Good thoughts. You failed to mention Prop 13 which was put into place a long time ago and simply doesn't make sense anymore. It's at least part of the reason it is so affordable (in relative terms) for rich people to keep second homes here when they bought them years ago.
We live in a building of 60 units where probably at least a third of those are absentee owners. They're rich enough and the cost to maintain is so low that they don't even need or want to rent those units out. We've seen our neighbors only 2-3 times in past 2 years... but if you look at the property tax bills of folks who bought 10-20+ years ago they are minuscule and are only adjusted upon sale of the property. In our case, we're paying easily 4x what the previous owners were.
We moved from DC couple years back which is also very expensive but their tax valuations are re-assessed on a regular basis so you don't have this huge disparity in what the rich old people are paying in prop tax vs the young not quite rich people are.
If values and property taxes were reassessed every 3 years or so this would put more pressure on these absentee owners to either sell or rent their units thus increasing existing inventory as well as adding to the city's coffers.
TELL A FRIEND ALSO
Another possible cause is that being a landlord in San Francisco is incredibly difficult and time consuming. Last year friends of mine rented out their condo to someone that turned out to be a problem tenant. They had to hire a lawyer and pay the tenant off in order to get him to move. Rather than making money as landlords, they lost almost $50,000 on the deal.
The apartment now sits vacant, and they have no plans to rent it out again.
Prop 13 is a problem, no doubt. It would deserve a very long essay -- some of them exist as sub-essays within Kim-Mai Cutler's writings. I tried to focus on policy ideas that, more-or-less, San Francisco could implement themselves.
Housing is often viewed as a San Francisco problem, but really it's an area-wide problem acutely and a state-wide problem more broadly. I.e., areas outside the policy of San Francisco, such as peninsula, south bay, etc, are not significantly cheaper. And entire other metros, like Los Angeles and San Diego, have had similar percentage cost increases (and those metros are actually more "unaffordable" since incomes are lower there).
But I have a hard time reconciling that with the relative pricing in other equally desirable coastal areas that do not have prop 13 (or anything like it).
I am simplifying greatly, but in a broad sense, SF housing is as expensive as Boston housing is as expensive as NYC housing ... and certain hot-or-not inspired pic sites lead me to believe that Vancouver beats all of them.
Are you suggesting that, all else being equal, if prop13 was not extant, SF housing would be markedly lower than the aforementioned areas ?
I can't imagine it would be ...
That said I don't think the current issues with housing in the bay area have much to do with Prop 13. It's why your schools suck. It's why the prices are high, because the carrying cost is 1% lower than you'd expect because property taxes are too low.
Real issue is the deranged FIRE based economy we have. FIRE Finance, Insurance, REal estate. Combined with low growth and income inequality. Means you have a lot of money pouring into 'hot markets' like SF, Boston, Vancouver etc. Same time there is collusion between the people that sit on the boards of large companies to suppress wages.
I don't think that's true even in the "broad sense". San Francisco rents may be roughly comparable to to NYC, but are significantly more than Boston: https://www.zumper.com/blog/2016/04/zumper-national-rent-rep...
It may not be true, but I think the argument would be that in the absence of Prop 13, SF rents would indeed be comparable to Boston rather than 50% higher.
I wouldn't be surprised if like for like, Boston is indeed more expensive than SF... I just checked Redfin for properties in core of Boston (Back Bay, Beacon Hill, Downtown, etc) built since 2000 and roughly average square foot price was $1200.
Did the same thing for SF (focusing on SoMa area) and it looks like it's more like $1000/sq ft...
Although, if housing in Boston tends to be of lower quality than SF housing, might that not put extra demand on the more recent and presumably nicer housing?
I do know I have seen a lot of commentary and postings right here on HN about the prohibitive cost of housing in Boston - perhaps it is just certain desirable areas in the center, or Cambridge ...
Different areas just have different issues, but I think in both cases they come from the same source (issues related to supply and demand). Prop 13 creates a supply problem, new housing stock needs to be built because it's not beneficial for people to move or sell their homes due to the tax lock in. That happens in some areas, but the output is sprawl, increasing people's commute times.
