At the risk of sounding cliche, this is yet another example of transferring wealth from the young to the old. Allowing young people buying their first home to pay the older, wealthier folks tax bill while letting them pass on their tax savings to their heirs. The generous interpretation is that it "saves" older homeowners on a fixed income from being priced out by property taxes. But let's be real, this is for the elderly wealthy who vote at higher rates and make up a disproportionate amount of our legislative bodies.
Nice post. I've always wondered what could've been done instead of Prop 13 to allow non-wealthy people to stay in their homes. This issue really bit hard after being priced out of CA three times. The last time I had to finally accept that there was no way to have a future there because of insane home prices, even for a modest one.
Prop 13 was clearly a major cause (and galling because a parent could pass on their golden tax rate to a child after they pass, unless I'm mistaken, and lock in a sort of a low tax aristocracy).
Yet it's also important to protect retired people from a rapacious real estate market. Towns aren't just economic zones, they're communities. I don't know the answer but I do appreciate what you're doing with Small Towns.
The easiest option is to just allow deferral of property tax collection until the home is sold for retired people.
In other words, the property tax bill still accrues, it just doesn't have to be paid while the retirees are still living there. Proceeds from the home sale then pay the tax.
It's not perfect, of course. On the one hand, it's still kinda a huge giveaway to the homeowner, since they get to put off paying their property tax (meaning the money they would have paid could go into investment accounts instead, earning them more than folks who can't defer). Although that can be mitigated somewhat by having limits on who can apply for deferral (i.e., only people with real financial distress). It also runs the risk of the home sale not bringing in enough to pay the tax, but there could be bankruptcy clauses in that case.
Like I said, all not ideal, but far better than just kneecapping property tax completely, which just feeds the problem (as California proves).
And, of course, land value tax would be preferable to property tax as well. I'll always reflexively add that to these conversations.
Good discussion. One element that I think we overlook is that if property values are rising faster than wages or other inflation adjusted income (e.g. Social Security), then that is a clear indicator that we aren't building enough to meet rising demand. So, what drove Prop. 13 in CA was, to a reasonably significant extent, restrictive zoning and local NIMBY that stopped higher density and mixed use development in the communities near the job centers. So, instead of increasing supply, we reacted with restrictions on taxation, which put our local governments on the path to bankruptcy.
The original premise of Proposition 13 is still valid: To keep seniors on fixed incomes from losing their homes due to rapidly rising property taxes,. This is still important. Who wants their grandparents homeless? It also seems reasonable to allow municipalities to capture some of the windfall of selling an appreciated asset, but Chuck, it sounds like you are buying into the "housing as investment" argument here that caused the Housing Trap. Clearly, Strong Towns can come up with a way of funding municipalities that doesn't force seniors out of their homes.
First time CA homeowner here. I live in a very modest, 700 sq ft fixer upper in a working class neighborhood that was $500k — I make a decent salary but def not rich, especially by CA standards.
In practice, I’ve come to realize that Prop 13 is probably the #1 reason why I get to stay in my home. My budget is already stretched to its real limit and if property taxes rose at the rate of my property value, I’d almost certainly have to sell — or face foreclosure.
Before we get any bright ideas about repealing prop 13, what we actually need is a housing boom that acts as a counterweight to the exorbitant upward pressure on property values. If we densify with multi family units — but EVERYWHERE — or even better: start building social housing and remove speculative real estate from the equation (de-commodify housing) THEN we can start talking about equalizing property taxes for homeowners.
Yeah there are plenty of homeowners who bought their houses 40 years ago and are sitting on golden eggs. However, most of my neighbors in my normal regular working class neighborhood own their houses (well, a multigenerational family owns the house where 10+ people live together). A repeal of prop 13 would put us all in jeopardy of losing our biggest and most expensive investment.
My immediate reaction is that your point of view is not only valid, but likely dominant. It's why Prop 13 is a trap we can't go back from.
