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L.A.'s crisis: High rents, low pay, and $2k doesn't buy much (latimes.com)
300 points by jseliger on June 5, 2017 | hide | past | favorite | 439 comments

This is also really a zoning story. L.A. used to be zoned for 10 million people in the late 60s and decreased that tremendously in the early 70s: https://la.curbed.com/2015/4/8/9972362/everything-wrong-with....

Today we have improved technology along almost every dimension yet the city is zoned for less than half as many people.

We are paying zoning's steep price: https://object.cato.org/sites/cato.org/files/serials/files/r... (that's a link to a PDF).

I would look also at the seriously distorted property and land taxation system in California as an additional contributor along with zoning.

A few decades of Prop 13 have done an amazing amount of damage to the housing markets all over the state, by disincentivizing the sale of property. This has contributed heavily to reducing the supply of housing and distorting the market, among other problems.

If California made some modifications to it's taxation policy - perhaps lowering income and sales taxes while leveling the playing field on land taxation - home owners could come out paying a similar total tax bill while adding needed fluidity to the market.

I support Prop 13 for primary homes that owners are actually living in, but commercial rent deriving properties should have never been covered by it.

I take this position because I'm really not interested in kicking little old ladies out of their homes of multiple decades just because some property price bubble has driven real estate to crazy levels. Basically without prop 13, every bubble is going to drive the poorest and most vulnerable home owners out of their homes, and that is a pretty ugly side effect. That is the original intended protection of prop 13, but commercial properties were somehow rolled under that same umbrella.

I'm not convinced that Prop 13 is the best or only solution to the "we don't want to kick senior citizens out of their communities" issue. Prop 13 only helps you if your property has appreciated in value anyway. So by definition, all of its beneficiaries are sitting on assets that have appreciated, sometimes enormously.

Currently, Prop 13 caps property taxes as a percent of the last sale price. What if instead we allowed property taxes to increase with home value, but deferred collection of the incremental tax increase until the sale of the home? The back taxes owed could even be capped as a percent of appreciation. Given that the property's price has by definition increased, even after paying the back taxes the seller still gets much of their money back, the government comes out whole, we don't force old people to sell prematurely and the tax burden is shared more equitably between old and new owners.

In my opinion, Texas gets this right (as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently). If you're over 65, you can defer property taxes on the home you occupy as long as you continue to own and occupy the home. They aren't even just frozen, you can simply not pay the taxes at all. This means you can't lose your home due to inability to pay property taxes. But you don't get to play both sides and get a property-tax reduction while also passing on a big capital-gains windfall to your heirs. The taxes are deferred, and when the home is either sold, or transferred to heirs upon your death, the deferred taxes are assessed against the capital gains and/or the estate. (If the estate ends up being worth less than the deferred taxes, the state eats the difference, but deferred taxes are recovered from whatever value it does have.)

Cool, sounds very similar to what I was thinking! Glad to find out that someone has implemented it.

> as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently

Governance would be so much more productive if we were all willing to get behind ideas that have been proven to work, even if the "other side" thought of them first. Like you've done here. :)

Preferably there wouldn't be these sides at all. Just a bunch of different people that support different things.

I know how naive that all sounds. I'm just worried that these two sides are going to tear this nation apart in very disastrous ways.

That's actually really neat. If anyone else was interested in reading the details, here's the relevant statute: http://www.statutes.legis.state.tx.us/StatutesByDate.aspx?co...

The taxes deferred as a lien, but the lien accrues 8% interest. If there's any value in the house, it would be cheaper (at current rates) to refi and pay out of that.

Holy CrapOla this is a big asterisk

Why the over-65 requirement?

Why not just pay taxes on the purchase price, and defer all taxes on appreciated value until the sale?

And why not let the children defer the taxes further? It'd be tragic if your kids were forced to sell the family home immediately upon your death because they couldn't afford the taxes.

Seems like the important innovation here is defer-until-sale, not the pro-retiree, anti-inheritance values.

Letting people defer indefinitely may let them run up more deferred tax than the value of the property. Restricting it to over 65s limits how much of a bill people can run up.

I also think that the retirement-age might also be part of that.

At 65 your income is expected to drop significantly. By allowing deferred costs on property tax at the age of retirement, you reduce a pressure on tight resources.

Seniors in that case can spend on food / medical and the government doesn't get the bad press of evicting a grandmother who has to choose between feeding herself and paying property tax.

Especially if, assuming what's reported in this thread is true, they have an 8% lien on the property.

If the tax could add up to more than the value of the property, doesn't that mean the tax is way too high and should be capped?

No? Whatever rate you set it at, if you let people defer it indefinitely, it can eventually exceed the value of the property. That in itself doesn't imply the rate is too high.

What happens to someone who lets the taxes build up but needs to sell (medical bills, say)? This screams of unintended consequences where the state taxes a windfall from someone forced to sell.

I don't see how it's a windfall on the part of the state, it's just collecting what's owed to them in arrears. It's not required that you defer the taxes. You could pay them up front. It's simply an option, that if you lack liquidity (because your assets are tied up in your house), you can defer payment until a "liquidity event", as they say in the startup world. There isn't any kind of right to both not pay property taxes and turn your property into liquid cash in your bank account. The purpose of the deferral option is that even if you have no liquid cash with which to pay property taxes, you can never be forced out of your home for that reason. That's the stated purpose of Prop 13, too, though perhaps not its real purpose.

If the government didn't make them pay taxes it would be basically writing giant checks to home owners who own expensive houses, don't pay their tax bills, and rack up large amounts of medical bills. And the government would pay those people with money from renters, tax payers, and the insured.

unintented consequences... like what we're dealing with right now with the current california housing market...

Taking out an HELOC against the property might be one solution.

The property taxes take precedence over loan collections, so no one will give you a HELOC when you have a bunch of back taxes.

If your home becomes much more valuable in 2018 to 2028 but then falls sharply in 2029 to 2034 and you become ill in 2035, who will pay the high tax then due?

What you propose is basically an additional mortgage via the state. This means more leverage for home owners and increased risk for the state. When a broad downturn comes, the state will be shoved briskly toward bankruptcy.

There are various ways to set this up. What I would propose for California would have these properties:

() The annual tax bill would be capped according to the Prop. 13 formula (annual increase limited to 2%). The difference between the tax bill and the tax due gets added to the lien balance.

() The tax bill would increase at that rate even if the property value drops, until the lien balance is paid off.

With these rules in place, it's actually pretty hard for the lien balance to get very large compared to the amount by which the property has appreciated. It would take a catastrophically sudden and severe drop in property values for that to happen.

Why cap it? Removing caps allows the market to properly price property with regard to taxes and will give the market stability. Caps are a distortion and will hurt some and benefit others.

The modification to Prop. 13 that I am proposing will already be an extremely hard sell to California voters. Outright repeal is just not realistic.

I think this has the problem of trapping people into houses on declining property values. You've got some elements to mitigate that somewhat, but prop 13 really seems like a cleaner simpler way to do the accounting because there is no hysteresis effects. Anything else, and you really provide a disincentive for many people to sell just for the added headache.

How would people get trapped? If the property value is declining they can just get it reappraised and pay an even lower tax rate than what they were expecting when they bought it. From a tax perspective that should be a windfall for them.

You already have to pay capital gains tax when you sell. Adding on to the state's cut at sale with even more taxes would be exceedingly unpopular.

The first quarter million (half million for couples) dollars of profits are exempt from capital gains tax.

That's a reasonable position to take.

That said, one argument for rolling back prop 13 from primary homes too is that as long as it's in place those property price bubbles are more likely to occur. As long as their property taxes will remain flat existing residents are still incentivized to oppose constructing new housing, pushing prices ever higher.

If existing homeowners felt some discomfort from the housing shortage - in the form of higher property taxes - as opposed to only seeing massive financial upside - in the form of rapidly appreciating home prices (which can be realized when they eventually sell or can be borrowed against for immediate cash), then they would be more incentivized to support building more housing supply, keeping prices down. Right now existing homeowners are highly incentivized to oppose building more housing and that's a huge part of the reason why prices are so high.

Of course, there are downsides to rolling back prop 13 for primary residences too - it's not as if everything would work out perfectly smoothly. But I suspect a rollback could be crafted so that the transition could be pretty comfortable for existing homeowners.

I think the larger disincentive is simply downsizing (such as the common pattern of becoming an empty nester) or moving in general causes supply to be very scarce.

Moving to a smaller and cheaper home might result in the exact same monthly bill.

Now that is only fair and it is more accurate to see the low taxes paid in the past as the unfair part but the end result is the same.

