad idea. It makes more sense to maintain things how they are.
From a Bay Area resident to a Great Lakes resident, I hope people there heed the cautionary tale that is the Bay Area: maintaining the residential housing stock almost unchanged despite strong economic growth and agglomeration effects, and protecting property owners by discriminating against later generations, is an absolute disaster for lower income and even middle income households.
> You’ll have to summarize any key points from the book, since I don’t own a copy.
The first few chapters of Rethinking the Economics of Land and Housing describe the distinction between competitive capital (whose price signals the economy to create more) and land (which cannot be created) and thus why they should be taxed differently. I think it is mostly based on this essay by Mason Gaffney: “Neo-classical Economics as a Stratagem against Henry George” (http://masongaffney.org/publications/K1Neo-classical_Stratag...)
> You say that property tax is a tool to reduce inequality, but I’m not 100% sure about that. For example, I don’t even know where my property taxes go
Broadly speaking, progressive taxation is all about taxing any income that is above and beyond what the average wage-earner earns from wages and competitive capital, and using it to fund services that are used by everybody. Virtually everyone has their own labor, whereas income from ownership of natural resources and monopolies is concentrated, so taxation of income above and beyond wages and interest reduces inequality.
Increases in land rent are unearned income that are not due to the owner’s wages and do not incentivize the creation of capital, so it is fair game to tax it as part of a progressive income tax system. If we don’t tax it using property taxes, then land value increases only become a windfall to the owner, leading to greater wealth inequality.
> Further, I’m not sure what I’m supposed to do if my home value doubles just because of natural reasons
The subject of this article is California’s ”severe shortage of houses.” What you are supposed to do in response to the price signal is expand the building so that more people can live on your lot.
Of course prop 13 "seems" fair, that's how it got passed. But it has terrible consequences.
Adjusted for inflation, it makes taxes drop to 0 in the limit, which means there's no incentive for rich people to ever sell. Which means real estate becomes hoarded across generations by the wealthy class, which recreates the main feature of feudalism.
Other disincentives to sell are fairly high realtor commissions and fees, as well as capital gains taxes on the amount over the exclusion, which isn't very high given CA prices.
Think of Prop 13 as "rent control" for homeowners.
> The alternative is that we basically force people out of houses they've bought by gouging them with taxes. That seems much more unfair than the alternative.
Oh no! People with a multiple millions in assets have to choose between paying taxes on their immense wealth or selling it!
Sarcasm aside, this is how it's done most places in the US. It works just fine in those places and isn't considered unfair. Why is paying taxes on your wealth considered unreasonable here?
> Why is paying taxes on your wealth considered unreasonable here?
If I buy a painting from a young, unknown artist for $100, for example, and 30 years later the artist is well known and that painting could be sold for $1 million, we don't make me pay taxes on the $999900 my wealth has increased due to owning the painting.
Instead, we keep track of what I paid for the painting, and when I eventually do sell it and so the wealth represented by the painting gets converted into money we tax me on the gain then.
Offhand, real estate is about the only thing I can think of where you can own something, and because someone else would be willing to buy it for a lot more than you paid, you have to pay taxes based on that much higher amount.
Why should real estate wealth be treated different than other forms of wealth?
The difference is that real estate isn't just a financial asset. It's an exclusive claim on a sizable chunk of immobile physical space that potentially has many other uses, none of which can happen when it's full of whatever's there right now. This isn't true of a bond or a painting.
It's in the general interest of society to ensure that land is economically productive because it's central to a great many other aspects of life. This is generally intended to be reasonably in line with what its potential is. This also really isn't true of a bond or painting.
My answer is that real estate wealth is qualitatively different in ways both important and relevant from other forms of wealth.
This is an old old discussion. I'll defer to Churchill who can speak to it far better than I:
> Nothing is more amusing than to watch the efforts of land monopolists to claim that other forms of property and increment are similar in all respects to land and the unearned increment on land.
They talk of the increased profits of a doctor or lawyer from the growth of population in the town in which they live. They talk of the profits of a railway, from the growing wealth and activity in the districts through which it runs. They talk of the profits from a rise in stocks and even the profits derived from the sale of works of art.
> But see how misleading and false all those analogies are. The windfalls from the sale of a picture -- a Van Dyke or a Holbein -- may be very considerable. But pictures do not get in anybody's way. They do not lay a toll on anybody's labor; they do not touch enterprise and production; they do not affect the creative processes on which the material well-being of millions depends.
> If a rise in stocks confers profits on the fortunate holders far beyond what they expected or indeed deserved, nevertheless that profit was not reaped by withholding from the community the land which it needs; on the contrary, it was reaped by supplying industry with the capital without which it could not be carried on.