Boston's issues are different, and it's based more on new stock not being built due to zoning issues and the MBTA not growing fast enough to make other areas more accessible to the city as the city has grown and attracted more business.
That said the costs in San Francisco are on another level compared to Boston. San Francisco is more comparable to NYC with regards to rent.
In a nutshell, our current housing paradigm was born of the soldiers returning home from WW2. Thus, the entire infrastructure is geared towards supporting single family homes designed for the nuclear family with 2 parents, a stay at home mom and 2 to 3 kids. Thus, in the decades since then, housing has kind of converged towards that standard while population has diverged away from that norm. We are having kids later, we are living long, we are having fewer kids etc etc etc. We need far more housing geared towards the demographics and lifestyles we currently have, not geared towards the demographic and lifestyle of what, for many people today, is their grandparents in their youth.
As long as house prices rise faster than inflation, then that’s nice for the people who manage to buy a house, but it’s common-sense unsustainable.
A soldier returning home from WW2 could buy his first house with a few years of savings. No mortgage necessary.
A few decades later, housing prices rising faster than inflation, and a Gen X yuppie needs a 30-year mortgage to afford a house. Not ideal, but still affordable.
A few more decades, and Millenials face a world where you need to be making bank to even think about paying for the mortgage. No wonder we are having kids later, etc., etc., etc.
I don’t know how net worth and housing will be decoupled, but it has to happen. When only the bank can afford your home, that’s an ingredient for social unrest. All I know is that it’s really going to suck for the people who’ve pumped so much money into their house, when it all comes down.
These comments may also be useful:
Especially the first one:
When you say, “you need to think bigger than that. In fact, we need changes all the way up to the federal level,” I agree. The government up to the federal level has been using policies, tax benefits, and direct subsidies to promote detached single-family homes. I think that your solution of reorienting building priorities in favor of individual housing is not incompatible with my idea of removing homes as a long-term investment. Indeed, I think they are aligned: The most economical way to live by yourself is to live in an apartment with a whole lot of other people.
The suburban ideal has cost the country tremendously. Roads, sewers, air pollution, mental disturbance from the isolation, extended emergency vehicle response times, to name a few aspects that come to mind right now. Even perma-camping would destroy the environment if everybody did it. If we want to reduce our per-capita environmental impact, we are going to have to live in dense apartments, and we are going to have to make them affordable for everybody.
For cities to be affordable, we need to overrule the NIMBYs and allow the housing prices to go back down.
Where I’m least sure I agree is with the primacy of single living. A good solution will involve a diversity of housing stock, and we do need more single housing, but any society who want to survive long-term must encourage people to breed and produce a next generation. And once you’re done breeding, outcomes tend to be better if you’re involved with the next generation’s progeny, too. For the long-term health of society, we need plenty of large houses.
That needs to change. If we could get that resolved, you and I would both be happier, even if we still disagreed.
My grandparents own a home in Livermore they've had from 1925. Livermore is now a very costly place to live in, and modern property taxes would make it impossible for them to live in a city they saw grow up around them.
I do think Prop 13's protection should be eliminated for businesses - most definitely.
If you're a landlord, perhaps it would make sense to allow up to 2 x Prop 13-protected [low-density] properties, and all those after would have unfixed property tax.
The problem here is landlords will simply pass this along to renters, so it seems 'sane' to just eliminate Prop 13 for commercial and not residential properties.
We lose billions of dollars in tax money from corporations because of Prop 13. :(
Seniors aren't the only ones who need this.
I also want to add that what sucks so hard about businesses being protected by Prop 13 is that businesses can live much longer than people. Disney might keep its decades-old fixed property tax for more than a hundred years.
It's not even like they are economic losers. They bought into a place and it appreciated in value and they got to upside from the increased housing value. When they sell the home, they'll be cash rich and be able to easily afford a new home in a place that was just like 1925 Livermore. If you want to live in 2016 Livermore, which is a wholly different place from 1925 Livermore, then you should pay property taxes commensurate with supporting a 2016 Livermore.