Yeah, this is another problem that LA is starting to face in many neighborhoods. There are no smaller houses. What happens is as soon as a small house goes on the market, a developer buys it for several percent over asking price with cash, tears it down and builds a McMansion on it that stretches from one end of the lot to the other. So there is no lower-priced housing stock available to buyers.

In fact, it's getting to the point where there's no medium-priced stock in areas like the West side. People with growing families want (and often need) bigger houses, but can't afford them, so they increase the size of their existing house, thereby remaining one more small or medium sized from the market. It's a vicious cycle.

Prop 60 lets people 55 and older a one time transfer of their low property tax assessment value to another home of the same or lesser value. The new home must be in the same county as the old one or in one of eight counties that accept transfers of base-year value from other counties.

How can people know about all these different laws that are very important to know if you want to plan well for your future. Seems like legal systems need some kind of lifespan so accumulated complications can be wiped away and a fresh start is possible (sort of like all living things are born and die). I suppose the founding fathers thought of this and included a constitution convention option for when a wholesale reset of the legal system is required. Bloody revolution not necessarily required.

I posited that laws should be reviewed after X years and if there was not a compelling reason (with proof) to continue them then they would lapse. This would hopefully ensure that only really useful laws would even be bothered to be created.

California with its props is a whole other ball of wax... :-)

Oh and in my empty nester scenario earlier they could be as young as 40 and as old as 70+ so not all would qualify.

You definitely taught me something new though!

very interesting argument. I wish there was an authority that somebody could just change this stupid zoning laws, we have to analyse this gaming theory strategies to incentive people while everybody know what the solution is.

after election I'm starting to doubt democracy!

In general state governments can pass laws which override local zoning ordinances.

I question the argument that existing residents have incentive to oppose new housing for pricing purposes. Increasing density in the long run increases property prices. Look at prices in any downtown city....

You don't think the causality goes the other direction for high-density downtown neighborhoods? Lots of people want to live and work downtown (for a variety of reasons). When thousands of people are will to pay a premium to be within the same square mile it suddenly becomes possible to cover the massive cost of building a steel frame high-rise tower.

If density itself increased property values then you could buy a few acres of ranch land in Montana for five hundred dollars, build a high-rise and rake in profit.

Density is a trailing indicator of demand to live or work in some particular place. It's that demand that pushes up prices.

Of course, in some particular cases where some parcel of vacant urban land had been zoned at low density and then suddenly became up-zoned to allow higher density then its value can go up as a result. It had been able to allow maybe just a $2.5 million single-family home, but now it's possible to build an apartment building worth $60 million, so of course the price would go up.

i live in LA and my take is that people in single family dwelling residential blocks often resist construction of higher density buildings because quality of life goes down (i.e. more cars on the streets, more smog, traffic, noise, unfamiliar people, potential crime, less access to government resources like schools and law enforcement, per capita, because those resources are not built out as fast as population growth in LA).

so, the proposal becomes: if these new zoning changes allow apartments on your block, you'll reap a 200% gain if you sell your house today, but you'll immediately lose backyard privacy, quiet streets, sunshine in parts of your yard, easy access to the freeway, and so your enjoyment of life will decrease and you'll have less free time outside of work, etc

my take is simply that a lot of people think the price increase isn't high enough. if they want to keep their existing job in LA, where are they going to move to with that 200%?

now, if the number were 2000% instead of 200% maybe zoning changes would be uncontroversial...

But you have to remember that for that every home owner whose quality of life diminishes there are 100's of renters whose quality of life increases because they can live in a neighborhood they wouldn't have previously been able to afford.

For a majority of cases if the original home owners hadn't settled and allow infrastructure to mature around their investments then the density would likely not have increased to the point where re-zoning was viable. (At least that's the pattern I see in Australia, where we are at a much lower density across the board)

> Increasing density in the long run increases property prices.

I think you have your causality backwards there - city centers are inherently valuable (close proximity to jobs, food, recreation, etc) which favors dense development to take advantage of that value.

On the other hand if you build a bunch of dense housing in the middle of the desert, it won't be worth much at all.

Economics is a mesh of effects operating in a loop. There is no easily discerned causality.

If no developer wants to build more houses (possibly asking for a zoning change) thereby increasing density, why would an existing homeowner have a decision at all to make in allowing it or preventing it?

On the other hand, all of your inherent values of a city center can be said to be caused by higher population density. Food and recreation spots will be opened close to where people live. Jobs are variable in terms of location, but there's certainly an advantage to moving close to population centers--at the very least, access to a vast workforce.

My point is not really to argue that the opposite is true, rather that you can make an argument either way, whether higher demand leads to higher density or higher density leads to higher demand. There are certainly low density urban centers that no one wants to live in despite their proximity to jobs, food, and recreation.

Obviously density isn't sufficient to create value on its own, but in the context of neighbourhoods of a city, more dense areas tend to become more valuable than less dense ones, because density supports better services. So if one suburb lets developers build high rises and another of similar value doesn't, the former is likely to end up more valuable in the future.

Limiting supply in the face of increasing demand causes prices to go up.

Increasing density is the effect of higher prices, not the cause.

The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing. Also, an increase in housing values is proportional to the worth of the house so even rich people are affected. Your vision of old widows on the streets doesn't match reality.

Most of the bubble is because of rent control aka prop 13. There's plenty of research showing that artificially limiting rent on part of the housing stock squeezes the price on the remaining units and causes the rent controlled units to never appear on the market. Look at data on NYC for an extreme example of this.

In NYC around half the housing is rent controlled and a tenant stays for over twenty years on average. These units pay roughly a third of the rate of a non rent controlled apartment. In non-rent-controlled apartments the cost is over the three times as high and the average person stays for less than two years.

In NYC these units have been rent controlled for so long that most have passed down from the original owner. However, they still only tend to be sold upon death because renting them out illegally is incredibly lucrative, often enough that the owner can live off of the proceeds.

So yeah rent control effectively removes that part of housing stock from the market permanently. It's too hard to prevent people from profiting off their rent controlled units so it just results in a racket.

> The people driven out get to keep the money from their property appreciating, it's not like they were kicked out for nothing.

Soo, get out of this neighborhood and move someplace poorer to make room for people who can afford it? I still think that's pretty ugly when talking about people's homes. When you're talking about people with fixed incomes, the only option after getting kicked out is to move someplace lower cost...

I don't understand the rent control discussion - there was a reason I differentiate between primary residence owners and commercial rent investments, especially the intergenerational costs. I don't think prop 13 lets you make any transfers of ownership without resetting the tax assement. (I could be wrong here...)

The primary residence owners get the same perverse incentive to illegally rent and never sell the property. Why wouldn't they? It's literally free money.

And transfers don't need to happen when the average person lives 80 years. These units will largely be kept off the market for over thirty years.

I understand your concern about long time residents being forced out, but the proper solution to this is not locking out large portions of the housing market. A much better solution is to highly encourage new and higher density housing to make the area more affordable to everyone. Existing residents don't deserve to live in SF more than new ones just because theyve been there longer

I think it's odd to base your policy for most people for what a tiny minority might illegally do. As for people keeping their homes for thirty years - I think that is a tremendous good in our society that we want to encourage in terms of stability of people and their relationships to their neighbors and cities, and suspect we're going to hit a fundamental disagreement beyond there.

It sounds nice, but in California it has created a landed gentry who fight tooth and nail to keep things completely unaffordable for everyone else.

> Existing residents don't deserve to live in SF more than new ones just because theyve been there longer

Yes, of course they do. It's people's _homes_ we're talking about. And it's absolutely in every society's interest to safe guard a mix of people everywhere.

Rampant gentrification where the moneyed upper and middle classes squeeze out the lower class, is clearly the number one reason for an increasing segregated society, disenfranchisement and alienation. Perfect growing grounds for radicalisation and what follows...

What about enforcing the laws about illegal renting? Turn the property over to the current tenants, perhaps fine the prior owner and call it a day.

Why does everyone that already has a certain kind of lease deserve cheap rent for life but not people that don't already have a certain kind of lease?

> That is the original intended protection

That’s a myth. The “little old grannies” was the original sales pitch of prop 13, but the intended beneficiaries always included rich people’s trusts, heavy industry, commercial real estate, large property management companies, etc., at the expense of the state budget.

The folks who wrote it were Orange County businessmen and staunch anti-government anti-tax activists.

While I understand the sentiment, how many people are estimated to be displaced? It's possible the local governments could work with very small amounts instead of coding another loophole into another law.

Nuke Proposition 13, one-time grandfather some uses, and drop the remaining pain all at once.

In general principle, I want to favor owners living in their property. That creates social stability, instead of upheavals of neighborhood on every bubble. Without prop 13, the stronger the bubble, the more people with deep pockets are favored because they can hold out longer on property taxes. You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies.