> If a railway makes greater profits it is usually because it carries more goods and more passengers.
> If a doctor or a lawyer enjoys a better practice, it is because the doctor attends more patients and more exacting patients, and because the lawyer pleads more suits in the courts and more important suits.
> At every stage the doctor or the lawyer is giving service in return for his fees.
> Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts of a great city, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing.
> Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains -- and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.
First, prices being where they are is at least partially a consequence of taxes staying the same which encouraged NIMBYism to build free equity instead of building.
Second, people who now have 2 million in equity with a 100k cost basis can take out financing for a portion of that to cover taxes into perpetuity and still have a huge equity appreciation.
Third, none of this precludes a slow path to getting people to paying FMV taxes by, for instance, capping tax increases at 10% per year. It'll take 20 years to catch up, but that's better than now. And it should probably accelerate if you hand the property down to the next generation.
Fourth, why does Prop 13 exist for people who rent out their homes or for commercial property? That's just a subsidy to the existing.
> The alternative is that we basically force people out of houses they've bought by gouging them with taxes.
So presumably you're also in favor of rent control^? The alternative is that we basically force people of out houses they've lived in forever by letting landlords (themselves benefiting from Prop 13) gouge them with crazy rent increases^^.
^ For the record I think both Prop 13 and rent control are bad ideas.
^^ The crazy rents are themselves due to Prop 13 removing any incentives for property owners to sell or upzone because property taxes on single-family homes are unaffordable.
CA didn't have rent control until after Prop 13 passed. Howard Jarvis rallied renters by claiming that landlords would be nice and pass the tax savings onto their tenants. Somehow people believed this and, when it didn't happen, lashed out with aggressive rent control laws in our major cities.
We live in society; everyone is interconnected. One's own self interest cannot outweigh the needs of the group and, in California, all the stats are showing that the group is suffering due to the needs of the few. Prop 13 is part of the problem and should be reduced in effect (commercial property taxes, max rise of 3% annually) alongside changes to zoning until the housing crisis abates.
1. A lot of these property values wouldn’t be 2M if current owners had to pay the taxes. Prop 13 directly incentivizes home owners to (a) never sell and (b) block new housing in their neighborhood that might increase supply.
2. Prop 13 directly incentivizes cities to court Google/FB/Apple to come in. With Prop 13 limiting access to property taxes, most cities look to sales and business tax income to fill in the difference.
3. It’s not all or nothing like ”we need Prop 13 or seniors get kicked out of their homes!” Prop 13 is unique in that it blindly exempts large businesses and wealthy folks who can afford to pay, not just folks who need help.
Other regions (e.g. Boston area) address this with targeted property tax breaks for vulnerable communities, and California would be better served with a well-tested, reliable solution like that.
But that’s hard to implement because California ballot props are wildly difficult to get rid of.
For example, you could deduct the market rate taxes that would've been paid from the eventual sale price.
You could also give people a choice: they can either pay property taxes based on an artificially low valuation, and then sell at that low valuation, OR they can choose to accept the market rate property taxes and be able to sell at market rate.
Another thing that could be done is only apply Prop 13 to:
- Residential property, not commercial
- Only your primary residence, not second homes or homes you rent out
- People who bought the home, not their kids they left it to in a will
- People for whom the increase in property taxes represents an actual burden relative to their income
It's what it costs to provide the services around it. They are getting all the benefits that tax dollars are paying for and not paying an equitable contribution towards those benefits.
Yes, they would be forced to sell for 10x-20x their investment and be forced to move somewhere more affordable.
Because they have a house and ~$1.9M in free equity. The younger generation doesn't have that opportunity. If they can't afford the property tax they can downsize easily. It's not easy for young people to afford $2M houses, especially when paying high state income taxes to make up for the lack of sufficient property taxes.
The younger generation can do the same thing the older generation did and buy a house in a cheaper real estate market. It's funny that people feel entitled to buy a house in the most expensive place on earth. I think a lot of the people who bought houses for 100k in California in the 1970s would not have expected to buy a condo at the same time on 5th Ave in Manhattan (for instance). It's a recent phenomena that young people feel they should own property in world cities.
Since values where falsely supported by corrupt mortgages and appraisals then further supported by our government bailout not allowing the market to work as it should, why shouldn't people also expect to not be priced out of their neighborhoods? Shouldn't median income have anything to do with what housing costs should be in any given area? Everywhere in California for example isn't 5th ave or Silicone valley, so your argument is flawed.
