patrick.net

Prop 13 doesn’t make houses cost more. It makes them cost less.

Original article is stupid for stupid audience. Show me one penny it adds to a cost of a house.

If anything, it stabilizes the market and reduces turnover by removing incentives to move or move up.

As commentators previously have noted, it isn't Prop 13 homeowners so much being significant at tax avoidance as they extended Prop 13 by fiat to strip malls and business properties to get it passed, and that is where the major tax losses occur.

The inter generational thing is kind of puzzling. In Santa Cruz, you see all kinds of dumps that some families keep just because they are basically free, but they don't maintain them and only rent under the radar. i don't know if that is significant, because inheriting families tend to feud over assets and they mostly wind up liquidated and divvied.

The only homeowner beneficiaries are the people who stay in their homes long enough to benefit from the tax margin of the appreciation aka OldFucks.

Taxes are a huge factor in the pricing of goods and services. If commercial property in California loses its prop 13 status, expect higher prices for goods and services to offset those higher taxes. Some prices, especially in older areas will not make economic sense with the modifications.

Patrick says

The idea of transferring Prop 13 tax rates after death is even worse.

I could get behind getting rid of this. With a carve out for farms and ranches.

Patrick says

Prop 13 is just like that. It lowers an owner's immediate tax, but fucks over the state, and fucks over poor young couples in particular. This is coming around to bite house owners and California slowly degrades into shitsville.

Lots of people in CA aren't FROM CA. Have a chat with someone who IS and who's in their 70s about 'how it was'.

Misc says

If commercial property in California loses its prop 13 status, expect higher prices for goods and services

This is why I don't feel the same about revoking for Corporations. Let me retire and get out of here first please.

just_dregalicious says

Let me retire and get out of here first please.

I love your "me first" mindset :-)

If it's one thing that CA teaches you (while you're here at least) is look out for #1. I may get the fuck out of here before I retire who knows.

Fortwaynemobile says

Prop 13 doesn’t make houses cost more.

Of course Prop 13 makes houses far more expensive.

Prop 13 keeps property taxes artificially low.

What do you think will happen to the price of a house if Prop 13 finally gets repealed and the taxes rise to fair value?

Patrick says

What do you think will happen to the price of a house if Prop 13 finally gets repealed and the taxes rise to fair value?

House prices will stay high, we'll continue to be gauged by existing taxes, house taxes will go up higher than any sort of drop in house prices may compensate for.

I think the only thing (other than temporary recessions/depressions) that will drive down home prices (rents/ownership) is a financial collapse of the state govt and a commensurate huge money grab from the state.

Still way too many people want to move here from abroad where it's more expensive.

Alternatively we could get some new sort of government that unleashes development without all the crap that goes with it, i.e., paying off the city/county/state etc. It was booming here when I was a kido in the 70s. Plenty of scrap wood available to snatch to build tree houses, underground forts, etc.,

If property taxes increase, then the monthly cost of housing increases (i.e., principal + interest + taxes + insurance + HOA fee).

That means less demand for housing since the monthly housing cost increases.

I do know for a VA mortgage that they will only lend up to 40% of household net income.

BayArea says

Why do you deserve to be here in a good school district? Off to Modesto sir.

At least you bought. What about the huge volume of people that grew up here that cannot buy? You don’t care about them? But prop13 should keep YOU here and in a good school district because?

And it would be tax neutral. Prop13 people pay more than they would otherwise. Non-prop13 people pay less than they would otherwise.

While my friends were buying big homes on interest only loans, I sat on the sidelines and rented a small shitbox for nearly 10 years waiting for prices to drop and bought in 2011 when prices were finally affordable. I really credit Patrick and his blog keeping me sober and informed during the bubble years when all of my friends were crowing about how great of a deal they got.

I studied the rules and tax burdens and calculated what I could afford over a 30 year fixed interest loan.

It is simply not fair to change the rules on tens of millions of people like me who made life plans based on existing tax laws. If we are grandfathered in, that is a different story.

Also - I simply refuse to agree to more taxes in California until our pathetic government in Sacramento and Local governance gets their acts together.

Fortwaynemobile says

Show me one penny it adds to a cost of a house.

If 1 house pays less taxes, the other house has to make up for it by paying more. As for the price of the house itself? Housing is not being built in sufficient numbers to keep housing from reaching the sky.

socal2 says

I really credit Patrick and his blog keeping me sober and informed during the bubble years when all of my friends were crowing about how great of a deal they got.