Without prop 13, you may end up exacerbating bubbles - the system ends up favoring risky behavior: the uptake of buyers willing to take out the larger loans, or people taking out taking out loans to pay their taxes and try and ride out real estate bubbles. When the bubble bursts, there will be more people with more highly leveraged loans.

Cities working on random rules to help subsets of property owners is, by definition, coding loopholes. By comparison, a primary residence of a homeowner isn't a loophole, that's a basic tax status used by the IRS.

> You'll just end up kicking people out of their homes sorted from poorest to richest as the bubble intensifies.

No, it's the richest people with the smallest cash flow that get kicked out first.

Property tax for a salaried worker with a $1m mortgaged house is totally manageable, property tax for a retiree with a $2m paid-off house could be unaffordable. The latter person (who's much richer) has to move, the former doesn't.

I think you're splitting silly hairs - technically its anyone with bad cash flow. If someone has no liquid assets and their "wealth" is only tied in the property they're living in, it's monopoly bubble money, and you're kicking them out because they're fixed income doesn't match the real estate market values (which may be unrealistic in a bubble). If you're truly wealthy, and want to preserve the property, then you'll have many options to transition even fairly illiquid assets to keep a property.

I don't agree it's hair-splitting. You can't get kicked out by surprise by repealing Prop 13 unless you've enjoyed huge capital gains and are therefore likely rich. It would make no difference for poor people who don't own property that was acquired at low cost many years ago.

It's really the opposite situation of what you said.

At the rates real estate prices are rising in bay area, you would be kicking people out of where they called home for years. Whether they sit on huge gains or not is irrelevant, they wouldnt be able to afford it.

That capital gain isn't accessible unless there is a sale. If its a sale because the owner can't afford the property tax it is likely someone with limited/fixed income.

Once you force a sale, a buyer, rich enough to buy the home takes ownership, they have exactly the same incentive to approve or disapprove new homes as the original owner.

The person you've forced out on the other hand, now pays the tax, the transfer costs with a real estate agent and likely repair costs on the home, has the same fixed income, and now has to find a home to live in, but now has 5-10% less capital to work with then they had before. It's a bubble, and likely real estate costs in the near area are just as high. So what has been accomplished at the end of this other than harming the living situation of the original property owner and kicking out someone of limited income for someone with more income?

What's accomplished is that productive workers can live close to work instead of the double whammy of having a long commute and paying extra to subsidize rich people that don't work.

The fact that some people have been there longer than others shouldn't absolve them of their duty to pay their fair share of taxes based on the value of their property.

The seller will maybe pay 7-8% in terms of transaction costs. Lets assume a 30% increase in a house payments is enough to kick someone out. The costs of a typical house costs 6%(mortgage + taxes + insurance + repairs). That's means you need $1,000 a month for a 200k house.(Seems reasonable). Avg. California property taxes are 1.25%. So for that to increase your total payments by 30% you would need your house' value to increase $288,000 before it knocked you out of house and home. Of course with the 8% in transactions costs you leave with a modest $260k in profit.

I might be heartless but it's hard for me to feel too much sympathy for this individual.

260k in profit which needs to be rolled into a place to live in the same market that just kicked you out of your home...

Not the same market -- in some saner market somewhere else. That's the whole point of the exercise.

So the goal is to make the poor go away, in a place that will have less economic opportunities ?

No, the goal is to make rich go away, and make poor have a place to live where they have more economic opportunities. If you cannot afford to pay $1k/month property tax, it means that you have an asset worth around $1M, so by no means you are poor.

If you cannot pay $1k a month in taxes, you probably cannot rent the place, either. The taxes driving the owners away will drive the renters away, too.

Sell the asset then, simple as that.

I don't consider anyone with 300k in net worth poor. And the goal is to not subsidize these individuals who have just had a massive windfall, which screws up the rental market leaving the truly poor(renters) SoL.

Are you asserting that the tax won't be passed down to renters ?

It is indeed a sort by cash flow, but whether you own the place or not won't impact the decision.

All you have to do is convince property owners that it is OK to pass a law that will probably lower the value of their property and raise their taxes. Or, figure out how to pass a bill that is opposed by property owners, by getting the support of the powerful California lobby that doesn't own property. Wait.. what is that lobby?

The reality is that the NIMBY's paying low property taxes were a contributor to the high prices in markets such as San Francisco. Why destroy your view when the only side effect is increasing housing costs for OTHER people?

If their house value goes up, won't that allow the little old ladies to take out a larger reverse mortgage to pay their taxes? At what point does this not become possible?

If we want to keep old people in our communities, then why are we only caring about old landowners? Let's just pay enormous amounts of money to all old people in general, so that they won't ever leave areas with decent commute times.

I think you are hitting the nail on the head.

This issue plus the over the top subsidy of mortgages has created extended boom cycles.

Like the mortage-interest tax deduction, NIMBY zoning benefits so many people, once you do it, it's hard to undo without tanking the economy. It's a regressive tax, but so many voters benefit I doubt anything will ever change.

And the capital gains tax exemption on the first half million dollars of profit from home sales.

We could then re-evaluate rent control on the same logic!

I think both of these controls have some helpful effects that last way longer than they should. We are trying to damp market oscillations (speculation), not remove them completely! Perhaps the increases could be the moving average of the last 5-10 years, so increases would slowly phase in if they are real growth and be smoothed over if they are temporary fluctuations.

>We are trying to damp market oscillations (speculation), not remove them completely!

I don't think proponents of rent control and Prop 13 would agree. They are trying to protect existing communities over the long term, and feel (somewhat understandably) that "the market" should not have the authority to disband communities on any time scale.

Speculators are an easy rhetorical target, but if you dig deeper it's really about locking in the existing physical and social character of a neighborhood indefinitely, market forces be damned.

Thank you for pointing that out. I still think it is useful to make the argument explicitly and separately and see where people land. The percentages of people that support limited term prop 13/rent control may be larger than the percent that support it as a general concept.

what do you mean "leveling the playing field" if you buy a house your property tax increase is limited to a fixed %. how is that not level.

Proposition 13 declared property taxes were to be assessed their 1975 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done.

Property often increases in value more than 2% per year, so your actual rate goes down.


Even more damaging is when housing prices go up much faster than 2%; then there is a disincentive to move or enlarge your unit, because doing so would increase your tax liability by oftentimes staggering amounts.

One solution for tax relief for elderly would be to remove or reduce tax payments at age 65 or earlier if one is handicapped. It seems to be a fare method to handle this for issue. For the rent inflation in LA I don't have a answer. That said allowing people to get homeless seems to be a great cost on society as a whole and their should be a smart and scalable solution.

When someone buys a property today, it is subject to the same 2% a year rule. I don't see how this is not a level field.

My neighbor pays half the property tax that I do, despite our houses both being worth the same amount. My new neighbors pay %25 more than I do, also in a similarly valued house.

That's what parent is likely referring to. I'm not making a value judgement either way. Prop 13 was intended to address the real issue of people being forced out of their own homes due to rising values. But it appears to have the side effect of pushing the values even higher by restricting the sell side of the market.

All of CA has the prop 13, where we see it get blamed for high prices are in very high demand areas. How much price reduction would you really see without it? Looking at New York it doesn't look like much since the primary issue seems to be supply.

But in New York, if you find Manhattan to be unaffordable, then you can move to a suburb. In San Francisco, the suburbs are even more expensive than the city.

The bad incentives of Prop 13 reward cities for favoring offices over housing. The property tax generally doesn't support the infrastructure, so they approve other activities that they can tax. Cupertino just opened the Apple Spaceship, but they have no plans to approve housing for thousands more workers.

In the news a month ago, in the midst of a teacher housing affordability problem, San Jose rejects teacher housing. http://www.mercurynews.com/2017/05/08/san-jose-city-hall-bal...

Sucks if you at some point can't afford property tax because house prices went up 1000% around you. Think everyone can pay $20k / year?

If your house just went up in value by 1000%, then yes, you can afford $20K per year. Just do what Texas does and allow the home owner to stop paying property taxes and have the state get their money when the person dies or sells the house.

The only way to afford what you say is taking a reverse mortgage.

It sounds problematic on so many levels: in some parts of bay area houses are worth 2.5m, but they werent that expensive years ago. Think mountain view before google.

That is around 30k in taxes right there, per year.

Using your example, of 1000%, you're looking at a house purchased for $100K going to $1000K.

Assume at 1.5% property tax rate and it's $15K per year. With a $900K capital gain, you could pay the property taxes for 60 years.

And if the value of the home drops, then the gov't eats the difference.

