patrick.net

FYI - someone here has claimed the remainder of my Economist subscription.

Does anyone other than the government actually ‘own’ land anyway?

God. This is His green earth anyway.

But humans have a 9999 year lease, with mineral, fishing, and hunting rights. ;)

Skibum :

Thanks for the link. I wanted to check how CA fared on a % basis, and it is 14th in the nation. Kind of expected. Very surprising was Colorado. There 1 in 375 houses is in foreclosure ! That is scary.

Does anyone know what CO is that bad ?

Off topic, but I know how much everyone loves food here......

My son is in Beijing, on his way home for a visit, and shared with me the government has begun a restaurant license program geared to insure sanitary conditions and food safety. So.....great news for anyone who's going there in '08.

The truth is they passed an edict that all restaurants will have to obtain a license.....just like they did for parking permits in the city.....which you can buy from any street vendor.

Ymmm....let's do lunch!

Now, with that problem solved, they can focus on toilets, transportation, communication, and pollution.

http://www.dqnews.com/RRBay0107.shtm

DQ numbers are out for the Bay Area.

What *exactly* is the logical difference between owning your land and merely having the right to “use” your land? If I own land that I am prohibited from using, doesn’t that reduce its real value to zero? Conversely, if I have an indefinite lease on land that I am free to use at my discretion, doesn’t it acquire the same value as land I might instead own?

We explored this concept to some degree last year in The Psychology of “Ownership”

DQ says in January: Indicators of market distress are still in the normal range.

DQ says in December: Indicators of market distress are still at a moderate level.

?

Oh, and for those of you interested in Prop. 13, here's one that hearkens all the way back to July, 2005 --one of my earliest threads: NIMBY Laws and California Housing Prices.

lunapark :

DQ also says something very important.
Last month's sales count was the lowest for any December since 1996 when 7,180 homes were sold.

Just on the face of it, this is bad for REIC. I am pretty sure there are more homes in BA now that were in 1996. So it definitely means less % of houses being sold to overall stock of units (not inventory).

Secondly, the price per sqft has remained relatively constant throughout the year. For resale, when median was 705K in last Dec, the rate was 480. Then the median went to 772K in Aug - 10% increase, the rate went up only to 507. Now the median is back to where it was last Dec, the rate is still hovering at 490.

That means, the market has been FLAT for over a year now. They started admitting that only recently. Well, YOY median drops are just around the corner. We will see what DQ says then.

Robert Coté Says:

Why do you hate me?

*Sigh*.... Robert, Robert, we've been over this so many times. If people in my generation (and future generations) could "lock in" the same 1979 (+2%/yr) tax basis as yours, then no problem.

However, I *do* have a problem with state-sponsored Birth Lotteries that richly subsidize preceding generations at my expense. I *do* have a problem with someone my age being forced to pay ~$16,000/yr in property taxes on an identical make/model house right next door to yours, while you pay $2,600/yr., merely because the Gen-X'er made an unfortunate choice of parents and birth-year.

My general feeling is, if we can't provide the same tax subsidy equally to every generation, we should abolish it --or just abolish property tax altogether.

RC,

Property tax is essentially an ineffient form of a "use tax", as in use of public services and infrastructure --public schools, roads, bridges, etc. Now whether or not most of the tax money really goes towards those things is very debatable.

However, unless you and your family are really using a *lot* less of those things than I am, I fail to see how your 83.75% tax subsidy at my expense is equitable, "fair", socially optimal, economically efficient, morally unhazardous, or whatever term you would prefer to use.

Especially taxes that are entered into volluntarially.

Hmm... don't recall anyone in my generation or later being given the opportunity to give an up or down vote on Prop. 13. As more and more young people recognize how it screws us, this may eventually change though.

It would be the most amazing of accidents were taxes ever fair for any one person or asset.

I don't expect life to be fair, but taxes are an entirely artificial human construct. They should be designed to be as equitable ("fair" if you prefer moral terminology) and generation/asset class neutral as possible. Prop. 13 fails this test miserably.