Because of course housing prices are higher because property taxes are suppressed. That actually is an Economics 101 conclusion. You are right in saying that things would be worse for you if, having paid a high price, your property taxes now also went up. I'm not discounting that. It is the friction that the current system, transitioning to a different approach, would have to overcome.
I'm happy to have that discussion. Prop 13 isn't that. Neither is Florida's approach. We don't give policy points for intention when the collateral damage is so severe (including pricing lots more than seniors out of home ownership).
I'm not sure what you see as the collateral damage. Is the problem governemt is deprived of revenue? Proposition 13 is actually the rare tool to break the housing trap. I have no problem when the house sells of govy harvesting a fat chunk of capital gains. Or - thinking out of the box - how about if when the house is going to be put on the market it must be sold at the Prop 13 value to someone who needs affordable housing....
I have followed you for 10+ years and this is the first time I find myself disagreeing with you...
Well the collateral damage is that it cuts off the feedback loops that would drive neighborhood evolution. It stagnates the development pattern in a way that is really unhealthy. Where demand is going up, instead of having maturing of neighborhoods, incremental thickening and redevelopment happen naturally, Prop 13 suppresses that. So you just get really high prices with all the other downstream problems of aggressive outward expansion, parasitic local government, and a plethora of schemes to avoid resetting the property tax during a sale.
It is inherently unfair to raise property taxes for long term residents simply because property values are increasing. Until they sell, they do not benefit from these increased values. It is like having a contract renegotiated annually by only one of the parties. When a house sells, by all means harvest the capital gains, but not before...
You mention "maturing of neighborhoods." Having stable populations in a neighborhood is an essential quality of a mature neighborhood. Eventually, everyone will move out or age out. This is slow incremental change, the best kind, IMHO. It seems neither respectful or moral to balance budgets on the backs of the most vulnerable. Property taxes is only one tool to fund government. It is a highly regressive tax. If we are trying to create healthy communities, we need to find better alternatives...
At the risk of sounding cliche, this is yet another example of transferring wealth from the young to the old. Allowing young people buying their first home to pay the older, wealthier folks tax bill while letting them pass on their tax savings to their heirs. The generous interpretation is that it "saves" older homeowners on a fixed income from being priced out by property taxes. But let's be real, this is for the elderly wealthy who vote at higher rates and make up a disproportionate amount of our legislative bodies.
Nice post. I've always wondered what could've been done instead of Prop 13 to allow non-wealthy people to stay in their homes. This issue really bit hard after being priced out of CA three times. The last time I had to finally accept that there was no way to have a future there because of insane home prices, even for a modest one.
Prop 13 was clearly a major cause (and galling because a parent could pass on their golden tax rate to a child after they pass, unless I'm mistaken, and lock in a sort of a low tax aristocracy).
Yet it's also important to protect retired people from a rapacious real estate market. Towns aren't just economic zones, they're communities. I don't know the answer but I do appreciate what you're doing with Small Towns.
The easiest option is to just allow deferral of property tax collection until the home is sold for retired people.
In other words, the property tax bill still accrues, it just doesn't have to be paid while the retirees are still living there. Proceeds from the home sale then pay the tax.
It's not perfect, of course. On the one hand, it's still kinda a huge giveaway to the homeowner, since they get to put off paying their property tax (meaning the money they would have paid could go into investment accounts instead, earning them more than folks who can't defer). Although that can be mitigated somewhat by having limits on who can apply for deferral (i.e., only people with real financial distress). It also runs the risk of the home sale not bringing in enough to pay the tax, but there could be bankruptcy clauses in that case.
Like I said, all not ideal, but far better than just kneecapping property tax completely, which just feeds the problem (as California proves).
And, of course, land value tax would be preferable to property tax as well. I'll always reflexively add that to these conversations.