I just don't think it's fair that the people who received most of the gains in property value are the ones that get the most generous tax break.

Why is it any different if their property hadnt appreciated? One gets the burden, other doesnt?

So what you're saying is that without prop 13 this set of people would vote for policies that keep housing prices at sane levels?

NIMBY is a real thing, there is no denial in that.

Yeah it does suck. No I don't think everyone can afford that.

suck is all relative.

That person is now sitting on a property worth megabucks. They can't afford the taxes, but they can sell it and retire to Florida.

I personally wouldn't mind having a little more of that kind of suck in my life.

That's a pretty shitty solution for everyone involved if they don't actually want to be separated from the rest of their family by 3,000 miles. And not just their families, but their friends and communities, which have a profound impact on overall well-being in their later years.

I wouldn't call your suggestion deliberately cruel since you don't seem to have any idea how socially damaging this kind of isolating displacement can be. But I would say that the forced separation of people from their famalies and communities is a really hideous policy outcome, and one that should be strenuously avoided.

Obviously, if somebody wants to move far away, fine. But forcing them to do so is horribly wrong.

You don't need to move 3,000 miles away, you just have to move outside of commuting range where the prices fall off a cliff. You can still live in the same quality house and see your family frequently.

It's nuts to tax Joe Worker who needs to live in that area to get to work double or triple the property tax of the rich old guy next door who spends his days playing golf or w/e.

Eh, "community range" turns out to be pretty massive around the SF Bay Area, for example. Moving people two or more hours away by car can still do a lot of damage to their relationships, especially when their ability to drive is becoming weaker.

No the answer here is "sorry, but no" to all the people who have decided to block density in central areas in order to keep their own property values astronomically high.

There's no good reason why we should be shipping everyone but the richest workers in their economic prime to painfully remote locals because people in San Francisco's Sunset District are blockading the kinds of buildings that make places like Barcelona, Amsterdam, and Brownstone Brooklyn such attractive places to live.


The benefit accrues over many years, similar to rent control. As a result, the benefits flow to long-standing landholders, who skew disproportionately older.

The result, at least for me in San Francisco: I pay twice as much in rent for a bedroom in a four bed apartment as my grandmother does in property tax for a 4000 square foot mansion. She bought her place over fifty years ago; by definition, I could not have done so. Indeed, with the direction things are heading, huge categories of people are locked out of all segments of the SF housing market due to excessive prices; there's nothing level about that.

i hope you've looked into minimizing the property tax liabilities for when that house gets transferred to you.

It's leveling it between existing owners and purchasers.

As it stands, it's essentially subsidizing commuting. If you bought a house at $100k that's now worth $1M, and your job moves an hour away, you'd be giving up the property tax lock-in by moving to cut down your commute. Rent stabilization/control measures have a very similar problem.

Freeways also subsidize commuting. Would people sit in traffic every day if they had a choice? But if you suggest dynamiting a few stretches of interstate you get the same reaction from the public as you get when you suggest taking away prop 13.

Would people sit on public transportation every day if they had a choice? Cleary not - BART ridership is falling during leisure time (when people have a choice) even as it rises during peak hours.

You could always rent the home so someone else could occupy it. Presumably you would've paid off the $100k home by now, and then you could get a second mortgage on a new property, or rent and break even (given the income from renting the first property).

Why should people owning investment properties be given huge tax breaks that wouldn't apply to someone buying the same home in the present day in order to live in it?

Basing property taxes on the current value of the property makes sense, and is how it is done essentially everywhere else in the world. Basing property taxes on what the property cost the last time it was sold, even if that was decades ago and is some tiny fraction of the current value, is very unusual, and has all sorts of negative repercussions.

There is an active debate with people lobbying Congress to remove the second mortgage deduction.

Current value makes sense but California introduced Prop-13 and rent control around the same time to basically allow senior citizens to stay in their homes/rentals. Problems with prop-13 include the fact that commercial buildings are not excluded.

California also has Prop-58 and another one where the parent or grandparent can transfer the house to a child/grandchild without an FMV appraisal as well.

I believe it works like this.. Say a $50k house is paid off by the parent, then the gift tax on that can be paid by a home equity loan on it's current $1m valuation. I'm not sure if the gift tax though is calculated on the $50k or the $1m. Or if it is calculated at all. It may depend on if the parent/grandparent is still alive. You may be able to specify the value as the last real property value or the FMV (to cut future capital gains). Either way you just pay the taxes on it. But I think you can exclude a certain amount up to $500k if married.

But you could rent it out as well and use it as collateral on another mortgage.

It could also be that these houses will continue to be passed down the generations.

It's not the capital gains taxes that prop 58/etc allow you to escape, it's a reassessment of the valuation for property tax purposes. So in your example, the inheritors get a house with a $500/yr property tax bill (1% of 50k) instead of a $10000/yr property tax bill. (1% of 1M) Meanwhile all their neighbors who had to buy their homes recently are paying that $10k/yr.

The estate tax doesn't kick in until 5 or so million so the capital gains thing is mostly irrelevant.

Yes I know that it's property tax. Sorry if that wasn't clear. I thought I had it covered by FMV appraisal.

I'm not disagreeing. I was attempting to show how you might make the housing market less rigid. Even if the numbers of units for sale is low, you could at least get people to rent them. A larger rental supply would help meet the demand in California and keep prices for renters and buyers lower. I completely agree, though, that Prop 13 isn't helping the situation.

But politically, we might as well accept that it won't go away. Your best bet is to save up enough to afford a down payment, and hope that property appreciates and you too can also reap Prop. 13's benefits down the road when you're older. And if you're house is worth 10x as much then, you won't lose it for being on a fixed income, like most retired people are.

...I'd still prefer not having Prop. 13. The more fruitful discussion is how to best navigate a world where it continues to exist. Voters will never approve its repeal; if politicians try to do something about it, they will get thrown out the next election cycle.

Why would you buy a new property and lose 6% to realtors? Or take out a new possibly more expensive loan. I am not sure property tax is a big motivator. Do you have studies that show it's negative effect?

Your comment indicates you may not know about how Prop. 13 works.

Property valuations can get small year-to-year bumps, but a sale triggers a re-assessment, with vastly increased property taxes after that. My neighbor across the street bought in 1975 for $28K, and their valuation for tax assessment last year was $162K. Their next-door neighbor bought last year for $1.5M and their assessed value is $920K. Their houses are quite similar, but one pays $7500 more a year in property taxes.

That difference can motivate people to endure a long commute, to hang on to a low assessment.

Also, this can cause some really interesting (not in a good way) issues with what those tax dollars get you.

For example, there have been some local measures I've seen where they want tax assessments based on a percentage of your current tax, not a flat rate. As such, new residents end up paying massively higher amounts of the new measures than long-time residents.

Long-time residents have had the ability to make use of the services their tax dollars have provided for a long time, whereas new residents have not. Old residents might be all about taxes that get them things they want because they don't have to pay much at all, whereas new residents might see a material impact because of how high some of those amounts might be.

As someone living in a country without annual property taxes Im not really qualified to comment, but, it almost sounds like the solution is to allow people to transfer their low assessments on to new properties - this is obviously a huge advantage to older people but it would allow real estate to be used more efficiently.

What country is this and how are local taxes collected then? I'm intrigued.

I understand how it works, I don't think if I bought a house for 100k that is now worth 1 million I would move across town for a shorter commute like the parent suggests. I would loose money from transactions costs and loan fees. My school district would change, along with other neighborhood amenities. It will more then likely work out better to commute a little.

Why would it not be a big motivator? don't know about LA, but in SF tax is just shy of 1.2%, if you have a mortgage at 3.5%, and you've held your property for a long time, you can easily see your property tax triple and your cost of living go up ~10-20% in aggregate just by being assessed at the current market level in a new home (with the same value) on the other side of town... And that's every year, not just once on the sale.

It seems pretty clear to me that 10% or 20% makes a big difference. Plenty of people will move across town to pay $2,400 a month instead of $3,000, why would home-owners be fundamentally different.

I don't understand the downvotes. Using the term "leveling the playing field" implies that a new home purchaser has a different contract with the state then a home purchaser last year or 10 years ago. Yes what you paid for the house is more, and therefore your taxes are higher but the contract with the state is still the same.

because your property tax is no longer tied to what your house is worth, but instead tied to some arbitrary measurement (fixed % increase on what it used to be worth)

x != y

The price you paid is no more less arbitrary than approximate current worth.

how is that not level? once someone buys a house they are in the same system?

Over time, you accrue a large tax benefit as a homeowner, if the actual value of your home increases more than 2% every year. By moving, you reset this benefit, which is a disincentive to moving.