Housing prices are dictated by supply and demand. The supply is artificially low due to zoning (this needs to be fixed), the supply was artificially high due to the issues you stated.
None of that has anything to do with taxing home owners. When you buy a house you should be taxed on what you paid for it. The government shouldn't have a back door to come and raise your taxes as high as it wants.
I think it's funny that people feel entitled to these property tax breaks. I'm less concerned about individuals feeling left out, and more concerned about the systemic issues lack of home ownership for this generation will cause. We've distorted the market so much through a variety of bad policies, i don't think it is an unreasonable request to start reversing the trend.
This generation has an unrealistic idea of where they should live (some of them at least). It's not like the people who bought houses for 100k in the Bay Area in the 1970s were making 300k a year working for Facebook. There's nothing stopping people from moving to Ohio and getting a less well paying/glamorous job but buying a house.
The solution is there today, people just don't want to take it because they want to live in SF/NY... When houses were affordable in those areas, they didn't have the cachet they have now.
Why should prop 13 cover businesses? It is always defended because some poor retired home owner. Newsflash: not many retired home owners in California are poor anymore. But meanwhile car dealerships and shopping malls are also protected from fair market taxes on their land use.
I think you would agree, though, that people shouldn't be able to get Prop 13 benefits on properties that aren't their primary residence. For example, someone owning multiple houses and renting them out at market rates.
> I don't know that it's more "unfair" to the younger generations to not increase property taxes than it would be to the home owners to do so. Why would someone who bought a house for 100k be expected to pay taxes on 2M years later? A lot of these people probably had normal jobs and incomes, they didn't chose for Google/Apple/Facebook to move into town and send the property prices sky high. Yes, they benefit as owners but this rule only takes effect if they don't sell their house and continue to live in it.
I've always found it weird this dichotomy that seems to exist where so many people (who aren't even home owners) find it "logically" inappropriate for home owners to pay any increased taxes based on returns on housing (via prop 13, capital gains exemptions, etc), yet find it completely reasonable that those who earn more money working should pay not just higher total dollars in taxes, but also a higher percentage of their income to taxes, and are outraged at any suggestions to the contrary.
Higher earned income is typically a result of some combination of investment in education, risk taking, and hard work (things that actually require effort), whereas noteworthy returns on real estate, at least for the average Joe home owner, seems to be typically little more than just being in the right place at the right time, doing the same thing that most anyone does: buy a house and live in it.
Rewarding dumb luck and "punishing" hard work seems like the exact opposite of how a society should be run.
As for what to do with all these complexities that have built up over time in our societies, I increasingly think we should look to China and see what they do, because from all the Youtube videos I watch on that country (aka reality itself, or at least a portion of it, whereas reading books and news articles can easily give completely polar opposite impressions of reality), because whatever it is they are doing certainly seems to be bearing fruit that is extremely beneficial to broad society, across all income classes.
Since you're replying to me, I'll say that dichotomy doesn't exist in my mind. I don't think people who earn more should pay a higher percentage of their taxes, mainly for the reasons you list.
> I don't think people who earn more should pay a higher percentage of their taxes, mainly for the reasons you list.
And I assume you mean that extends to gains on housing as well.
Sorry if it seemed I was implying that, I considered putting some comment in noting the fact that whenever these things are being discussed (anything involving behavior of groups....so basically politics in general), it is literally not possible to know who belongs to what group.
Reality is now so complex, I'm starting to wonder if it may be possible that democracy, at least in its current form and with its current constituents in their current form, is literally incapable of handling the world the scientists and indutrialists have built. I think it is perfectly plausible that a benevolent, authoritarian dictatorship is the only thing that has a chance of getting things right. Not that this isn't fixable, necessarily, but I suspect it would require us to spend a considerable amount of time investing the same effort we've put into developing science, technology, industry, supply chains, etc into understanding how individuals and societies work, and modify our institutions and methodologies accordingly (once again, something an authoritarian state doesn't have to bother with).
Everyone seems to think and behave as if we know well enough how they work, but I highly doubt this is the case based on the rapidly increasingly amount of inequality, emotional polarization, and outright bizarre and chaotic behavior that can easily be observed in Western democratic societies. And very few powerful, influential, or even simply intelligent people seem the slightest bit curious(!) about why people are increasingly behaving this way....rather, most of what I hear is Group X is "just wrong" and needs to be educated on how it is, and then the problem will be solved. To that I say, good luck expecting shallow thinking like this to solve multiple interrelated problems in the most complex systems in existence.
It seems to me there is some saying like ~"before man can learn humility, first he must be destroyed", but can't recall the exact words.
