
Prop 13, Or, California's Progressive Blindspot Illuminated - bufordsharkley
http://sfbamo.com/news/editorial-prop-13-or-the-california-progressive-blindspot-illuminated/
======
brandur
The article comes off as a little rant-y, but I found it to be quite an
enjoyable read. A lot of sources water down prop 13 as "maybe bad", but any of
us who've moved to San Francisco (or even California) in the past 5-10 years
should be far more outraged about the situation than we are.

This guy is eminently quotable too:

> “Revolt” sounds too noble to me, even “populist.” I prefer to call it
> feudalism.

And on the popular anti-tech sentiment:

> New, young computer programmers with six-figure salaries may easy to
> scapegoat as the emblem of the Bay Area’s 21st Century inequality, but even
> if they can afford real estate, their privilege is chump change compared to
> that of pre-1979 homebuyers and their descendants.

A few key observations in there:

* The power imbalance between buyers and renters in the country is already bad due to the interest rate deductions, but Prop 13 adds insult to injury. While rent control (for renters) is not widespread, owners in California (who are often the upper class stratas, especially in the Bay Area) have built-in rent control everywhere, forever. You can even pass it down to your kids!

* He uses the term BMR (Below Market Rate) instead of "affordable housing". There's been a concerted attempt by politicians to conflate these terms to buy more populist votes. As noted in the article, an important aspect of BMR is that its cost is passed on to new buyers; the perfect political tool: a tax that's not called a tax!

* Many of the local anti-development politicians are riding off the aforementioned "feudal" privilege. Kudos to the author for pulling information on a few of them. Of course the data is anecdotal, but it's amazing how many of these high-income people inherited their primary residence from their parents during their working lifetimes. That's very hard to imagine in most of North America.

~~~
jmspring
The biggest issue with Prop 13 is the allowance for commercial properties.

Prop 13 for protecting individual residential property owners on a fixed
income from escalating "assessed" property values makes a good deal of sense.
Especially in a state like California, if left unchecked, would be raising all
sorts of taxes and fees for failed experiments.

(Note - born/raised/ life long Bay Area resident)

Prop 13 needs a revision to exempt commercial property...

~~~
Camillo
No. The biggest issue is the enormous and growing transfer of wealth from
people engaged in productive economic activity to a caste of rentiers who
extract money while producing nothing. This is what is meant by feudalism, and
it manages to be bad both in terms of justice and in terms of economic
efficiency.

From this point of view, commercial property is at least used for economic
activity. Exempting it from Prop 13 would reduce inequitable treatment of
different commercial property owners, yes, but it would also impose yet
another burden on productive activity, and ultimately on the overtaxed serfs.
Instead of reducing feudalism, it would exacerbate it.

No, the biggest problem is _precisely_ residential property.

~~~
davidfischer
Commercial property -- to which I'm including multi-family residential for
this post -- is almost definitely the bigger problem. The reason arises from
the fact that these properties very rarely trigger a reassessment of property
taxes and as a result tons of commercial property owners are paying 1980s era
property taxes. Firstly, commercial properties are often held by long
time/indefinite property owners -- companies -- who rarely sell and don't
"die" (deaths especially those involving split inheritances commonly cause
property sales which trigger a reassessment). Secondly, in the event a company
does sell, they can usually avoid triggering a reassessment by only selling a
"stake" in the property. If that stake is below a certain threshold, there's
no reassessment. You can read about this by googling "close the prop 13
loophole". Residential properties are very simply reassessed more frequently
on average than commercial and this problem is going to get worse over time.

Oftentimes, properties in California (especially multi-family residential) are
owned by a corp/LLC which owns nothing other than that single property. That
corp is then owned by a larger company who can sell a stake in single property
company if the right buyer comes around. The CPAs have avoiding a prop 13
reassessment down to a science. If you write a rent check to a company that
has your street number or street name in the company name, that's why.

Much of valuable property in this state was developed before 1978 and as a
result the owners are paying just a fraction of what their taxes would be
after a assessment. Sales and income taxes are subsidizing this difference.
Now, the counterpoint to this is that raising property taxes will result in
some of those taxes being passed on to renters. While this is true, not all of
it could be due to simple supply and demand. The worst offenders will be able
to pass on the least of that difference. The state would also be able to lower
corporate, sales or income taxes as a result of phasing in market property
taxes too. Maybe that last part is just wishful thinking on my part.

Regardless of your take on residential vs commercial property and prop 13,
this is a problem that is only going to get worse with time. With no changes,
50 years from now, there will literally be people and companies paying
property taxes like it is 1990. The result is that in order to make up that
difference, corporate, sales, income and "new" property taxes will have to be
higher than they are today. If those other taxes rise enough, people leave the
state for greener pastures and property values fall or stagnate which is
another more painful way to equilibrium.

Significantly higher property/land taxes in this state than we have now would
solve or curb a lot of problems. From housing bubbles (probably merely curbed)
to encouraging cities like SF to build more densely to allowing lower
income/sales/corp taxes to encourage investment, many of the states problems
were created or exacerbated by prop 13. When Warren Buffett was
Schwarzenegger's economic advisor during the campaign he said that prop 13
doesn't make sense. He was right.