Yeah, zoning is the real story here. Rent control, increasing the cost of most new housing so there is some affordable housing, and similar measures will just worsen the problem of a small housing supply.

If we remove modern zoning law that restricts the bulk of the city to be low density slum, LA can easily house double its population.

A relevant article on affordable housing: https://www.strongtowns.org/journal/2017/5/8/immutable-laws-...

You don't just drop zoning laws and expect the problem to fix itself. The bad zoning lead to road planning for the densities that are there (and even then, the densities are beyond what was expected and thus infrastructure is taxed). Fixing LA at this point requires not only bulldozing the sprawl and building higher density but also requires expanded road, sewer, electric, and public transit networks to accommodate.

And in this political climate that will simply never happen. Nobody wants to invest in infrastructure anywhere there is already established buildings. They just want to build new, not refurbish old, because its cheaper to do the former, even if it is macroscopically unsustainable and fails to solve the problem.

Then you end up with a bunch of really expensive infrastructure in low density neighborhoods, which is really really bad. Cities can't afford to maintain said infrastructure, and you end up like Lafayette, Louisiana[1], or any of the older suburbs in the US.

Dezoning and allowing urban areas to densify is the only reasonable way forward. Sure, you won't have every road be a 6 or 8 lane monstrosity like Atlanta, but that is not a bad thing. By densifying our cities, mass transit becomes much more efficient and cost effective, and reduces/eliminates the need and outsized cost of owning a car.

1 - https://www.strongtowns.org/journal/2017/1/9/the-real-reason...

This isn't just zoning, it's so much more. 1) California's Prop13 discourages redevelopment. 2) Federal Reserve policies encourage housing speculation. 3) California is filled with NIMBY's who have an arsenal of tools to stop development, usually some kind of overbroad environmental review process. 4) City councils tend to approve higher-end luxury development because it brings in more taxes. 5) Developers tend to build higher end units because of bigger per/unit profits. Usually, cheaper housing is older housing, but not in CA where there's a shortage.

Regarding (2), the mortgage tax deduction and the primary residence capital gains reduction (and/or the cap gains carryover into next property) all contribute to the speculative behavior.

But the city council for years regularly approved zoning changes for more dense development. They did so right up until this March when measure S passed:


I thought it did, sorry, I stand corrected. But that's even more to more my point though in that he city can now continue handing out these zoning modifications.

I think less developments happen when there is uncertainty about whether or not approval would be granted.

There is a solution. Since this would probably have to be implemented at a city or county level (that is where permitting, zoning and property taxes happen), my current theory is that it would be something like:

(1) Get rid of rent control; it doesn't work because it focuses on the price side. Instead...

(2) Tax all businesses and individuals collecting long-term residential rents at a flat rate of, like, 65 cents for every dollar of rent collected.

(3) Deposit the 0.65 revenue into a totally transparent, 100 percent "open accounting" fund that awards building projects to competing builders. The builders must build "for sale" units, some high-density urban, some "family size"... the key is to truly increase the supply of housing that allows people to build equity (as the article points out, people who rent simply cannot build equity and that has been the problem all along).

(4) Businesses and individuals who can't afford the 0.65 tax on rents they collect are probably already too leveraged with other people's money anyway; let them go under and convert that "for rent" complex into a "for sale" one. Whoever buys it will be subjected to the 0.65 tax, too, if they decide "making money on rentals" is the kind of business they want to do.

I suspect this "being too heavily leveraged with other people's money" is a root-cause issue for why rents keep rising astronomically and people's wages are not keeping up. Why not build a system that lets renters leverage their own earnings?

I don't really understand how this would work out. A 65% tax on renters would really drive them away wouldn't it? If you were to collect enough to create the "construction fund", cheap buildings would be built, but who would buy them? If a bunch of buildings were built and rent prices dropped, wouldn't that further block people from purchasing buildings from rent too?

>65 cents for every dollar of rent collected.

Do you mean that? A 65% rental income tax seems exceedingly high, and while I can imagine an argument for it, you don't really seem to present much of one in your comment.

(Also you refer to it as a "0.65 tax" everywhere else in your comment.)

I should know better than to attempt to have an advanced economics discussion with the likes of HN readers ... many of whom for reasons I will never understand always jump to the defense of evil landlords. Landlording is not a job and does not add value or goodness to the economy or to society. Most people involved in the "For Rent" business have gobs of money, no skills, no actual work ethic, and no ethics period (try a Google search "Jared Kushner slumlord" for reference of one key example).

The proliferation of renting "for profit" in the last 10-15 years is the number one factor contributing to the acceleration of the division of the top 1 percent from the bottom 40 percent (used to be the bottom 25 percent, then the bottom 30 percent; now it is the bottom 40 percent), because there are no market forces slowing it down. More progressive income taxes could have slowed down the top tier just enough to give the bottom 40 percent a little bit of a break. But the rate at which the top 1 percent's income is growing is now even too much for that to have any effect. They write tax code for their benefit, own lobbyists, get unfair tax credits, and basically wreak havoc on the working class by stealing their equity. The article's citations of median rents in LA is evidence enough.

Current system: When landlords have more profit to buy more units, they control more supply and are thus incentivized to further inflate rents, ad infinitum. Clearly price-side economics favors those setting prices. Rent controls do not really work, nor does any system that attempts to make renting "affordable" for working class people because it's basically just pouring more money into an already broken system. Lift people up and out of poverty by giving them incentives to escape the broken system rather than forcing them to stay beholden to it.

The reason the tax on rental income would work is it would make renting "for profit" prohibitively expensive for landlords. Sure, they could try to aggressively increase rents, but it would work against them because for every extra dollar of rent they tried to suck out of people, they'd only net 35 cents. Furthermore, a fresh injection of supply would hamper their efforts to buy up all the supply in consolidtions. Rather the small and independent landlords would have to focus on keeping their current renters happy (like by offering real customer service) and improving the quality of the rentals they manage. Imagine that!

The solution is to make collecting rents an unappealing and unprofitable avenue of investment. And it would work.

I'm no friend of the capitalist rentier class, I was mostly just surprised to see someone throwing around a figure like 65% tax without more justification.

That said, I feel like a better solution to wealth inequality would be something more direct like wealth tax or land value tax.

I don't see how this would work. Building owners would simply sell their assets. They wouldn't be able to service the debt.

Then there'd be no homes/condos/etc. to rent. How do citizens, most with no cash savings, acquire housing then?

Who would buy a home while the market was being flooded with the intent to make homes cheaper?

I wouldn't want to lock in my price until I thought prices were going to stop falling.

Cities wouldn't like the property tax revenue drop either. And there'd be no housing to rent which is a problem for a huge % of the population.

In addition to zoning, see parking minimums.

https://www.portlandoregon.gov/bps/article/420062 discusses this in more detail, but in short, we make sure there are places for cars to sleep before letting anyone make a place for a human to sleep. As a result, most of LA's core is asphalt.

Until we fix the public transit situation we're over-provisioned, not under.

disagree, we need to fix both problems, waiting for one to be solved to address the other means nothing will change

We have this issue in major cities all over the world. Are they all zoning issues or is the end of the gold standard, allowing banks to create unlimited credit part of the problem?

Japan's example would suggest it's zoning. Tokyo is IMO very affordable for a metropolis (i.e. lots of people in middle income jobs can have a small but decent apartment here). And small apartments are less of an issue than you think, if a city has the right amenities. Room for children to play? There's tons of public play centers and playgrounds. A Garage? Don't need it, walk instead 5min to a superb transport network. Big kitchen? There's 50 restaurants within a 15min walk. Big relaxing bath? Go to a nearby public bath house and feel like an Ancient Roman. Need space for guests? Fold away your Futon, put up the heated Kotatsu-Table and have another room to use. More fun? Shibuya is 25min away. All yours for ~950 USD/month for a 35m2 or so apartment.

Japan had a credit driven bubble. I strongly recommend watching this by Werner:


Well.. so had the US less than 10 years ago?

surprises me, since LA has so much sprawl

I believe Curb's argument is that the sprawl was to some degree caused by the zoning, as it made high-density housing difficult to build.

A lot of it, though, is just down to geography.

Funny, I often hear people blame SF's high prices on geography ("it's a peninsula, there's no more room to build"). Seems LA wouldn't be geographically constrained in the same way.

Mountains. Go switch Google Maps into satellite view and check out LA [0]; the whole metro area is a handful of valleys that are almost all filled up, and everything that isn't developed is a mountain. The only place in Los Angeles County where there's room to grow is in the Antelope Valley around Palmdale, and that's separated from everything else in the county by mountains so you probably won't want to live there and commute to any other part of the metro area.

