Prop 13 gives huge tax benefits to using land less than productively. Both selling land, and building on it will massively increase taxes.
Property values are rising at 5%-10% per year, but bulidings themselves only depreciate without dumping more money into the building. So that 5%-10% is all land value gain. As a property owner, why increase taxes by using the land more productively with new buildings, when you can continue to profit just as much without that? Also, attempting to build is hugely risky, because the permitting process is fraught, long, and likely to fail.
If we didn't have Prop 13, every single property owner would have a lot more incentive to actually try to build.
> As a property owner, why increase taxes by using the land more productively with new buildings, when you can continue to profit just as much without that?
Is it really a bubble if the overvaluation is created by law? The only way to pop the bubble would be to change the laws. And with Prop 13 being untouchable politically, and homeowners have an iron grip over city councils to keep cities underzoned, there's little chance of the systematic problem being eliminated any time soon.
> Residents strain the city budget via things like public schools. Businesses put money into the city budget via gross receipts taxes.
Prop 13 was meant to drastically cap property taxes. It was very successful in doing so. As a result, tax revenue from property taxes has also been capped dramatically, and cities adapted by relying more heavily on taxing businesses. Hence the current situation where residents cost more in services than they bring in in property taxes, incentivizing cities to attract businesses and wiggle out of their responsibility to build more housing units.
A good illustration of this dynamic is “RHNA”
process for allocating housing unit quotas to each city in California. it is a very conflictual process where city councils typically fight tooth and nail to get their quotas reduced. A recent example in Palo Alto: https://www.paloaltoonline.com/news/2020/11/18/palo-alto-ass...
I don't think every California home owner is some evil beast trying to keep others out. I support building more homes, and would love it if every single family detached home were automatically rezoned for two units on the parcel. But if it weren't for Prop 13, my home and my business would have been forced out by people moving in and paying too much money for homes next door to me.
And "raising property values" only raises my property tax, while giving me no real benefit.
Prop 13 causers real estate values to rise much faster than they would have otherwise , by restricting the productive use of the land. It incentivizes land owners to not build and to not transfer land to someone who could make better use of it.
When it's a broad, general effect that covers an entire stateC that causes prices to rise much faster than they would have risen without Prop 13.
Prop 13 is one of the major causes of people "paying too much money," whatever that means. No purchaser wants to pay too much. The seller is the one setting the price when it is high, and Prop 13's incentives for speculation are what gives sellers so much market power to extort purchasers.
1) sell, reaping a huge windfall.
2) use a HELOC or reverse mortgage to pay for the higher property taxes.
But of course you'd prefer both to keep the windfall and not move, a privilege afforded to you by prop 13. That is only natural.
Meanwhile, homelessness in the state continues to rise as high land values make housing production and anti-growth activists on planning committees exacerbate our housing shortage.
I find it acceptable that people want to stay at home where their social networks and memories are. You all act like it is OK to push people out from their homes, just because you have money and want that place.
I agree it would not be OK for people to be forced to leave their home because they cannot afford to pay their property tax.
But there are simple solutions to this problem which do not create even worse problems, unlike prop 13. For example, Texas allows taxpayers 65 years of age or older to defer their property tax payments. In other words, the tax is still due, but not until the property is sold.
Why did California voters not implement this much simpler approach to preventing displacement? Because the goal was never to prevent displacement - it was to lock in massive tax subsidies for established homeowners, at the expense of everyone else.
> But if it weren't for Prop 13, my home and my business would have been forced out by people moving in and paying too much money for homes next door to me.
Prop 13 does not solve this problem. It merely shields historical homeowners from it, while amplifying it for everyone else. Many people and businesses were forced out by speculation because of prop 13, but you and a small group of people were exempted so you don’t care.
People are forced out of their home all the time, without the gigantic windfall of money that a property sale entails.
Evictions happen all the time, and these poor folks do not get the windfall of a $1M investment paying out. They get the trouble of trying to find a place to rent with an eviction on their record, which means they will be paying higher rents with less ability to pay.