What we have is the best we can expect; rules applied consistently and transparently.

What we have is transparently and consistently applied generational rape. The fact that I can readily identify my attacker (Tax board & Boomer voters) does not ease nor remedy my suffering.

@pa renter,

Yes, Prop. 13 even harms long-time owners from Boom & Silent Gens that might otherwise choose to move. The "Golden handcuffs" syndrome. It cripples market efficiency and artifically contrains supply. Even a hard-core supply-sider could agree with this reasoning.

Prop 13 is bad only because of incentivization issues. I doubt it has made life any more unfair.

A smart government will let the market resolve fairness issues by itself.

What is fairness anyway?

Oh HARM,

I think we have a better chance just moving out of California. We're never going to change Prop 13 or any other part of California's ridiculous proposition/license to misgovern system.

Doug H,

As someone from south of the Yangtze River, I'm compelled to say, who cares? Beijing food is expensive and not all that great tasting. Peking duck is overpriced and not particularly tasty.

Beijing food is expensive and not all that great tasting. Peking duck is overpriced and not particularly tasty.

I have had better peking duck in Hong Kong and Canada than in Beijing.

I am not hopeful that they can bring their toilets to international standard by 2008.

RC:

I'm quite familiar with ROI, ROE, even ROIC, not to mention the time value of money, and all its variants.

Nonetheless, your arguments vis-a-vis Prop13 are self-serving and question your credibility in what is otherwise well informed debate.

Property Taxes are *not* an example of discretionary, avoidable taxation. I suspect you already know that, and are just trying to create a non-analogous substitute to further your position. The logical extension of your line of reasoning is that eventually there will be exactly 1 person paying all property taxes and n-1 people renting from that 1 person.

And what about how Prop 13 introduces frictions that work to retard your own theory of exburbinization? Seems to me you should be all in favor of gentrification sans government intervention.

offo,

Surfer X reminds us that another odd aspect is that many long time owners have refinanced several times during their occupancy at the same residence. Well, when we "refinance" we have an appraisal done and in essence are in fact "re-purchasing" our home. Hmm? Take out equity based on the increased value yet retain your previous value for tax purposes? So you CAN have your cake and eat it too!

Any time I've confronted people about this I get the "Why do you hate America look" like I'm there to confiscate their guns.

offo / DinOR,

The fact that refinancing and inheritance have no/minimal effect on property tax is the most obvious flaw in Prop 13. I guess one can argue for Prop 13 based on purchase price, but this "I will have my cake and eat it too" is beyond unfair. This is a BIG flaw.

On the related note, if you take a cash out refinancing and put the money in tax-free Govt bonds, IRS does not like it. You cannot have it both ways. Either take a deduction on the mortgage interest OR pay taxes on the interest you earn from the cash out. Not both.

Any time I’ve confronted people about this I get the “Why do you hate America look” like I’m there to confiscate their guns.

That's because there's this strange concept that appreciation is "earned."

As in "I lived here" so "I earned that $xxxx".

RC,

Point taken on the one-time transfer provision --I had forgotten about that. On the plus side, it does mitigate the Golden handcuffs effect a bit, though the macro impact is probably limited because it can only be used once.

You mean like an idiot next door overpaying? I made my deal. What if somebody decided to pay $80,000 for a 1997 Camray because he won the lottery and it was once his first car and he wanted it no matter what.

I don't see the analogy's relevance here, Robert. Property tax is levied EACH year, based on the current tax basis of the property. It's not a one-time sales tax, based upon the purchase price. The tax basis for each year used to have some relationship with the current "market rate" for the property, until prop. 13 came along and decided to "fix" that (heavily in favor of people who bought before Prop. 13 went into effect, or shortly thereafter).

Yes, you "made your deal" and won the Prop. 13 birth lottery. Congratulations, but what does the price of oranges in Pittsburgh have to do with the weather in Peking? If property tax is supposed to be a form of "use tax" that's supposed to bear some relationship to CURRENT market value of the property, then how is de-coupling that relationship supposed to make it more "equitable" or generation-neutral?