[0] https://goo.gl/maps/ePy7yztU7KL2

"Filled up" is not really true though. There's plenty of space to build up and in.

Everything is filled up with grass and single family homes. The amount of in-fill that LA could do is staggering.

Both are more constrained by man than nature. SF could build up and up and up. It's not zoned for that. Practical limit is 10 stories where housing is. Could be changed, the argument is that SF would not be SF any more. It always makes me tear up when I hear that, tiny violin and all.

You need large continuous blocks to build high density developments. When you've got all these small single family lots, it becomes really difficult for a developer to acquire them all without some hold outs saying no or demanding crazy prices. It might be time to use eminent domain more

You can double the density by just building townhouses and small apartment buildings in many of these places. A small developer can buy up a couple of adjacent lots, add double the capacity and still make a tidy profit. No imminent domain is needed here.

42% of the housing stock in Los Angeles is already apartment buildings[1]. These and commercial real-estate(strip malls) make up the majority of "the sprawl" in Los Angeles.

Where does the land for your proposed solution of "just building townhouses and small apartment buildings" actually come from? Where are all these adjacent lots for sale?

LA is no stranger to "small apartment buildings", this started back in the 1950's. In fact one of its architectural signatures is the "dingbat", its hard to drive anywhere in the city and not see these[2].


[1] http://www.nmhc.org/Content.aspx?id=4708

I'd take down the strip malls and build mixed use, so lower level retail and upper level condos/apartments. If Condos, HOA could own the whole development so they would offset their dues by rents on the commercial space. Downtown could probably support higher rise buildings especially if you take out some of the warehouses (that aren't already condos).

LA certainly has an abundance of strip malls but those are people's businesses and livelihoods. Practically how do you just "take them down"? Are you talking about eminent domain? Who funds this?

How about the parking for all of the people you propose putting in this repurposed space? Strip malls tend to be on major thoroughfares that already experience congestion. How do you handle this increase with the addition of all the new residents above the strip mall?

They are usually leased by the property owner and you let the lease run out or buy them out. Then you give the owner incentive to build via tax abatement or something else. Lastly, parking can go underground or as is the new trend (Uber) less people actually want cars. In LA that can prove difficult but you'd probably start with areas that already have a higher walk score on average or are closer to some transit options (+uber). You could also come up with some innovative scheme. Also parking I think it less of a hurdle, all over Southern California you find areas with limited parking options with people living there.

Is that 42% of housing units, or 42% of land is zoned for apartments? There's a huge difference between those!

Its 42% total of all housing stock is multiple dwelling units as opposed to free standing single family homes.

The question/distinction you are asking isn't relevant since the majority of Los Angeles has both apartment buildings and single family homes on the same street or block.

This is true even in the "desirable" neighborhoods such as Echo Park and Silvelake mentioned in the article. And it matters now where in that desirable neighborhood - up on the hill or in the flats. You will see a million dollar Craftsmen house and across the street nondescript stucco apartment building.

There is tons and tons of room to build up in LA - 2/3/4/5/6 stories in more places would add a lot of housing. This is the norm for densely inhabited places in the rest of the world. And it's not happening there, as elsewhere in the US, in large part because of zoning. Not because of mountains or earthquakes.

>"There is tons and tons of room to build up in LA - 2/3/4/5/6 stories in more places would add a lot of housing"

Please provide a citation for where that "tons of room" is? Most apartment buildings in Los Angeles are at least two stories[1]. The majority of housing structures are 20+ units[1].

Los Angeles actually ranks among the best in terms of density despite it's sprawling nature[2]. That sprawl it turns out is actually somewhat efficiently.

I have provided citations for all of my assertions including the one above that shows that the LA city council has been routinely rubber stamping high density projects[3].

Nowhere did I say mountains or earthquakes were an issue. I even pointed out that apartment complexes were common place even in the hills.

Where are the data points and citations corroborating your statements? I don't see any. I guess they are just opinions then?

[1] https://www.washingtonpost.com/news/wonk/wp/2015/09/21/the-m...

[2] https://www.citylab.com/transportation/2015/02/a-new-index-t...

[3] http://www.latimes.com/local/lanow/la-me-ln-planning-commiss...

Density of Paris, France: 21,000/km2

LA: 3,198/km2

From wikipedia.

Perhaps they've been approving more lately - because they have a lot of catching up to do.

Just look around with Google Maps - there's tons and tons of this sort of housing:


It's not dense at all.

Here's a random place in Milan: https://goo.gl/maps/c4u9cgLeNon

That's more typical of a big city in a place where it's legal to build up.

What's the point in your Google Map link? That is a picture of a single family home. So what? What does that prove? That means nothing other than you found a picture of a random house on Google Maps. Some family owns that home and the land it is built on. I know the neighborhood well. When that area was originally developed it was considered a suburb. Originally anything West of downtown was considered a suburb.

And your density figure for LA is also wrong. from the last census:

>"The nation's most densely populated urbanized area is Los Angeles-Long Beach-Anaheim, Calif., with nearly 7,000 people per square mile."[1]

That is 7,000 people per 2.6/Km.

[1] https://www.census.gov/newsroom/releases/archives/2010_censu...

Is there something that keeps row houses from being built instead of townhouses?

Modern residential zoning codes often prohibits building within 5 feet of the property line (aka setback) or more.

In my area (Sydney) people have been getting together with their neighbours and then going to a developer and offering to sell all their houses together. Instead of getting 1.5-2 mil they are getting around 5 mil. The developers are very keen for it too - so I guess its still possible to pay very large amounts in this way and still the developers still make money.

I'm seeing a lot of "I fear that..." in this thread. I just have to laugh. This isn't a new or unique situation. The only thing that has changed are people's preferences. My Great Aunt lived in NYC with 6 other girls. Roommates were required to survive the high rents of post-war NYC.

California has always been gripped by NIMBYisms and choking regulation. You get what you vote for.

What can you do against the tyranny of good ideas? It's a good idea to make use environmentally friendly building materials. It's a good idea to build earthquake resilient homes. It's a good idea to require certain standards of home building. It's a good idea to rent control the apartments of the elderly so they can continue to live in their home of the past 50 years. It's a good idea to X..Y..Z.

Is it a good idea to create a generation of serfs?

"A government big enough to give you everything you want, is a government big enough to take away everything that you have."

For all the talk of "negative externalities" I see on HN and the valley in general, I never see people discussing the rampant "negative externalities" of the laws and regulations we pass. It's unfortunate there's so little introspection going on, and so much reliance on the monopoly of the Government to further what Group A or Group B wants. (But it's OK, because I agree with Group A!)

> "A government big enough to give you everything you want, is a government big enough to take away everything that you have."

A cute saying, but misleading. A government big enough to impose even a modest constraint on violent crime is also more than big enough to take away everything you have; anything weak enough to avoid that threat is not the government and will be replaced in that role but something else that is. So, mitigating that threat necessarily is about managing aspects of government other than its size.

Corporations big enough can have a humongous power to take away everything from you.

Any government powerful enough to enforce property rights is by definition powerful enough to take away everything you own.

I lived in a suburban single-family home with about 20-25 other people for a year when I was in college (each of us had our own bedroom, except for families where children slept with parents). For the most part everyone there was quiet, either going to the college nearby or else working while studying for a professional license or graduate school. The landlord also lived there with an extended family of about 10 people.

We had a couple of rotten apples, but we self-regulated and kicked out people who caused problems in our house or for our neighbors. Yet, we still had people in the neighborhood calling the zoning inspector to "shut us down." Zoning laws make it hard to even live with "6 other girls" these days. Boarding houses are mostly illegal, and people don't really build SROs anymore.

How many bedrooms/acres was that? I can see that running up against perfectly reasonable anti tennament ordinances depending on your answer.

Isn't that the point that GP is making? "Very reasonable" laws ending up hurting people through unintended consequences.

In the city I grew up in they had some arcane law on the books regarding brothels, so something stupid like no more than 8 women could live in one dwelling. Made it impossible to have sorority houses, though fraternity houses were still allowed.

I remember the same in my college town. A group of my aspiring political friends lived in a house of 12 women in blatant disregard for the law and crossed their fingers hoping that someone would make a fuss about it so they could sue on virtuous grounds.

I had that at my university too - only 3 non-related individuals could live in one dwelling. We had 6 in one house since the upstairs was setup as a separate unit with a door on the staircase that was always open haha.

> This isn't a new or unique situation.

It used to be feasible to buy a home on the peninsula for 3-4x the area median income, and that number's now 6-8x at least, so I'd argue that yes, things are worse now, even taking inflation into account.

SF rents have also been increasing 6% YoY or so.