~~~
HillaryBriss
Not disagreeing. But, another factor worth mentioning is the impact of local
rent control laws.

If prop 13 went away statewide but local rent control laws remained in effect,
owners would be looking around to make up the difference.

If an apartment building saw regular property tax hikes, the owner's inability
to pass most of the higher tax costs on to renters would cause new unintended
consequences (e.g. reduced building maintenance).

~~~
ec109685
Why wouldn't they already be maximizing their own profit today?

~~~
HillaryBriss
yes. right. i think they are trying to maximize profit in any environment.

and eliminating prop 13 would mean less profit. if the experience of rent
control laws over the last forty years in places like Santa Monica is any
guide, the property owners will cut corners on building maintenance if they
are not allowed to raise rents and pass the tax hikes through to tenants.

------
disposablezero
TL;DR Prop 13 main focus was it reduced property tax increases to a fixed
level because retired residents were being gentrified out of their homes when
they could no longer afford to pay taxes on their increasingly valuable homes.
My grandparents benefited from this enormously as they bought a home in 1968
near Los Gatos for $30,000 and it's now worth over $1,000,000 but they have
Prop 13 and so are able to afford property taxes. Most anyone whom moves loses
this protection, so residents tend to cling to their homes because of the fear
of losing Prop 13, and so many very elderly residents in California rarely, if
ever, move.

Prop 13 was a half-baked, short-term solution to a terrible issue. Real-estate
taxes should be scaled with both income and wealth progressive tests to
prevent both obscene burdens and tax dodging, so that they are affordable,
encourage people both to attract residents to the state and pay their fair
shares, but knowing how Sacramento dances around hardly doing anything, it's
unlikely to ever be revisited without a sustained, on-message campaign and
buckets of crowdfunded cash.

~~~
refurb
What makes no sense to me is why would you cap someone's tax rate when the
cause of it going up is their house is worth a shit ton more? They have the
financial means to pay it (equity in the house)!

It would make more sense to me to either do nothing and let home owners get a
reverse mortgage and use that to pay their tax bill or have the gov't just put
a lien on the property and when the next sale happens they get their cut.

It would seem to me that homeowners facing a higher tax bill because _their
home drastically increased in value_ should be the last ones you subsidize.

~~~
tzs
Why not handle changes in land value the same way we handle changes in value
of personal property?

Suppose I hire a young, unknown artist to paint a portrait for me, for $100.
Thirty years later, the artist is very famous and recognized as one of the
most talented and important artists of his generation, and his early works
(such as my portrait) sell for tens of millions of dollars.

The way we handle taxing that tens of millions of value that my painting
gained is that when I sell it, the difference between the sales price and what
I paid counts as income (probably long term capital gains income in this
case), and I pay tax on it.

Property taxes are usually used to fund local government and the services it
provides. Those don't really correlate well with the value of property. My
house and land are assessed about twice as much as that of my neighbor two
houses away for instance, and about half of my neighbor across the street, but
we are all provide about the same burden on the city for services and all reap
about the same benefits.