I can see keeping the 1% cap, but only allowing 2%/yr. "inflation adjustments" has created extreme inequality in tax burdens (which are only going to grow worse over time --see Randy's coke-snorting trustafarian example). Prop. 13 heavily penalizes the young for being young and rewards the old for being old, and the born-rich for being born-rich. Not a very socially "equitable" or age "neutral" tax scheme IMO.

On the related note, if you take a cash out refinancing and put the money in tax-free Govt bonds, IRS does not like it. You cannot have it both ways. Either take a deduction on the mortgage interest OR pay taxes on the interest you earn from the cash out. Not both.

Unless your refi rate is really low, wouldn't you lose money on this transaction? My understanding is that interest rates on tax-free bonds are super low.

Out of curiosity, why don't more seniors take advantage of Prop 60/Prop 90? My understanding is that those two Props allow them to buy elsewhere in California and still retain the old property tax basis.

There is a way to play the rate arbitrage - if IRS were to allow it. If you have lot of equity from a house purchased long ago - take a cash out refinancing with a low ARM. For the duration till it resets, invest the money in bonds. It was possible to get an ARM for less than 5% and invest in US treasuries that yield about the same. For 33% tax bracket the "free" money is not negligible.

HARM, perhaps you might be interested in a new Church I have founded. It's central tenet is "Do unto the Boomers as they do unto you". I have also adopted rule #2 of the Boomer Code, "less for you equals more for me". We also are exploring Boomer math, as it is truly fascinating, did you know 60 equals 30? While the rest of the nation is suffering from Boomer fatigue, I say why join them when you can exploit them. "yes you are great, and why yes I do think the Stones are the best band ever, of course I want to hear them all the time" "father time should have no impact on your boner, just because you are 63 with a long history of substance abuse and want to pleasure yourself via your 4th trophy wife, I say go ahead, (cue boomer driving off into the sunset in, of course, a muscle car)."

I am trying to think of a name for my Church, I have come up with Sweet Holy Lady of the Everlasting Buttrape. But I am open to all suggestions.

Remember HARM, the pursuit of super profits is the religion of the capitalist*.

*actually taken from a Chinese/English dictionary from the PRC, under "religion"

I am all for Prop 13, your tax basis should only shift when you sell. This includes when you re-sell the house to yourself. When you refi your tax basis should be bumped to the new appraised value to which you have leveraged yourself.

Sweet Holy Lady of the Everlasting Buttrape

I am all for Prop 13, your tax basis should only shift when you sell. This includes when you re-sell the house to yourself. When you refi your tax basis should be bumped to the new appraised value to which you have leveraged yourself.

Surfer-X,

Why do you hate Boomerdom so? Don't you know it is the Fount of all that is Good and Right in America today?

You and I are not fit to kiss the flabby tattooed asscheeks of the most drug-addled Stones/Beatles/Doors groupie. They ended slavery, you know, as they marched arm-in-arm with Dr. King. All while ending the war in Vietnam, landing on the moon, winning the Cold War, giving women the vote, bringing honesty to government and big business, curing cancer, ending world poverty, bringing about world peace and putting an iPod in every garage.

How many years of falling assessments or sideways RE markets would it take for Prop13 protections to wash out?

As to the blame game, people under 30 in 1970-80 California weren't seen much at the polls. The proposition was devised to rein in the state's spendthrift ways, and assumed its present, miserable form only as legislative committees 'converted' the original language to statutes and regulations. In my opinion, it was co-opted.

How many years of falling assessments or sideways RE markets would it take for Prop13 protections to wash out?

Answer: Prop. 13 tax burden will never "wash out" (equalize) due to falling or sideways moving RE prices. In fact, just the opposite. The further we get from 1979, the higher inflation goes, and the more "legacy" title transfers that happen, the less equal things get.

Ever tried to get a significantly REDUCED assessment on a property before? Good luck with that. I've never tried, but the few people I know who did try it during the last crash (mid-90s) weren't exactly welcomed with open arms by the local tax board.