> What can you do against the tyranny of good ideas?

There are a number of practical things we can do:

- Contact the Brisbane City Council and ask them to approve housing in the Baylands. The developer wants to build 4000 units, the city Planning Commission wants to build 0.

- Contact the Mountain View City Council and ask them to build the high-density version of their housing plan, which would add 8000 units instead of 2000 (I have asked YC, a prominent Mountain View business, to help take the lead here).

- Show up to your city council and ask them to upzone their downtown area to support higher density. Ask them to make it easier to build accessory dwelling units (ADU's) and streamline the planning process.

- Call your State Assemblymember and ask them to support SB 35, which removes local control over projects that are near transit and include a high percentage of below market rent units.

- Call your State Senator and ask them to oppose AB 915, which would make it more difficult to build housing in San Francisco.

As well as a number of other pieces... I don't know that there's a magic bullet but at the margin there are a number of things that we can do to mitigate the situation.

Having tried the "Contact the City Council of a city I don't live in" thing in the past, I'd suggest a better use of your time, if you don't live in Brisbane or MV, is to try to find companies that do and persuade their leaders to take action.

Larry and Sergey could fix MV's intransigence very fast. We need to call on tech leadership to take a stand here. It's in their best interest.

+1 to all the suggestions about calling your city council, your assemblymember, your state senator, etc

> ... > Larry and Sergey could fix MV's intransigence very fast. We need to call on tech leadership to take a stand here. It's in their best interest. > ...

Haven't they tried, only to have been denied by the City of Mountain View?

Google, through a subsidiary, is leasing parts of Moffett Field, federal property exempt from local zoning laws, to build housing [1].

[1] https://mv-voice.com/news/2017/05/19/google-relaunches-bay-v...

Rent and debt are far too often taxation without representation. It's that simple. This is especially true in situations where landlords sit back and collect, without taking due responsibility for the shape of the living spaces they supposedly "own". And people put themselves into these feudal arrangements for so many reasons. That part is not simple.

Why do people want to be landlords over others? Why do you want to live in a world where it is normal to take huge debts, only to hand off the monthly payments to people who are barely treading water?

This whole business of playing musical chairs with our homes and communities is beyond ridiculous. The amount of furniture that gets thrown out every month is shameful in the face of global climate change.

> Why do people want to be landlords over others?


I'm a small time landlord. I was able to rent out my old house at a rate that covers the mortgage and a manager. When you factor appreciation, equity and tax breaks my net worth increases at a rate of $3k/month even though on paper I barely break even. I'd be dumb to turn down such a deal.

The richest man in California owns the Irvine Company. I assume he faces similar incentives at scale.

On one level, I get that: it is economically sensible to play the landlord role, even at a small scale. And in a lot of ways, you're doing something really important. You're providing someone with a place to live, one that they don't have to worry about taking long-term care of. You've decided that you're going to be a long term care-taker of this home. Assuming you're a good landlord, you really are doing some good for the world.

But would you really be "dumb" if you did things differently? Or would you be following a different set of economic values? Seriously, think about that. I challenge you to rethink your "smart vs dumb" idea. It's "smart" to drive and rely on a car. But on another very important level, it's also incredibly foolish, a.k.a. "dumb".

And I'd argue that what you and your renter have done is also pretty "dumb". Why? Because you and your renters are paying the bank that much for a house. The cost of building a new house is much less. This is an old house, but the bank said "this house is actually worth more than a new house, because you can simply pass the debt onto someone who doesn't have the option of buying a house at this moment, even though they urgently need a place to live". The house itself probably isn't inherently "worth" that much: it takes a lot of work to keep up an aging house. Yet all of this rent money is harvested from the occupant's time/earnings/savings: money that could be invested in the house gets sucked into some exponential function that translates to the bank taking thousands of dollars a month from your renters. Since the bank is so "helpful", you get to keep a very small amount allowance so that you can do repairs/profit. Of course, in the end you'll "own" the house, you'll have paid off your mortgage. Or maybe you'll sell it to someone else, who will enter into a similar agreement with the bank. Regardless, by the time someone has paid off the mortgage, banks will have gotten off with something in the range of 0.5-5x the entire inflated value of the house just for handling sacred paperwork. To me, that's DUMB.

This kind of thing is technically forbidden in Islam, Judaism and arguably Christianity, but not in the USA.

By the way, I'm right there with you in doing dumb stuff like this: I'm a renter.

A lot of what you just said suffers from a pretty big misconception: it's land that's worth money, not the house that's on it.

Every single news story about how some tiny shack in Vancouver or Palo Alto now costs $x has the same problem, so you're in good company. But it's still not the right way to think about this problem.

That's a good point, and according to the board game Monopoly, you're totally right. In the above post I complained that housing costs don't reflect the quality of the housing itself. Land speculation is probably a huge part of that, if not the dominant contributor.

But my whole point is about "rentier capitalism", and it applies whether you're talking about land, houses or SaaS.

In a free market, of course there's gonna be ebbs and flows as people and industry come and go, but look at this chart: http://www.economist.com/blogs/graphicdetail/2016/08/daily-c...

Those huge, correlated roller coaster curves aren't based off of natural fluctuations in land values in all those different places. They're based on a kind of big distributed Monopoly game where a bunch of people frustratedly flipped the board over in 2008. Now we're going in for another round.

Meanwhile, the north pole is melting, and there's tons of work to be done in retrofitting houses for climate change, in switching to new kinds of fuel, planting gardens sustainable agriculture, fixing broken stuff. What are people doing instead? A lot of people spend much of their time doing dog eat dog capitalism. Chasing rent checks and debt repayments. Doing the 9-5 grind. Driving 40 miles a day to work jobs they don't believe in. Not everyone of course, but too many people!

We really need to shed this feudalistic way of doing things, and that's going to take people evolving how we participate in markets, what's considered "smart" or "dumb".

Those huge, correlated roller coaster curves aren't based off of natural fluctuations in land values in all those different places. They're based on a kind of big distributed Monopoly game where a bunch of people frustratedly flipped the board over in 2008.

Couldn't this be that the underlying value of the land didn't change at all in 2008? That people still really value land in desirable coastal areas and will do just about anything to get it? That what did change was the amount of capital available to regular people to get it?

Nothing about their underlying desire changed at all.

Would the land really be as valuable as it is if people weren't able to borrow money to purchase it? Someone would still own it and yet the price would largely be capped by the amount that people were able to save, not the amount that people are able to promise to repay. Just like it's been shown that the availability of student loans increases the cost of education, the availability of mortgages increases the cost of real estate. And the banks collect much of that increase by, through financial hand waving, loaning out many times the amount of money we give them to watch over.

Somehow we've institutionalized a system where banks are able to leech money off one of society's most basic needs, shelter, while providing little-to-no benefit overall.

Hey I just wanted to clarify that I don't want to make you feel bad about being a landlord. I just wanted to share some alternative economic logic, and get kinda riled up about poorly managed capitalism. I realize that everyone is doing what they gotta do, and didn't mean to imply that you landlords in general are bad people or something like that. I don't actually think you're dumb for renting out your old house, it's smart given the circumstances. The circumstances are dumb.

In SF people being a landlord is so onerous that people often don't want to be landlords to the point that they'd rather leave highly lucrative space unoccupied forever. And/or rent it out semi-illegally on airbnb.

> Why do people want to be landlords over others? Why do you want to live in a world where it is normal to take huge debts, only to hand off the monthly payments to people who are barely treading water?

Seems like you answered your own question. Being a landlord exposes you to risk and in most cases yields profit.

>Why do people want to be landlords over others? Why do you want to live in a world where it is normal to take huge debts, only to hand off the monthly payments to people who are barely treading water?

I'm not saying it's the bank cartel, but it's the bank cartel.

Being a landlord is no different than collecting a check from your SaaS product. Are we throwing all property rights out the window at the same time?

In some sense, we are throwing all the property rights into the windows of banks and real estate investment offices, where they will conveniently land in some virtual filing drawer to sit with the rest of their spoils.

Banks, real estate, and Silicon Valley.

Except for how the licensor created the software but the landlord didn't create the land.

There is an expectation that a landlord will maintain and support the properties they rent out.

They're charging for the locational value (that, as above, they didn't create), not just for maintenance.

I agree with you - the whole idea of people owning houses they didn't build AND don't live in and somehow getting to make a profit off it is absurd. It's just a way of creating a class system and funnelling money from working people to the lazy. Why should someone get to sit back and collect a profit just because they were born into a rich family and had the privilege to bootstrap free income for life thru property ownership?