Yes, it's true, they may not be able to afford the property taxes there today under prop 13, but under some alternate universe without prop 13, the property taxes would be lower than they are today. The only reason they are as high as they are is because those that bought a home recently are paying way more in property taxes to make up for how little others pay in property taxes. Basically, if you're paying 1925 property taxes, you're freeloading while others that were born later make up the tax difference necessary for a community to function. Prop 13 is nothing more than a form of wealth transfer from the mostly young to the mostly old.
Furthermore, there are good paying jobs in and around Livermore that require people to live near Livermore. If people are subsidized so they can occupy space near those jobs at the expense of the people qualified for those jobs, you're doing economic harm to the city, county, state and country in which Livermore resides, especially when those jobs are of the variety that are valuable for economic prosperity at the national level.
We need cheaper housing - desperately. Poor. fucking. city. planning. with mediocre transit systems is not doing enough for us. I hear talk all the time about how we should be moving out of the cities and building the needed infrastructure in more urban areas. I think the first way to make that attractive to younger generations or even retirees would be to improve on transit to get to those areas. Make "the country" easy to get to and from.
Anyway - I don't know the answer here. I don't know if it's justified whether prop 13 should exist for individuals. Ethically or logistically I don't know. I sure as hell know businesses don't need prop 13 - they don't retire.
To me "if we should have prop 13" sounds like an argument against people being able to retire.
I'd be happy to let it go entirely (business + residential) if property taxes were factored into social security. ;p
At current property tax rate of 1.1%, a half-million dollar appreciation would result in $5500 yr additional property tax.
I would gladly trade spots with those who have to uproot themselves because they've had such massive home price appreciation.
But that's not the reality we live in.
Property taxes fluctuate too much in California - you might be paying everything you can toward your mortgage to decrease the interest you owe, but still effectively pay the same with rising property taxes. A fixed property tax is really, really necessary.
It's just abused too heavily by corporations...
Personally I think it's strange that we start at 10% income tax on people making so little.
Anyway, most high sales tax proposals come with a post capita rebate.
Tax reassessments during the boom of 2001 to 2007 were on track to price a lot of people out of their houses based on their current economic status. Proposition 13 and other bills passed across the country allowed individuals to avoid being "taxed out" of their house.
If you have a job that pays $100,000 and the taxes on your $250,000 house is $7,500 (3% property tax) and the tax quadruples to $30,000 in five years; why would you want the market fluctuations to be able to force an individual to leave their house?
The main item with this problem, as is with all affordability issues is that supply is not meeting demand. Look in Detroit and Flint where there is not enough demand and the supply is worth next to nothing.
Author's points of increased units would lead to a drop in prices until it becomes affordable to all. San Francisco will never allow it because the people who live there want to keep it San Francisco and NIMBY rules.
Imagine old people viciously fighting for increased development lest their property tax bill goes up, unlike the opposite today at most city council meetings. The elderly drive most housing policy in many ways because they have the free time, general boredom and incentive to participate in the political process this way.
Property tax is also almost never approaching %3. The range can be %0.5 to %2.5. A high property tax rate actually helps modulate the value of houses in a market since the price of housing is based on the monthly payment. This is what contributes to texas being a cheap housing state, since the high property tax prevents housing values from going up too quickly.
Unoccupied properties also cause the supply to go down without a person or family inside it contributing to the local economy. Idle assets should be put to productive use, it's half the point of a property tax already.
I shed exactly zero tears for someone whose $250k property quadruples in value to $1m in five years. Sell the house and dance with joy at your (untaxed!) $750k capital gain.
The only argument for freezing tax assessments is to soak the new residents in favor of the current residents. It's a result of the absolute worst kind of democracy: voting to make other people pay more taxes.
Ok, now where are they supposed to live? All the other properties cost just as much, so now they're forced to not only move out of the city, but now they have to quit their job too! How is this productive? You're penalizing someone for living in a housing bubble and not taking advantage of it. Even worse, you're penalizing current residents for having their house values driven up by a bunch of out-of-state (or out-of-country) investors and speculators.
The other option is to ease pressure on home prices by laying down the NIMBYism and letting more housing be built in your community in a sustainable way!