Good discussion. One element that I think we overlook is that if property values are rising faster than wages or other inflation adjusted income (e.g. Social Security), then that is a clear indicator that we aren't building enough to meet rising demand. So, what drove Prop. 13 in CA was, to a reasonably significant extent, restrictive zoning and local NIMBY that stopped higher density and mixed use development in the communities near the job centers. So, instead of increasing supply, we reacted with restrictions on taxation, which put our local governments on the path to bankruptcy.
The original premise of Proposition 13 is still valid: To keep seniors on fixed incomes from losing their homes due to rapidly rising property taxes,. This is still important. Who wants their grandparents homeless? It also seems reasonable to allow municipalities to capture some of the windfall of selling an appreciated asset, but Chuck, it sounds like you are buying into the "housing as investment" argument here that caused the Housing Trap. Clearly, Strong Towns can come up with a way of funding municipalities that doesn't force seniors out of their homes.
First time CA homeowner here. I live in a very modest, 700 sq ft fixer upper in a working class neighborhood that was $500k — I make a decent salary but def not rich, especially by CA standards.
In practice, I’ve come to realize that Prop 13 is probably the #1 reason why I get to stay in my home. My budget is already stretched to its real limit and if property taxes rose at the rate of my property value, I’d almost certainly have to sell — or face foreclosure.
Before we get any bright ideas about repealing prop 13, what we actually need is a housing boom that acts as a counterweight to the exorbitant upward pressure on property values. If we densify with multi family units — but EVERYWHERE — or even better: start building social housing and remove speculative real estate from the equation (de-commodify housing) THEN we can start talking about equalizing property taxes for homeowners.
Yeah there are plenty of homeowners who bought their houses 40 years ago and are sitting on golden eggs. However, most of my neighbors in my normal regular working class neighborhood own their houses (well, a multigenerational family owns the house where 10+ people live together). A repeal of prop 13 would put us all in jeopardy of losing our biggest and most expensive investment.
My immediate reaction is that your point of view is not only valid, but likely dominant. It's why Prop 13 is a trap we can't go back from.
Because of course housing prices are higher because property taxes are suppressed. That actually is an Economics 101 conclusion. You are right in saying that things would be worse for you if, having paid a high price, your property taxes now also went up. I'm not discounting that. It is the friction that the current system, transitioning to a different approach, would have to overcome.
I'm happy to have that discussion. Prop 13 isn't that. Neither is Florida's approach. We don't give policy points for intention when the collateral damage is so severe (including pricing lots more than seniors out of home ownership).
I'm not sure what you see as the collateral damage. Is the problem governemt is deprived of revenue? Proposition 13 is actually the rare tool to break the housing trap. I have no problem when the house sells of govy harvesting a fat chunk of capital gains. Or - thinking out of the box - how about if when the house is going to be put on the market it must be sold at the Prop 13 value to someone who needs affordable housing....
I have followed you for 10+ years and this is the first time I find myself disagreeing with you...
Well the collateral damage is that it cuts off the feedback loops that would drive neighborhood evolution. It stagnates the development pattern in a way that is really unhealthy. Where demand is going up, instead of having maturing of neighborhoods, incremental thickening and redevelopment happen naturally, Prop 13 suppresses that. So you just get really high prices with all the other downstream problems of aggressive outward expansion, parasitic local government, and a plethora of schemes to avoid resetting the property tax during a sale.
It is inherently unfair to raise property taxes for long term residents simply because property values are increasing. Until they sell, they do not benefit from these increased values. It is like having a contract renegotiated annually by only one of the parties. When a house sells, by all means harvest the capital gains, but not before...
You mention "maturing of neighborhoods." Having stable populations in a neighborhood is an essential quality of a mature neighborhood. Eventually, everyone will move out or age out. This is slow incremental change, the best kind, IMHO. It seems neither respectful or moral to balance budgets on the backs of the most vulnerable. Property taxes is only one tool to fund government. It is a highly regressive tax. If we are trying to create healthy communities, we need to find better alternatives...