Is it safe to assume you're all for the current bubble? What bubble, right?

WineHorror1 says

If 1 house pays less taxes, the other house has to make up for it by paying more. As for the price of the house itself? Housing is not being built in sufficient numbers to keep housing from reaching the sky.

I agree, as something has to give. Its too costly to do business in California because of high housing prices, sales and income taxes, etc.

Eventually companies in California explore relying less on Californian employees.

What are the stats for the current bubble as far as % that get interest-only mortgages with no down payments, median home price to median household income ratio, etc. ?

WineHorror1 says

Is it safe to assume you're all for the current bubble? What bubble, right?

I am not sure what that means ("all for the current bubble").

While my house is apparently worth almost double from what I bought it for 9 years ago - I have no intention of selling until I am older and my kids are out of school. I fully expect my house value to drop or stagnate over the coming years and have no plans on trying to cash out and move out of State or into a bigger home. I haven't foolishly pulled out equity and spent it on cars, vacations or expensive home remodels like alot of my friends did during the bubble years.

Since the quality and quantify of my government services haven't doubled in 9 years (they have actually gotten worse) - I don't see how I should be expected to double my property tax simply living in the same house.

Again, I totally understand and appreciate how Prop 13 distorts the market. All I am saying is that we need major tax reform on California Income/Sales tax if we are going to massively hike the taxes on millions and millions of California property owners.

Believe it or not, there are alot of people like me who played by the rules and didn't inherit our houses or wealth. While I got a great deal in 2011, the people we bought it for still made a mint as they bought the house in the 1990's and had a ton of equity.

I am going to look for more data pertaining to California.

https://www.longtermtrends.net/home-price-median-annual-income-ratio/

https://www.jchs.harvard.edu/blog/price-to-income-ratios-are-nearing-historic-highs/

OccasionalCortex says

Likewise, if Calizeula were to just double property tax rates, property values...particularly at the upper end, would collapse by several order of magnitude, I bet.

Exactly, the ones who have very little equity in their homes would be hurt the most with the rise in California property taxes. They likely would become "underwater" with their home ownership.

I suspect if Prop 13 was eliminated there would be some type of gradual increase in property taxes (over 10 to 20 years) so as to not result in a sudden drastic drop in home values.

Prop 13 was partly just greed, but also a response to drastically increasing property taxes during the 1970s. I think there are better ways to stabilize property taxes that would be more market-neutral (i.e.: not giving one set of people or businesses a permanent benefit over others).

A better tax system, for example, could cap total overall California property tax revenue at increases of 2% per year by setting appraisal values accurately but adjusting the tax rate up or down for everyone so that the 2% revenue gain is achieved overall. i.e.: if everyone's house were suddenly appraised for 2x as much, then the tax rate would be cut in half for everyone so that the total revenue would remain stable.

AD says

I suspect if Prop 13 was eliminated there would be some type of gradual increase in property taxes (over 10 to 20 years) so as to not result in a sudden drastic drop in home values.

Gradual? Fucking donkeys need the money to build their (illegal) Workers Paradise now-now-now! All these newly discovered human rights are costly.

The_Weeping_Ayatollah says

Gradual? Fucking donkeys need the money to build their (illegal) Workers Paradise now-now-now! All these newly discovered human rights are costly.

True, since the Democrats control all of California I can see this happening.

That is why I worry about the Dems like Biden who say they want to raise taxes like Obama did.

Yet even though taxes are raised, the debt to GDP ratio still increases like it did with Obama.

The debt to GDP ratio increased from about 55% to 103% under Obama. It is about 105% now.

Cost of ownership will go up.
Those taxes are very expensive. And they’ll add up fast.

Patrick says

Fortwaynemobile says

Prop 13 doesn’t make houses cost more.

Of course Prop 13 makes houses far more expensive.

Prop 13 keeps property taxes artificially low.

What do you think will happen to the price of a house if Prop 13 finally gets repealed and the taxes rise to fair value?

Fortwaynemobile says

Cost of ownership will go up.
Those taxes are very expensive. And they’ll add up fast.

Patrick says

Fortwaynemobile says

Prop 13 doesn’t make houses cost more.

Of course Prop 13 makes houses far more expensive.