The problem is that long term capital gains are not indexed to inflation, let alone in correlation to increasing RE values. If you index the cap gains tax to inflation alone, you'd find a huge added turnover in properties.
Prop 13 provisions can be altered anytime by another initiative OR by the Legislature. In either case, only a simple majority is needed for voter passage. The Legislature has been under Democrat control for over 22 years. Ask yourself why no change has even been attempted.
Two things, property values would be a lot different (lower) today if prop 13 never existed. Second, the absolute property tax rate could be lower if everyone had to pay the same rate.
>> The alternative is that we basically force people out of houses they've bought by gouging them with taxes. That seems much more unfair than the alternative.
This... isn't true at all. The alternative is that people pay accrued property taxes plus a small amount of interest on the sale of the property. Many states do this and it works great. Sorry that when you sell your 2m dollar home you're only netting 1.6m instead of 2m because you werent able to pay property taxes for 35 years....
> The alternative is that we basically force people out of houses they've bought by gouging them with taxes.
I agree with Prop 13 for primary residences until death. My beef is that it also covers second homes, commercial property and with follow on Props 58 and 193, children and grandchildren can inherit the tax base in perpetuity. It creates an almost feudal system with younger generations of renters at the bottom often with very little upward possibilities.
It's not like these things happened over night. If someone bought a house for 100k and it is now worth two million, I'm not sure they can claim they are being gouged on a 2000% increase of equity.
Buying land still doesn't entitle you to be able to perpetually afford to live in one of the most desirable places on earth.
Well. No one is “entitled” to live in California. There are 49 other states in the US. There are also many other cities where the pay vs cost of living makes a lot more sense.
I'm not sure what point you are trying to make, this just sounds like a generalization of what I was saying (although not all of California is expensive).
Pricing property taxes to be consistent with the value of a home is not 'making someone leave'. In this case 'so someone else can buy their home' is actually 'they can decide to sell their house for an enormous profit of twenty times what they bought it for if that is their choice'.
To be clear here, if someone else bought the house, that person would pay the proper property tax, so why is someone's inaction so valuable?
You have to agree it makes a lot of economic sense for cities to use eminent domain to acquire underutilized housing stock and hand it over to FAANG companies to house their workers.
No one has to sell, everyone has to pay property taxes. Why do you keep saying they are 'forced to sell' and that they shouldn't pay the same property taxes as others?
When you are retired you are on a fixed income. One advantage of buying a house over renting is that you don’t have to worry about increasing housing expenses besides usually small increases in property taxes and homeowners insurance. Of course, there is an unscientific rule of thumb that you should set 1% of the value of your home aside for repairs and maintenance (no one took into account the rapid rise of house prices when coming up with that rule of thumb.)
Especially in retirement but even while you are working, It could easily come to the point where you are priced out of your own home because you can’t afford increasing property taxes. You can’t sell part of your equity your house to pay taxes like you can stock.
Not being taxed on “wealth” and being taxed on income and capital gains makes a lot more sense. Also, many counties don’t make senior citizens pay school taxes.
It seems like everything you are saying boils down to moving being some sort of terrible atrocity and that people with millions of dollars in equity in their house are so poor they have to be protected.
What if we had a wealth tax on equity grants where you had to pay tax based on the value of your equity in a privately held company? Would you like to be forced to sell your equity to pay taxes?
Would you like to have to pay taxes on your equity after every series of funding raises the paper value of your equity?
Or if you hold stock and don’t sell it, would you like to have to pay tax every time the value of your stock increases or when you sell it?
That sounds like an interesting proposal but I don't know why we'd want to encourage people to sell their investments in companies. Long term investments in businesses help the economy grow. Fencing off land and not allowing other citizens access to it has several negative externalities (eg. what we're going through in California now).
From a tax policy standpoint it would be the same thing -- you're taxing wealth instead of capital gains. We don't do that for any other asset class.
But, if you're "investing" in a public company by buying stock, unless its at the IPO, the money isn't going to the company, it's going to someone else who owns the stock, the same could be said if you force people to sell private investments to other people.
No, I'm not proposing we tax wealth instead of income and capital gains.
I think it would actually be positive for other places in the country if companies decide to open offices outside of California to locations where everything is cheaper.
You definitely pay taxes on a sold property (capital gains, like stock), assuming your profit is over $250k, like this example. Prop 13 doesn't affect that.
Yes, but they weren't the money printing machine back then that they are now and it's highly doubtful they had a meaningful impact on Bay Area real estate prices in the 1970s.
The alternative is that we basically force people out of houses they've bought by gouging them with taxes. That seems much more unfair than the alternative.