StuckinBA,

Carol Lloyd had a great article about one of her relatives that had never done ANYTHING but "equity extraction"! It would have been funny if it weren't for the fact that it was so obviously abusive.

This (now elderly couple) had paid for everything from kids college to weddings to other RE ventures ALL from a pretty modest "cottage"! They have never even come close to paying it off. Why? It's the never ending equity machine that just gives and gives! (And every penny of it tax free I might add).

The reason this topic has found new life with me is that just this afternoon I had to deliver a client's IRA statements to a local lender and I carefully brought up these types of issues. So there I am sitting w/ two MB's and they were actually laughing about how they had financed, built and SOLD several homes all with a "two year plan". Not only did they not pay taxes on the "market appreciation" they also paid zippo on their "sweat equity" in building the home! Better yet they were able to exploit MID.

When I asked them to define "primary residence" the reponse was the typical "the one that I'm selling" (snicker snicker, nudge nudge). My whole question regarding these issues is where is the line between "encouraging home ownership" and allowing people to operate businesses tax free? It's pretty obvious to me that most of us can no longer even tell the difference.

Robert Cote,

The golden handcuffs is absolutely not a canard. I saw a gorgeous coop a few years ago and for a few minutes considered making an offer on it. I then realized that while I did not mind paying for the place (before the astoundingly insane run-up) and I did not mind the maintenance fee I highly minded paying the additional $25,000/year for the exact same city services I was receiving at the time (and still am on my 1994 tax basis). I have a neighbor in my building who considered downsizing her place because her husband is no longer there but she also decided not to move because of Prop 13.

FAB,

I own a fraction of the land on which my condo building sits. It's right in the deed.
Also, the corner of Franklin and California would be an extremely loud corner to live on. Every time I walk over to Whole Foods there is debris from car accidents in the gutter. There must be a crash there several times a week.

I didn’t win anything. I made a deal and kept to it. The same deal is available today.

Really? So I can go out and buy a house at its 1979 tax basis today? Wow, sign me up, dude! ;-) By the end of the current just-starting correction, we *might* see 1997 nominal prices again IF it's really, really severe and IF inflation drops to zero, or --egads-- deflation happens. However, I'm not holding my breath on that one.

I've said it before, I'll say it again. If Prop. 13 is such a wonderful "deal", then why not extend its full benefits to ALL people, not just birth Lotto recipients and trustafarians?

Why not assess EVERYONE's property at 1979 +2%/yr. ? That way, nobody's taxes would go UP, but plenty of younger buyer's taxes would go DOWN?

Or does half the joy in getting your Prop. 13 subsidy lie with the fact that you get it, but your neighbors don't? :roll:

DinOR,

IIRC, the reward the IRS offers whistleblowers is somewhere around 10-20% of the amount collected. Perhaps you should go back to those MBs and get some more details.

Robert,

We'll have to agree to disagree on Prop. 13. You're always welcome to come by my place for a beer, though.

I have a neighbor in my building who considered downsizing her place because her husband is no longer there but she also decided not to move because of Prop 13.

Won't Prop 60/90 help?

RC, (who is likewise a friend)

I’ll save some for your discerning palate.

Do you recommend neat, with soda, or some cola?

It is raining, and if I am not mistaken I am "entitled" to some sort of refund.

MtViewRenter,

Oh I'm sure you're right! That's not my style though. Me? I make a list of "dickheads" and I've yet to see someone that's made the list go a full 5 years w/out falling on their OWN sword yet!

The topic has come up before and as much as it bugs me to admit it, most here are probably right. With all of the outright mortgage/appraisal fraud going on out there this sadly comes under "we've got bigger fish to fry"!

That doesn't make it wrong headed thinking though (on the part of the gub'ment). It should've been a MAJOR infraction w/severe penalties. For tax cheats it was great while it lasted but with flat to declining markets for the foreseeable future it won't matter much any more. Again, where's the line between encouraging home ownership and running a tax free biz?