Prop 13 keeps property taxes artificially low.

What do you think will happen to the price of a house if Prop 13 finally gets repealed and the taxes rise to fair value?

Patrick, I know what you are saying. It is very likely prices will go down in poor areas. However, that is because cost of ownership will go up a lot. And other areas, there are just too many people willing to overpay anyway, those prices aren't going down. Minus one cost, plus another cost that will keep going up at a government whim... it'll fuck people over fast.

I'm not against them removing that thing where inherited tax assessment gets passed down, I think that's really unfair. But they shouldn't screw old people. It'll be even more streets of shame if our streets fill up with old people getting kicked out by government.

FortWayneIndiana says

Patrick, I know what you are saying. It is very likely prices will go down in poor areas. However, that is because cost of ownership will go up a lot.

Excellent point, as the homes that would be impacted the most are the lower end homes. They will experience the largest increase in monthly housing cost if Proposition 13 is revoked.

I just saw Adam Corolla give a great perspective on California.

Corolla said that the entire California governmental system (i.e., cops, city bureaucrats, etc.) are geared toward shaking down those with money.

He said a cop is more interested in giving a speeding ticket to a soccer mom going 37 in a 30 mile per hour zone instead of going after the illegal street merchant who is within eyesight of the cop.

Corolla said the government is only geared toward collecting money from those that have money, and that the rich don't care about this since its a small percentage of their overall wealth.

Corolla mentioned how local governments in California charge large fees for all types of requests like housing permits, traffic analysis fee for leases of commercial property, etc.

That is why the government has no concern or incentive to go after those that do not have money like drug users in homeless camps. He said there is this sentiment in California by going after those without money is bullying and mean spirit government behavior.

Anyone who argues in favor of prop13 is being disingenuous and supporting a really unfair law that benefits them while hurting most, nothing more.

Let’s be honest about this.

BayArea says

Anyone who argues in favor of prop13 is being disingenuous and supporting a really unfair law that benefits them while hurting most, nothing more.

I need to agree to raise my already sky high taxes in California or I am "hurting" people?

Oookay.

Lets be honest here. Most people in Sacramento pushing Prop 13 don't care about the distorted housing market, they just want their grubby hands on more cash since we have over a Trillion in liabilities caused by insanely generous government public sector pensions.

Sorry, not another fucking dime until we see major government reforms in this bonkers State.

BayArea says

Anyone who argues in favor of prop13 is being disingenuous and supporting a really unfair law that benefits them while hurting most, nothing more.

Let’s be honest about this.

True, but with the current libs in charge any brake on them taking more is good.

FortWayneIndiana says

It'll be even more streets of shame if our streets fill up with old people getting kicked out by government.

Sure, that's how Prop 13 was sold to the public, and it's a fine idea to protect POOR old people.

But what we have is a massive transfer of tax burden from RICH old people to everyone else.

That was part of the plan from the start, as well as allowing BUSINESSES to get away with pushing their taxes onto everyone else, resulting in a big rise in CA income taxes and sales taxes.

WTF? Why should businesses get away with legalized tax evasion? Why should we be paying their property taxes for them?

RC2006 says

BayArea says

Anyone who argues in favor of prop13 is being disingenuous and supporting a really unfair law that benefits them while hurting most, nothing more.

Let’s be honest about this.

True, but with the current libs in charge any brake on them

Now we are making sense 👍

AD says

FortWayneIndiana says

Patrick, I know what you are saying. It is very likely prices will go down in poor areas. However, that is because cost of ownership will go up a lot.

Excellent point, as the homes that would be impacted the most are the lower end homes. They will experience the largest increase in monthly housing cost if Proposition 13 is revoked.

I just saw Adam Corolla give a great perspective on California.

Corolla said that the entire California governmental system (i.e., cops, city bureaucrats, etc.) are geared toward shaking down those with money.

He said a cop is more interested in giving a speeding ticket to a soccer mom going 37 in a 30 mile per hour zone instead of going after the illegal street merchant who is within eyesight of the cop.

Corolla said the government is only geared toward collecting money from those that have money, and that th...

I've seen pretty much this all my life out here in CA. The government has always been more about shaking down as much money out of working people. If you have it, they want it, and if you don't... they'll leave you alone to be a bum.

Patrick says

FortWayneIndiana says

It'll be even more streets of shame if our streets fill up with old people getting kicked out by government.