Thus, I wonder if the way we should do this is that property taxes to fund
local government should simply be per lot (or maybe per family, or something
like that), and not be tied to the market value of the property. The value of
the property would figure into income taxes, when those changes are realized
during a sale of the property, using the same rules that we now use for
personal property.

~~~
crzwdjk
The per-lot taxes you suggest are increasingly the way things are financed in
California: it's called a parcel tax and when a city wants to raise money for
schools and the like, it's one of their few options for passing a new tax,
since they've already maxed out the property tax allowed under Prop 13. The
other major option for new taxes is sales taxes, but those create a perverse
incentive for cities to maximize the number of car dealerships and other
commercial property and minimize the amount of new housing they allow, since
it's stores that pay property taxes, while houses tend to consume more city
resources while paying fewer taxes.

------
gumby
Regardless of what I think of prop 13, this article is not mathematically
sound. In a non-hyper-constrained market (consider the Central Valley for
example), prop 13 also helps hold down rents; the cost of owning a rental
property does not go up due to property tax rise. Thus if there is competition
for renters, prices stabilize. As taxes are part of the op ex (along with
fixing the roof etc), renters pay them -- they are just built into the rent.

The reason this doesn't apply to a place like SF is that the tax assessment is
in the noise: a severe shortage of places raises the price. If the tax
assessment were adjusted normally, rents would go _UP_.

I benefit from Prop 13 in multiple ways: not only has my property tax been
largely fixed, but I live in a neighborhood of people who've mostly lived in
their homes for decades. It makes for a nice mix of ages from 20s to 70s.
Those on a fixed income would have been forced out, and while it's nice to
have new neighbors move in the stability is valuable to me as a QoL issue.

(Prop 13 has screwed up things like school funding and the like as well -- I'm
quite aware of its problems. This screed simply doesn't get into them).

------
ScottBurson
Really glad to see this. I've hated Prop. 13 ever since I moved to California
in 1986.

As I've argued a few times on HN [0] [1], the way it should have been done
would have been simply to defer the excess tax until the property was sold,
not to simply return it to the homeowner.

[0]
[https://news.ycombinator.com/item?id=12576948](https://news.ycombinator.com/item?id=12576948)

[1]
[https://news.ycombinator.com/item?id=12764264](https://news.ycombinator.com/item?id=12764264)

~~~
abritinthebay
Bad solution. You'd just encourage rental at market rate and no-one selling
because of the massive tax bill.

Basically you'd solve nothing and make it worse.

~~~
ScottBurson
I take it you didn't read the second link, where I said:

No, this wouldn't happen, because the lien is only on 1% of the excess gain
(the amount the value increased over 2%). If, for one example, the value
jumped in the first year and then went flat, the payment would continue to
grow at 2% annually until it caught up to the value. The only scenario that
generates a lien larger than the owner's gain is if the market has been up but
then drops sharply just before the owner wants to sell -- in short, if there
was a bubble. Well, bubbles produce lots of dislocation; I don't think they
make for a good argument against this proposal.

~~~
abritinthebay
You are describing it well, but not countering the point I raised with
anything other than "yes, but I don't understand how people work so here are
some numbers that if people were robots might justify this idea."

But they aren't. So it doesn't.

Peoples reaction would be exactly what I described and your explanation
doesn't change that. It just shows you're incapable of understanding _why_
they'd react that way.

~~~
ScottBurson
You're certainly not the first to raise this objection.

I get why people react this way: they'll look for any way they can to shoot
down a proposal that would have them paying more taxes. So even though the
objection you're raising is not, in fact, true, it's a lie people would want
to believe.

I know it would take a sea change in sentiment to enact this proposal post-
Prop. 13. (I don't know that such a sea change is impossible in the long run,
which is why I'm talking about this now, but I understand that it won't happen
soon.)

But if we imagine ourselves back in 1978, and if the structure I'm suggesting
had been the proposal on the table instead of Prop. 13 as it was, it would
have passed easily, being a clear improvement on the status quo ante. There
would have been no case in which someone would have paid more tax, or done so
at a less convenient time, than under the previous system -- quite the
contrary. So it would have been totally possible _then_.

But again, given that Prop. 13 exists in its present form, the modification
I'm proposing is a tough sell. Maybe we'd have to stipulate that the amount of
the lien will be limited to 1/2 of the gain on the sale, after commissions,
and would be zero in the case of a loss.

BTW, I'm attempting to respond constructively to your post on principle, but I
don't feel yours was offered in the same spirit.

~~~
ScottBurson
People's gut reactions can be overcome with time:
[http://www.nytimes.com/2015/05/12/science/recycled-
drinking-...](http://www.nytimes.com/2015/05/12/science/recycled-drinking-
water-getting-past-the-yuck-factor.html)

------
pascalxus
Prop 13 is one of the most Regressive Taxes (not progressive) in the history
of housing. You have 2 people living next to each, both got exactly the same
house, but one purchased it 20 years ago for 200K, the guy who purchases it
today, has to pay 10 times more for the SAME house: 2 million dollars and then
to add insult to injury has to pay nearly 10 times more taxes too.

