On 10 Dec 2012
Prop 13 reform picking up steam,
Prop 13 has always been a rather inane attempt to forestall economic advance. In any geographic area of economic prosperity, taxes rise in response to citizens desire for greater amenities and services.
As incomes and wealth rise and accumulate, long-time residents who are retired, or lack the skills and education to compete with the upwardly mobile workforce, will try, through legislation, to skew the playing field in their favor.
This desire to protect oneself and one's family from being pushed out by the more successful, lies at the heart of Prop 13. But, the question is, can economic advance ever be impeded, and if so, does this really benefit the Prop 13 beneficiary?
In my opinion, the answer to both of these questions is a resounding no. Unquestionably, Prop 13 slows economic advance by reducing the number of family-sized properties located close to job centers within quality school districts. This reduction in housing inventory drives up housing prices thereby reducing discretionary spending by growing families. The long-term home owner benefits for awhile from the lower tax burden and the rising home prices by tapping into their home equity line of credit, or taking out a cash out refi.
This new trajectory of rising house prices will continue until the businesses in that community are no longer able to attract employees are prevailing wages. The loss of new marks is the death knell of any ponzi scheme. California hit this peak about a decade ago.
Since then, we have seen a rise in prices not from a rise in prevailing wages, but from a drop in borrowing costs. First it was the low teaser rate ARMs, then it was negatively amortizing ARMs, and now it is government backed sub 4% 30yr FRMs.
We have also seen an increase in urban sprawl and traffic since the job centers haven't moved, but the new hires have to live in the IE and commute to the South Bay to fill the jobs of the retirees that are still living in their "working" homes.
Now that we are reaching the Prop 13 end game, where lack of housing opportunity is impeding economic growth, the long-term homeowner and Prop 13 beneficiary, is, admittedly, still reaping huge benefits from Prop 13.
How can a democratic society continue when you have a retired fire chief or business executive or school administrator taking home a full pension, living in $3M house, and paying less in taxes than a new entrant to the workforce living in a starter home and trying to raise his or her family? What is fair about that? This new entrant has little or now prospect of real wage growth, a pension, social security or medicare thanks to the profligate ways of prior generations, and Prop 13, which are really one and the same.
The stated goal of Prop 13 was to put a lid on property taxes -- at least for current homeowners. For future homeowners, however, the property tax entry point rose without limit. Thanks to Prop 13 we now have neighborhoods where the best houses are occupied for multiple generations and pay a fraction of the taxes of the worst homes.
One long-term homeowner once told me that this is justified because the long-term owner has paid taxes over a number of years to improve and maintain the streets, parks and other local services to the benefit of the new owner. While this is partly true, it is just as true that the long-term owner has benefited from those service and amenities while they have lived there.
It doesn't take very many years of paying ten times the property taxes of your neighbor (who has a better house) before his argument starts to feel like he's distracting you while the county assessor is picking your pocket.