Sure, that's how Prop 13 was sold to the public, and it's a fine idea to protect POOR old people.

But what we have is a massive transfer of tax burden from RICH old people to everyone else.

That was part of the plan from the start, as well as allowing BUSINESSES to get away with pushing their taxes onto everyone else, resulting in a big rise in CA income taxes and sales taxes.

WTF? Why should businesses get away with legalized tax evasion? Why should we be paying their property taxes for them?

I think this is why they should remove the inheritance portion of taxation. Anything else they remove, I think will end up hurting everyone as pass through cost and lower employment. Government just wants money, unions want money, they don't give a shit about businesses, or people here. You give them a little, and they'll take a lot more. Look at how they treat everyone now, we are all just cash cows to milk for them. That won't change. They'll just get more money out of private sector, and ask for more anyway. I guess I don't see it as a fair share as much as this government doesn't need the money it gets, but that it finds the need for all the money it can pull out of everyone. They can cut taxes, but they won't because they want the money.

I've contracted with government before, sold close to 14 million in goods/services to CA, I'm more than bitter over experience. They don't try to save money, no one cares about costs or anything, lazy as fuck out there, very entitled, all costs are basically = 100% of the budget (BANTO), even if overpaying. Coming in low gets you kicked out of the bidding process, because they want to spend the budget, not save money. Bribing and kickbacks are the norm. I just don't want to give those assholes any more money to waste, they are the most wasteful enterprise in the world.

FortWayneIndiana says

I've contracted with government before, sold close to 14 million in goods/services to CA, I'm more than bitter over experience.

You mean they don't have their own acquisition and procurement regulations like the Federal Acquisition Regulations (FAR) ?

They should go out for at least 3 competitive bids, etc.

If not awarded solely on lowest bidder or cost, then they should evaluate based on "best value" (i.e., 40% on cost, 25% on past performance, 35% of merit of proposal).

As far as "bribing and kickbacks" the FBI Public Integrity Unit should investigate that and anyone filing a complaint should bypass the local and California state authorities because of conflicts of interest, etc.

Renter here too!

just_dregalicious says

Renter here too!

Just had lunch with a work colleague who's brother owns a bunch of rental properties in the Orange County area. He said that he would have to raise his rents if this Prop 13 bill passes this Fall.

socal2 says

Just had lunch with a work colleague who's brother owns a bunch of rental properties in the Orange County area. He said that he would have to raise his rents if this Prop 13 bill passes this Fall.

What kind of rental properties ?

If he owns a few condos that are leased, would he be considered a "small business" or still a "homeowner" ?

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"Under the proposed initiative, county assessors would split their tax rolls into two lists. Homeowners and some small businesses would still receive the full Proposition 13 benefits: a 1% tax based on a property’s purchase value and annual tax increases of no more than 2%. But commercial and industrial property owners would be required to pay more. While their tax rates wouldn’t change, beginning in 2022 the levy would be based on the current market value of the real estate. Business property values would have to be updated by county assessors at least every three years."

socal2 says

Just had lunch with a work colleague who's brother owns a bunch of rental properties in the Orange County area. He said that he would have to raise his rents if this Prop 13 bill passes this Fall.

Yeah well I'm against the initiative. It's pulling the wrong lever.

More development and less permit extortion is what we need.

Deportations too...

SEC. 6. Section 2.5 of Article XIII A of the California Constitution is added to read:
(4)(A)"Residential property" shall include real property used as residential property, including both single-family and multi-unit structures, and the land on which those structures are constructed or placed.

AD says

You mean they don't have their own acquisition and procurement regulations like the Federal Acquisition Regulations (FAR) ?

They should go out for at least 3 competitive bids, etc.

If not awarded solely on lowest bidder or cost, then they should evaluate based on "best value" (i.e., 40% on cost, 25% on past performance, 35% of merit of proposal).

As far as "bribing and kickbacks" the FBI Public Integrity Unit should investigate that and anyone filing a complaint should bypass the local and California state authorities because of conflicts of interest, etc.

Of course, they do it, generally a checklist of criteria. Sales cycle is about a year and a half, most of it is the usual (getting naysayers onto your side), when the time comes for the evaluation and scoring, well you already know you'll win if you spoke with the right influencers. It's all bullshit man, it'll never be unbiased.