If it wanted to be fair, Prop 13 should be exactly the opposite of what it is:
it should tax the one who bought the house 10 times cheaper more and the new
guy less.

------
brianglick
Beyond the usual "email / write / call your state congressperson," are there
any effective ways to lobby for changes to Prop 13?

~~~
tingletech
It only takes a simple majority vote to change it, you just need enough
signature to get in on the ballot.

~~~
bufordsharkley
It's worth noting that the Howard Jarvis Taxpayer's Association[0], the group
that originally passed Prop 13, fights for its continued existence as a
dedicated lobby, and they're extremely well organized.

[0] [http://www.hjta.org/](http://www.hjta.org/)

------
s0rce
Having moved to the bay area for work Prop 13 seems like a great injustice to
newcomers. However, having learned about how prop 13 was originally sold I'm
particularly curious why elderly fixed income people expect to stay in large
very expensive homes throughout their retirement/death. I grew up in Toronto
and once people's kids grew up and left the house they would often move into
much smaller affordable condos. These had fewer stairs and much less
maintenance.

There wasn't the same need to retire/die in the house you raised your kids in,
its a ton of maintenance for too much space anyways. Why do elderly folks on
fixed income in CA want to keep their homes forever, is it because there are
no smaller condos in the same neighborhood (development problem) or because
they expect the property value to increase enough to warrant keeping the home.
The later doesn't seem to apply in Toronto as home values in Toronto have
skyrocketed...

------
gozur88
California is rapacious enough without removing the one protection residents
have from excess taxation.

~~~
mikeyouse
The ironic thing is that if we had a sensible property tax system, sales and
income taxes could be lowered quite a bit and our governments would have much
more consistent funding.

~~~
gozur88
Well, I suppose that's possible. But before Prop 13 passed sales and income
taxes were both high by national standards.

------
h4nkoslo
Prop 13 and various forms of taxable money laundering (overseas money dumped
into real estate, Other People's Money based VC funds, imported under-market
labor...) are the only things keeping this godforsaken state from going Full
Venezuela, which is about 10 years from happening anyway due to continuing
demographic decline.

If you allow the clowns in the state legislature to raise taxes ad infinitum
they will do so, and then wail endlessly about white flight.

California Secession Now; they must serve as a warning to others.

------
dstainer
There are a bunch of things that bother me with regards to the discussion
against Prop 13.

\- There are older folks that have owned their homes for over 30+ yrs that are
on fixed income that wouldn't be able to absorb increased taxes. My
grandparents would've been in this case.

\- There are folks that are middle class folks, think central California that
couldn't absorb increased taxes.

\- The variability year to year dealing with the assessments makes it
difficult to plan for the potential increase in taxes. Look at what happened
in Cook County in Illinois. Some homeowners were facing thousands of dollars
of taxes none of them were prepared to pay.

The argument of telling someone to just move if they can't afford the taxes
doesn't fly with me. Because I would just put it back on those individuals,
you don't like the housing prices... Get out of the bay area. I mean I know
you can go to Bakersfield get a palace for 500-600K. Case in point, brand new
construction 462k 4BR, 3BA ([http://www.zillow.com/community/camden-cove-
pinnacle-series/...](http://www.zillow.com/community/camden-cove-pinnacle-
series/2096193763_zpid/))

I think there are ways to address some of the issues without a blanket
reversal of Prop 13, because this would effect more than just the bay area.

So what potential changes could you make. Couple of ideas:

\- Transfer of property through inheritance would be subject to re-assessment.
At that point the original owners have presumably passed and the new owners
aren't necessarily living in the property. If the taxes were adjusted to the
current property value that decreases the profit from just renting the home.

\- Remove the applicability to commercial properties. Other articles on the
subject that I've read, describe techniques that people use to try to game the
re-assessment of a property through exchanges of corporate entities, eliminate
that practice, especially for homes that are zoned residential.

\- If the issue is around vacancy, do what Vancouver did, tax vacant
properties. If there is an abundant supply of vacant homes, force rental of
those homes through taxing of vacant homes. That increased the supply of
available homes, depressing rent and lowered home prices within a few weeks of
its enactment.

