[sfnrm]

The lurking issue here is Prop 13. It forces cities into a tragedy of the commons type scenario where it's not rational for any individual city to build new housing, as property taxes are limited, while they can more easily raise revenue by bringing in jobs and retail.

>...we should pass more laws mandating that the housing we can't build should be built anyhow, apparently by magic?

Unfortunately, it seems like Prop 13 is not going to get repealed anytime soon. Given that, then in this case, yes, more regulations could help.

It's called a Pigouvian tax [1]. Whenever a city like Menlo Park brings in 2,000 more Facebook employees while allowing for zero new housing, they impose a negative externality on their neighbors, who suffer in the form of higher housing costs. To counter that, cities should be made to bear the social cost of exacerbating the housing crisis. If every time a city like Menlo Park adds thousands of new employees without any new housing, they had to pay large fees into a state affordable housing fund, they'd have less incentive to contribute such a large housing imbalance in the first place, and everyone would be better off.

[1] https://en.wikipedia.org/wiki/Pigovian_tax

[niftich]

Prop 13 contributes to making this situation worse, but the scenario you laid out is actually how development happens in the US, regardless of where you are. Municipalities at the edge of a built-up area realize there's an overspill of demand, and they can attract development because they can offer lower land values, higher lot sizes, and lower property taxes than areas that are already built out. Typically, residential demand is higher than others, and private developers persuade town officials to let farmland be upzoned for homes and subdivisions. Typically, everybody wins a little: the municipality gains significantly more revenue from property taxes on the re-assessed land, developers, barring a sudden downturn, usually turn a profit, and potential residents have more options for housing.

This works well for greenfield development. But once a town is built out, the calculus is different. For developers, the costs of buying out adjacent parcels is greater, and the marginal profits are less. This is why you predominantly see "luxury apartments" built during redevelopment, instead of, say, middle-income walk-ups, to improve margins further. These forces cause them to gravitate towards greenfield development further out (e.g. Gilroy, Tracy, Stockton, Woodland), or to focus on redeveloping areas that have the highest profit potential (ex-industrial urban revival districts).

Meanwhile, for the towns themselves, 30, 40 years after having been built out with single-family homes, the benefits of further residential development have all but evaporated: the sewers need replacing, and the = schools require more and more funding to keep at their target level of service to retain discretionary, high-income residents. Smart suburbs typically shift their focus to attracting employment, like manufacturing or office space. The Bay Area is much more fortunate than other regions of the country in this regard, as most of the employment base developed organically, rather than having to attract out-of-town businesses to start satellite facilities. Nonetheless, communities still vie with one another over employment, as new jobs are much lighter on the budget than more residents. Ever since streetcar suburbs were established, the natural state of development has been that towns in earlier stages of their existence would pick up spillover residential demand, while built-out areas focus on attracting and retaining jobs.

[Lazare]

There's certainly some things to be skeptical of with regard to Prop 13, but:

1) Property taxes are not the only way cities can function. In California, property taxes represent about 70% of local government revenues, which is in line with the US average (72%) and higher than many states[1], with no clear correlation to housing prices or per capita GDP to be seen. And prior to Prop 13 it was 84%, which is still pretty middle of the road and not that much higher.

2) You seem to take it as a given that the reason cities like Menlo Park aren't allowing more houses to be built are financial; that they literally can't afford to change the zoning code. I find this preposterous, and I'd love to see any evidence you have to support it (studies, not plausible stories that happen to match your biases).

3) You say "they impose a negative externality on their neighbors, who suffer in the form of higher housing costs". Given than Menlo Park will see the sharpest increase in housing costs, then by your logic Menlo Park suffers most. That's the opposite of an externality.

I won't argue that prop 13 is a good law, but I think it's at most a sideshow, if not outright irrelevant, when it comes to the housing crisis, and I don't think you're offering a coherent argument otherwise. Houses aren't being built because key voters (and campaign contributors) want high housing prices, while no one influential wants low housing prices. If Menlo Park (and similar cities) were driven purely by revenue, rather than votes, they'd allow tons of housing to be built; even low-ish Prop 13 property taxes are better than nothing.

[1]: https://www.taxpolicycenter.org/statistics/local-property-ta...

[curun1r]

The part you're ignoring about prop 13 is how much it incentivizes nimbyism. If rising property values were accompanied by resultant higher property taxes, homeowners would be incentivized to work with renters to get new housing built rather than working against those that need a healthy housing market. But as it stands, prop 13 means the more they can block new construction, the higher the value of their homes.

[Lazare]

> If rising property values were accompanied by resultant higher property taxes, homeowners would be incentivized to work with renters to get new housing built

I don't think the math works out.