It has to stop eventually. I say this as a young Melbournian who will probably never own a house unless the bubble bursts in a very, very big way. Median house price is nearing a million dollars (currently $843,674 [1] i.e. twenty years pay without including any mortgage interest), and those responsible tell us it's our fault because we eat too much avocado.

What work are landlords doing exactly? What value are they creating for the world? What is better about it for them being there? Nothing, nothing, and nothing.

I could say the same about banks and mortgage lenders. Creating absolutely nothing for the world, simply holding housing hostage and collecting a big paycheque for it.

The entire way we think about home ownership has to change.

[1] https://www.domain.com.au/news/melbournes-median-house-price...

I'm not a fan of most landlords but they do provide a service. They're legally on the hook for paying property taxes, making sure the home is up to code, maintaining the grounds and the structure, paying utilities in many cases, carrying various forms of insurance, etc. Sometimes they acquire distressed assets and remodel to add homes back to the supply.

They generally own the property because they've shown they have assets and good credit. The bulk of people that rent have very little assets - so little that the only way they could have decent housing is to rent from the evil landlords. Or move to some non-capitalist country.

I agree with you, but what is the solution? I can't think of any reasonable solution to the stated problem.

I think one great solution is housing coops. There is actually an organization that helps people start and maintain housing coops: http://coophousing.org/

Housing coops have a lot of potential.

Maybe, but the general acceptance process of needing to get approval by the existing neighbors seems to both be the pro & con that prevents more widespread availability of coops

Supply and competition. Vastly increasing supply would bring down prices. But of course that would eliminate the profits of property owners, so is not done.

Yeah the homeless population is insane - a long heat wave and I wouldn't be surprised if we had riots.

I'm lucky enough to have a rent-controlled place in Silverlake but it does come with other costs because the owner doesn't really maintain the property. Hallway light doesn't work and we strung up Christmas lights in our kitchen because we can't get an electrician to fix the light in there.

A lot of the startup jobs are on the Westside but considering those easily adds an additional 18k/year in housing costs or doing that terrible 2-3 hour commute everyday.

Thinking hard about moving to Oregon or something and just doing remote work - I've lost most of any enthusiasm I've had for LA.

I'm in a rent-controlled place near Silverlake as well and have been here long enough that trying to find equal price for amenities I have at my current building (well-maintained, garage for car) is impossible without moving further away.

As you said though, a lot of jobs on the Westside and it's way more expensive, even with a roommate or two, to live out there. The Expo line may help some but we definitely need wider-scale rail or dedicated bus lanes to connect all the central business nodes to the mainly residential areas.

Portland or Seattle is a wise move. Places can still expensive, but an expensive place will get you somewhere actually central. And at worst the commute will be smaller even if you do live farther away. You should look into it! I'm a northwesterner through and through, but a lot of my favorite people are transplants. Don't listen to Ed, you're very welcome here.

Come to Austin. Or Houston; San Antonio, Dallas.

- Austin is fun and has some good companies but too damn humid (and I'm originally from the South). And I think the exodus from CA the past few years have really overwhelmed their infrastructure

- Houston/Dallas seem like just more sprawl. LA is actually pretty dense in parts and can have good public transit. I know people from Dallas that have been happy moving back though.

- Don't know much about San Antonio

Dallas native here who goes to school in LA!

Yes, Dallas is much more similar to LA in that regard compared to New York, although still a magnitude less spread out than Los Angeles (and traffic is nowhere near as bad): I would say geographic distances in Dallas proper (not the exurbs, which I don't consider Dallas as most are in their own counties) are one-fourth to one-half shorter than Los Angeles.

Also, Dallas has been increasingly developing their Downtown/Uptown scene to mimic Austin, and is where most all young professionals / startups are located, as the past generation's upper class still prefer the centrally-located neighborhoods of Highland Park and Preston Hollow just outside of downtown for their large single-family homes, meaning high-rise apartments in Dallas go for about $1.5-$2k and are located next to work.

Also, the mayor in Dallas is all for the rapid development of higher density housing, which greatly helps with housing supply (though single-family home property values in these desirable neighborhoods are increasing about 10-15% year over year due to the influx of new people and no more space for single-family homes in Dallas proper).

The startup scene in Houston sucks unless you're in energy or healthcare.

There's no reason to live in Southern California unless you have family there.

How about the weather? Or the geography?

… or the excellent food, or the friendly and outgoing people, or the art and music scenes, or you work in the film/TV or aerospace industries, or …

> or the friendly and outgoing people

You must be thinking of a different place.

I'm from the Midwest originally and I've found SoCal to be friendly and outgoing, moreso than most places. As an example, you'll have 50+ year olds on skateboards or surfing, playing volleyball, mingling with younger crowds at bars or restaurants, etc.

In the Midwest - they don't do a whole lot, stick to their own neighborhood, and there's lots of ageism.

In SoCal - people are generally nice but aren't in-your-business-neighborly-friendly like the Midwest or South but I prefer that. Also, it's rare to even hear a car honk because people are so much more laid back.

San Diego, perhaps? Because this description doesn't seem to fit my years of experience with LA. :/

Where did you live? Just curious because it might not have been the right one for you. I've lived in Santa Monica, Hollywood, Pacific Palisades, Sherman Oaks, El Segundo, Playa Del Rey, Manhattan Beach. :) Enjoyed every one, although Hollywood was only cool for a few years when I was younger. I knew I wouldn't want to be there long.

As you can see I prefer the beach cities but there are great places in the valley (Sherman Oaks) and elsewhere like Echo Park and Silverlake that have completely different people and feel. I have a few friends that absolutely love downtown too.

The weather is horrible, IMO. You only have two seasons, and it hardly ever rains.

Southern California is not just LA. There are many amazing places to call home which are less crowded/expensive.

LA isn't really crowded. It's pretty sparse as far as large cities go.

Which is actually part of the problem. Higher density cities allow for/require good public transport, which increases quality of life for young people, the elderly and people that like to go out for a drink and would much rather not have to drive afterwards. Also, higher density with mixed use zoning allows for corner grocery shops, so you can walk to buy whatever you'll have for dinner that day, and possibly work close to where you live.

There are plenty of neighborhoods in the Los Angeles metro with these characteristics. It's just that many of them are among the more expensive areas (Downtown, Koreatown, Santa Monica, Fairfax, Echo Park, …).

"City population density" doesn't strike me as a good metric for judging a city's ability to support good public transit. It's not like Los Angeles (as a whole) was any denser when it boasted an extensive network of streetcars and electric rail spanning the city (and surrounding towns like Pasadena and Santa Monica); LA city population was ~1.5M in 1940 and is ~3.97M today with no substantial change in land area.

The land area didn't change but car ownership and external competition [1] did. In the modern day having a car is too cheap and too convenient until you reach population densities similar to NYC.

1. https://en.wikipedia.org/wiki/General_Motors_streetcar_consp...

Out of curiosity, how big is your place? It seems pretty crazy that moving across LA would _add_ $1,500 a month... that's almost what my total rent is in the South Bay.

Santa Monica is nearly all million dollar homes now, not a lot of high density housing. Renting a house there is easily 5-6k / month. I grew up there and would love to move back, but it's just insane.

Commuting in the Portland area can be pretty horrific. Plus when it occasionally snows here traffic gets turned up to 11. I'd rather commute from Jersey to Manhattan than deal with Portlands winter traffic.

Public transit and biking are viable options in Portland though

Biking is viable in southern california. Most of LA is flat and it doesn't rain enough to even need to worry about a plan B.

Oregon is full!

I'd also like to add that LA county has the highest number of illegal immigrants in the country, with and estimate of 1.1 million. That is surely exacerbating the housing situation. This also likely exacerbates low salary problems too.

Net illegal immigration is trending down due to enforcement and a less robust US economy. The only way to improve upon the situation is to improve working/living conditions in Mexico, accept it as a given, or kick everyone out. NAFTA is an attempt at #1 but it is a double edged sword, you lose jobs in the USA but get more corporate profits / cheaper products) from cheaper labor in Mexico. What I think was unexpected was that China came a long and really reduced labor costs further while cloning the intellectual property.

Conditions in Mexico (and South America) did not improve enough though; China has amassed major purchasing power (such that expatriates are buying properties to hedge and take capital out) further increasing costs globally in affluent cities.

So cities and communities should ideally increase density (available product) in response to demand. They could in fact raise their tax base, improve living conditions/services and reduce costs. This is all in support of the growing tech economy.

In LA there are probably more renters than owners and perhaps those that are able should vote. I think the problem is people don't and when they want to buy or think about it they realize they are SOL and either have to gentrify some part of LA or move out.

>a less robust US economy

I know it's kind of tangential to your point, but any sources on this? I was under the impression we were humming along.

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