I'm not saying at all that Prop 13 is perfect and no doubt there is abuse of
the rules. I'd focus on closing the loopholes around transfers of property
first before trying to change something that would affect every single
homeowner.

~~~
ec109685
You are assuming taxes would uniformally go up. If everyone was paying
equally, many places would see a reduction (see the MA example elsewhere in
the comments).

------
matt4077
I fail to find the connection between the first half of the article
criticizing Prop 13, and the second half listing the sins of supposed
"progressives".

I mean – you can certainly argue that people are wrong to try to protect the
unique character of their neighborhood. But that argument seems to be
completely separate from Prop 13, except maybe with regards to the line of
"protecting incumbent residents".

~~~
bufordsharkley
The connection: without Prop 13, a decision to protect neighborhood character
would have an explicit trade-off for residents-- their decision not to develop
would lead to scarcity in developable land and thus higher land values, and
thus higher property taxes.

When this is decoupled, residents (who control all zoning decisions) have
every incentive to approve every anti-housing measure, insofar as they're
insulated from the costs.

~~~
URSpider94
I see the author's point, but having lived in MA, which strives to keep
assessed property values very accurate and very much in line with the market
value, people there were just as rabid about keeping out new development.
Ultimately, any increase in property tax is offset 100-fold by increases in
home value, and both are probably eclipsed by the emotional desire to live in
"a nice neighborhood"

In short, while I would fully support the repeal of Prop 13, I don't think it
would suddenly result in an about-face on zoning policy to limit home price
appreciation.

~~~
bufordsharkley
Interesting point. Out of curiosity, what's the property tax rate in these
communities?

~~~
URSpider94
To elaborate ... MA is the the original home of direct democracy. Towns in the
state hold annual town meetings, with a committee of the whole coming together
to vote on key issues. In addition, they have a fair number of ballot
referenda, but not as many as CA.

MA has its own "Prop 2 1/2" which caps real estate taxes at 2.5% of assessed
value, and limits annual increases in the total assessment to 2.5%.

Quite literally, the cities and towns are continuously re-assessing their
property base, and literally re-set the tax rate on an annual basis to deliver
the revenue that they need to run the town. Thus, you see Cambridge's rate
plunging by 25% year over year, presumably as property values on high-dollar
properties have boomed. This gives lie to the idea that politicians would just
take the increased taxes from higher property values as a windfall. In
actuality, the tax burden is redistributed as real estate wealth is created.

------
abritinthebay
Can anyone tell me why a maximum tax growth isn't a better solution?

Same idea but cap it at.. 2-3% a year or something? Would protect buyers from
wild swings but allow growth in tax revenue over time.

It's the lock-in that's the issue, surely?

~~~
Kaizyn
This doesn't help fixed income home owners who Prop 13 was designed to
protect.

~~~
abritinthebay
My _ass_ it was designed that way. It was _sold_ that way and continues to be
lobbied that way because it's an easy emotional sell. But designed? No.

Also then fix it _just for fixed income_ as an exception. Or make it a tax
credit you can claim from state.

There are a ton of _really easy and trivial_ solutions that any legislation
that was designed to solve that problem could of used.

It didn't - they knew what they were doing.

------
honkhonkpants
Bit of a rant. The site is the mouthpiece of people who are suing the city of
Lafayette, for violating state law by not building enough housing.

~~~
bufordsharkley
It's an editorial, for sure.

And yes, the site is connected with the Yimby Party[0] and SFBARF[1], who have
been featured in HN before.[2]

FWIW, I helped put together the website, which uses Armin Ronacher's Lektor
CMS.[3] And as far as this has gone, it's been a tremendous success, for
putting together a straightforward news site that is usable for both tech-
savvy operators as well as those unacquainted with the command-line.

[0] [http://www.sfyimby.org/](http://www.sfyimby.org/)

[1] [http://www.sfbarf.org/](http://www.sfbarf.org/)

[2]
[https://news.ycombinator.com/item?id=12310151](https://news.ycombinator.com/item?id=12310151)

[3] [https://www.getlektor.com/](https://www.getlektor.com/)

~~~
mslate
Keep it up--you're making amazing content

~~~
bufordsharkley
I can't take any credit for the site's content (aside from the time I live-
tweeted a Palo Alto City Council meeting)[0]-- my hat is certainly off to the
journalism that site has come to provide, covering stories one won't find
anywhere else.

[0] [http://sfbamo.com/news/tweets-from-the-front-palo-alto-
city-...](http://sfbamo.com/news/tweets-from-the-front-palo-alto-city-council-
coverage/)