This is the whole the point of self-corrective market forces: sure, you can choose to keep your low-density housing in a region that is attracting demand with great weather and strong industry, but prices are going to appreciate if you keep your doors closed to newcomers. Keep the door closed long enough and your self-defeating actions will force yourself out as well (see palo alto, where they now need to subsidize housing for anyone making under $250k/yr so they can have people like teachers and firefighters still live in the community).
The fact that taxes DON'T increase with demand distorts the self-corrective market forces that would otherwise stop people from closing the door to affordability.
That doesn't actually work in the real world. If you live in a desirable area, and you increase the housing supply in such a way that the area is still desirable, as soon as the price drops a tiny bit people move in from the outside and drive it back up again.
(If you have evidence of urban areas that have allowed lots of construction during periods of high population and job growth - cities like Dallas, Houston, or Atlanta - and have also seen high housing prices, please share it; I'm genuinely curious).
Part of the problem in the bay area is that there is minimal cooperation between the dozens of municipal governments to allow more housing. None of them want to be the first or only one to do it out of fear that they'll just end up with more density and high prices. It's a bit of a prisoner's dillema.
Orange groves and strawberry fields and outdoor movie theaters and old military bases were all leveled and turned into housing tracts. But housing didn't get any cheaper - the state added 20 million people from 1970 to 2010, because there were jobs and it had the reputation of being a nice place to live.
Prop 13 was put into place because the state and municipalities were raising taxes left and right without consideration of things like fixed income individuals being able to stay in their homes.
There was good and bad in the measure. Good - to a point - raising the need to add taxes above 50%+1 vote, the bad, it applied property tax issues to both commercial and residential properties equally.
It's much easier to set up a business entity to span generations and avoid taxes than it is a private home.
The measure also masked an issue of use. A single individual who bought a house for $500k would pay more in taxes than a family who bought a house in the same neighborhood for $350k, yet if the family has children in the schools, they are paying less in taxes and getting more out. Most property taxes have multiple assessments for schools.
It does need to be fixed, but the conversation so far has fixated on residential and ignored the commercial impacts of prop 13.
Proposition 13 was passed in 1978. The housing boom of 2001-2007 had jack shit to do with its passage.
(Yes there, is a Prop 13 in 2010 that also has to do with property taxes, but only about seismic retrofitting of existing buildings).
There are well-established solutions to your issue about people being forced out of housing with rising demand. Massachusetts allows tax deferrals up to 50% of a property value. (If you want to get technical, Massachusetts allows towns/cities to allow tax deferrals; if your city does not want to offer it, they do not have to)
So, your $250,000 -> $1 million dollar house allows up to $500,000 in tax deferrals, so you've got a lot of years you can live in that house without paying taxes. When you sell the house, you pay the taxes and also pocket a pretty sum on the appreciation in the value of the house.
The owner may not care, but the city as a whole should: it makes poor use of the scarce housing supply if sales are discouraged due to tax artifacts.
To make room for newcomers with higher-paying jobs who, in some sense, 'deserve' to live there more than you do. Unpopular opinion, but that's how we ration every other limited resource; it goes to the highest bidder, not the first mover.
This is the opposite of the truth. The core of property rights is that just because someone will offer you a "good" price for your trinket, doesn't mean you have to sell it to them. (That would be a chaotic world!) Limited resources are held by their owners, who had them first.
You can argue that housing is fundamentally different from every other kind of property, which justifies forcing people to give theirs up if somebody else wants it more -- but there is no room to argue that that's how we handle other limited resources.
Because it ties housing prices to economic viability. If a person's housing value increases 10x, they should move if they can't afford to maintain it so that another more economically productive person can live in it.
It sounds evil on the surface, but the reality is that it will keep housing prices in line with the economic growth of the area. As it stands now, fixing the assessment value only encourages people to hold onto the house even longer because taxes eventually become a minuscule amount compared to the appreciation of the house.
If taxes are a fixed $10,000/yr on a house that is growing 10% in value every year, then it makes sense to hold onto the house indefinitely. However, if the property taxes increase proportionally each year, there comes a point in time where the calculus no longer works out and it makes sense to sell the property and cash out. Since this happens to everyone simultaneously, the growth in housing prices will also decrease (thus, reducing the growth in property tax).