Nobody should be forced from their home, homeowner or renter. But in California we only privilege the already privileged with that sympathy.
Prop 13 has forced far more people out of their home than property taxes have forced people in NY State out of their home. And NY has high property taxes and lots of people. So does NJ.
The idea that Prop 13 protects people from being taxed out of their hugely inflating financial asset is somewhat preposterous on its face. It mostly protects large landholders, and gives a tiny tiny benefit to the people that we are concerned about.
Focusing on the ineffective application of protection to a tiny number of millionaire homeowners, while ignoring the wealth inequality that funnels money to the people with tens and hundreds of millions of property, is extremely short sighted. It's time to stop pretending that Prop 13 is about the minor side effect of protecting a homestead, and pay attention to its primary effects, which is to encourage financial speculation with land and to give away tons of tax subsidies to those with the most land wealth that are hoarding it the most from better uses.
> The idea that Prop 13 protects people from being taxed out of their hugely inflating financial asset is somewhat preposterous on its face. It mostly protects large landholders, and gives a tiny tiny benefit to the people that we are concerned about.
When you say "large landholders", are you talking about REITs and commercial property holders? If so, wouldn't Prop 15 have addressed these issues?
"You should be thankful for having to move despite really not wanting to, because some other people have been completely screwed" is an abusive logic tho.
I think the point being made is that if you support Prop 13, you either a) are wildly misinformed about its effects, or b) don't care about its effects because you are in the privileged group that benefits from it at the expense of others.
(Whether or not the assumptions behind this assumption are true is of course up for debate, though I personally tend to believe Prop 13 is a bad deal, even for those who think they benefit from it.)
Perhaps you simply were not aware of the fact that prop 13 contributes to the displacement of people and businesses you claim to care about. I that case, it is now up to you to act on this newly acquired information and revisit your support of prop 13. The choice is yours.
Actually no, land is the one thing you can't make more of, which is why economists say a land value tax is one of the most efficient taxes (since supply is fixed, taxes can't reduce supply).
It's true you can make more housing by building up, but only if city zoning allows, which NIMBYs don't want.
Wealth taxes in general are challenging to execute. Property taxes are much easier, as well as deal with the extra issues brought on by land ownership that cash-equivalent wealth does not.
You're absolutely right - a property tax is a type of wealth tax. I completely agree, which is why I attempted to differentiate between a general-purpose tax on all wealth in any form and a tax on real property. Please accept my humble apologies for my failures to be less clear than I could have been - my communication skills are a work in progress.
With that said, I have been under the impression that countries that have attempted to levy general-purposes taxes on all forms of wealth have in many cases run into practical difficulties. This requires things like finding a fair way to value and re-value an art collection or shares in a company not traded or liquid. In several cases - like France - these difficulties and others have led to dropping general-purpose wealth taxes.
Have I been laboring under a misapprehension? Can you help me understand what I've missed?
I don't think you're wrong. There's easy parts (ie. publicly traded equities) and hard parts (eg. art collections).
I've been skeptical of skepticism (lol) of the wealth tax mostly because the easy parts dominate the hard parts. Most wealth is in the easily identifiable areas (ie. equities and property) not the hard areas. Even with private companies like some startup, surely the shares have some known valuation right?
My point is though that we've already built a bureaucratic apparatus to evaluate wealth in our property assessment system so surely it's possible to extend this.
A possible implementation would be to mostly ignore the "hard" sectors of wealth (eg. car collections/art collections) or do random audits of the tricky parts just to keep people honest.
Property values are rising at 5%-10% per year, but bulidings themselves only depreciate without dumping more money into the building. So that 5%-10% is all land value gain. As a property owner, why increase taxes by using the land more productively with new buildings, when you can continue to profit just as much without that? Also, attempting to build is hugely risky, because the permitting process is fraught, long, and likely to fail.
If we didn't have Prop 13, every single property owner would have a lot more incentive to actually try to build.