Let's say your house is $500k, assessed at $500k, taxed at 2% (which is a pretty high rate; national average is more like 1.2%, and of course, California caps it at 1%). If you can finangle a 10% increase in property value per year, then in around 8 years your property will more than double in price, and you can cash in on $570k of additional equity. Meanwhile, you'll have paid an extra $46k in taxes.

Conversely under a vaguely prop 13 like regime (1% property taxes, 2% appreciation per year), you'll pay an extra $7.2k in taxes. That's obviously much better; you pay 1.3% of your gains in extra taxes instead of 8%. But...

...we're still only talking about 8%. Of the total value. Weighted towards the end of the period. On the margins a few people may be dissuaded from pursuing a maximal house price support strategy, but 8% is not a lot; if you own a large, massively appreciating, highly leveraged asset, most people can happily find the cash flow to cover the tax bill when it's that tiny.

In short: On an asset like a house, the capital appreciation overwhelms the property taxes.

(Also don't forget that the tax base can be re-assessed on sale. That part of Prop 13 actually suppresses house prices and discourages people flipping houses to profit from rising values, although I think that, like all the impacts of prop 13 on the housing crisis, it's very minor.)

[curun1r]

The math only works like that if you realize the gain from the appreciation of your home's value. But on a primary residence, people don't want to sell. Selling, while realizing the gain, means either sinking most, if not all, of that gain back into another house, renting or moving out of the area. So for someone who doesn't sell their house, increasing property taxes can become problematic.

From your example, paying an extra $46k over 8 years per $500k of home value is much more significant when you're paying for it with income from working rather than an increase in your home's value. Nimbyism only works because you can both remain a homeowner and not have a significant increase in property taxes. You stop being a nimby when you sell your back yard. Higher property taxes would force homeowners to choose between their objections to new building, which increases the value of their home in some distant future sale, and increased property taxes in the immediate future. The time horizons are different, which makes the kind of comparison you're making problematic.

[stale2002]

It could still be an externality.

For example, let's say you put all your garbage out in the street in front of your house, blocking the road. This hurts BOTH you, because you can't get to work, AND other people who have to drive around the blocked street.

Even though the trash in the street hurts you the most, it is still an externality, because it is ALSO, hurting other people.

[jpao79]

Agreed. If Menlo Park can't convince its current residents to build more housing, it should share the tax base that the 2,000 new employees bring in with the adjacent neighboring towns which do build the housing in order to help them handle the additional loading on their municipal infrastructure (roads, housing, police/fire). Or they should encourage FB to look at Oakland, Fremont, Hayward, San Jose for their expansion needs.

[burfog]

Prop 13 is a crude solution to the problem of cities being unwilling to properly manage their budgets. Something had to be done, and nothing better was offered. Cities would take on unsustainable expenses, then be unable to shed them when required.

An example of a specific cost is pension-like benefits. They turn bad when the paying population shrinks, when the receiving population lives longer than expected, or when costs (such as healthcare) for the receiving population change.

An example of a general cost is the tendency for the expenses to grow to match income. This can happen when a real estate bubble provides a property tax windfall. People get hired, people get raises... and then there is a need to cut all that back when the bubble bursts. This one is particularly bad because the bubble doesn't actually mean that people have more money for paying the tax. The tax rate needs to go down, keeping the city budget mostly unchanged, but that never happens. (the city may need to pay more, but this is minor because not all goes to property: materials are included, and there is a delay before the average worker's housing cost rises much)

[toast0]

Building new housing usually means also selling the houses, which means a market value assessment, which means more taxes.

Prop 13 only limits tax increases when the ownership doesn't change. The nice thing for municipalities is that even during housing markert downturns, the tax rolls still generally increase every year as those properties with prop 13 valuation caps deeply below the market value still have room to grow when the market value dips significantly.

[cameldrv]

They are also limited to a total tax of 1%. In most other states, the property tax rate is higher than this, and the income tax rate is lower. With a 1% cap, and a cap on the increase, it's hard for residential taxes to pay for city services. Office buildings require a lot less services, and so they make sense for the city to allow. This isn't the only answer, but it's certainly a major consideration when these things get taken up by city councils and planning commissions.

[toast0]

If a house in the Bay area is $1M and a house in the Midwest is $200k, 1% property tax in the Bay area is about the same as 5% in the other places. Also, be sure to compare tax amounts / ratio to real market value, a lot of jurisdictions say they tax at say 10%, but the tax valuation is always way under market value, so it's confusing.

Either way, it is more expensive to provide services in a high housing cost area, but doesn't scale one to one.

Office buildings are also more likely to never get a reassememt because of corporate ownership shell games that are much harder to do with single family homes.