A simple solution (for the elderly at least) would be to roll up all the debt until death, payable by the estate.
Simple until the next housing crisis.
And you're right... as owners now we don't care and only benefit from the absentee neighbors. That's a major part of the problem. Now that we're invested, we are naturally opposed to anything that would untether our tax rates. If our neighbors (who mostly bought in the 80s/90s) were paying tax on the current valuations they would be encouraged to either sell or rent thus creating more inventory and helping bring prices toward equilibrium.
While often repeated, that is incorrect. In reality property tax goes up 2% every year under prop 13.
You are indeed correct that in our very modern era, the 2% ratchet under prop13 is less than what we see California real estate appreciating at.
So would you indeed support rebates and/or clawbacks and/or negative property tax increases if California was to ever see sustained drops in valuation ?
I own property in California as well as in other states and I can tell you that the property taxes sure go upwards very easily ... not so much the other way around ...
Seniors in those kind of conditions, would be unlikely do better selling off their homes and subject themselves to a more volatile rent for their homes.. which would likely lead to even higher societal financial supports needed so seniors don't end up on the street.
Their good investment allows them to sell that property at a profit, rent it for cash flow, or just sit on it. It's still their choice. Just like in the financial crisis, companies were hoarding cash due to uncertainty but because interest rates were zero-negative this encouraged spending and propped up the economy until more material improvements could be achieved. It's basic economics at the end of the day.
I work in San Francisco. I have lived in San Francisco. I have had two generations of family live in that city. I don't like the city like a lot of you do. I try to avoid it on weekends.
I just haven't seen these empty potential rental units?
I now live in Marin County. I can guarantee I have never seen a empty house due to low property taxes.
My aunt used to live in Marin county. She was far from wealthy. She could only afford to stay here because her property taxes were reasonable. Actually, I would have let her stay with me for free, but she wanted her own house. A house she bought on a librarian's wage in the 50's. Yea--I know--you should let rediculious property taxes force her to move in with you to free up a home. A home she bought.
You will be her one day--I guarantee that--especially the average Programmer.
I was a kid, but before prop 13 property rates were going up every year--without a ceiling in sight. It was making Everyone scared. Beyond scared. Mad as Hell--by Howard Jarvis. I remember my father barely making those bi-yearly payments. I remember the fear on their faces. This was in the 70's, when San Francisco and Marin county were still basically middle class. Way before society decided these counties were magical?
When prop 13 passed. Their was a middle class sigh of relief.
Why can't you find a reasonable place to rent? San Francisco has always been a tight market. Yea, blame rent control. Marin has always been a tight market--no rent control, except in San Anselmo--detached mother-inlaw units are attached to federal poverty level in some way?
So--what's the problem? It's a unicorn of problems.
People are greedy. Building is very difficult. Zoning codes are ridid. Their are NIMBYs. Etc.
Again--people are greedy. Say there's a three bedroom two car garage house in Marin is paying $6000/yr in property taxes. The house has one working bathroom. There's no legal on street parking.
Do you really think that house will not be rented out. How do you think these people have the money they appear to have?
Even if your premise is right--do you really think rents would drop, if say 10 percent of housing opened up overnight? I really don't think some of you realize this is not the Bible Belt. There's not much morality here, except on Christmas, and maybe a few other holidays. People want their money. They are greedy. Get used to it.
I've seen greedy behavior forever, and there's always those that will look for something easy to blame it on. It's not prop 13! It's usually that CEO who needs to live in only the best enviornment? The beach, and mountians, and a low crime rate. Yea--that's where I want to set up shop? Let's the peons fight for housing.
Actually, the state would love it if this blame catches on.
The State of California will rob you blind.
That greedy behavior I have see in people, and even the state always sickened me.
(I wrote this off the cuff. There's bound to be errors. I really don't care to hear about petty errors. Actually, I don't come back to most posts, so fight among yourselfs. I can guarantee the state loves this blame on prop 13.)