patrick.net

My point is that Prop 13 exacerbates the problem during dramatic price appreciation -- a kind of vicious cycle that further reduces supply

Anyway, going to the NIMBY side of the discussion -- from what I've seen "smart growth" is a euphemism for "little or no growth..."

Peter P

Henry only mentioned the supply of pre-existing homes. And he's probably right that a lot of homeowners will not move in order to keep payments down. But I don't think Prop 13 has much to do with the number of new homes being built because the market is being given so much juice from speculator buying.

Since I don't live in the BA I can't speak on NIMBY too much. We've seen tons of building. I still can't figure out why the BA is statistically given a greater chance of a housing crash than us. We have built like crazy here and the over-supply is going to be big when speculators start dumping property.

My point is that Prop 13 exacerbates the problem during dramatic price appreciation — a kind of vicious cycle that further reduces supply

I agree.

I think one argument is that Prop 13 discourages existing homeowners to move up, thus reducing the supply of starter homes. However, can't we just build more starter homes (instead of move-up homes) to satisfy the demand (assuming growth is not "smart")? Existing homeowners can just renovate their original homes or even build additions.

I believe that the market has a way to work around Prop 13 if growth is allowed.

I am not a proponent of prop 13. As I have said, I am neutral. It is unfair, I agree. But I think growth laws are more unfair and they have worse impact on the market.

We need smarter smart growth.

karl marx, good point!

Unfortunately without "smart growth" these starter homes are in the Central Valley (sorry -- I'm speaking from a BA perspective). And what happens, as you've noted, these starter homes become mansions through additions over the years.

That's what's happening in San Francisco -- there are no "starter homes" anymore. Maybe "starter condos" at best, but even those are getting pricey.

In areas w/o something like Prop 13, I would imagine that there is a natural cycle of people and families moving through the area that would keep a stock of starter homes available. Not sure if that's exactly true, but it is a possibility.

Okay, I have to concede.

San Francisco is bay-locked, supply will be limited unless we start demolishing houses and build higher density residences. I guess we just need the right incentive for the local government to make it happen.

On the other hand, what is there to stop population from growing even faster?

I need a place that’s bitchin’....

Best sonnet I ever read. :)

Unfortunately without “smart growth” these starter homes are in the Central Valley (sorry — I’m speaking from a BA perspective).

No need to apologize, its kind of been my point all along. Its been starter home central (pun intended) out here for awhile. How on earth is this area going to weather a housing bust better than the BA? I'm not seeing the logic in the latest stats that say the BA has a better than 50% chance of a bust, and this area has about a 45% (I think) chance. It boggles the mind.

Maybe I'm misinterpreting the data. Maybe the BA has a stronger likelihood of going down, but what the stats don't say is whether or not the BA will fall as hard or as long.

I also propose limiting the number of new parking spaces (or making them very expensive, e.g. ~$500 per space) to limit growth. This will solve potential traffic problem.

One weapon to fight Californian NIMBYism: petition for a overriding federal law when the white house does not care about winning California.

HARM et al re: Prop 13

1) No I don't favor rent control. See I'm into property owner's rights...unlike, say, the Chinese government who won't let you own land at all. When the govt and renters tell you what you can charge then it's not really your property anyway is it?

2) Similarly I adore Prop 13 because of property owner rights. I am in favor of anything that reduces the tax burden on property owners. As long as there are property taxes you never truly 'own' a home. A $1M house costs you $1000+ a month in property taxes alone...forever. Adding insult to injury, at least here in the BA you will ALSO have to pay for private schools if you want your kids minds not to rot because that $1000 goes straight down the drain.

See the difference between tax revolt and rent control? If Grandma Walsh can't afford to live in an apartment anymore because there is a line of people willing to spend more then her, well, then she needs to move somewhere else. That's the price you pay as a renter.

But if Grandma (or anyone, really) paid her/their house in full, then it is *entirely unfair* to let inflationary pressures or out of control government spending to drive you out of *your* house.

I have NO PROBLEM if my neighbor pays $100 a month and I pay $1000 for the same house. I look at it as he has a smaller case of cancer than me, and I think that's terrific. Giving him more cancer does not make my cancer any better.

To try and twist your mind my way, realize this. The government does NOT charge taxes proportional to its needs. It bases taxes on what it can grab before people revolt (or vote the opposition). It is therefore everyone's *duty* to resist taxes in every way they can.

b, I guess we will have to make a choice between having democracy with NIMBYism or a masterminded "utopian" society with no personal freedom and constant fear.

Let me know if you have a better solution.

But if Grandma (or anyone, really) paid her/their house in full, then it is *entirely unfair* to let inflationary pressures or out of control government spending to drive you out of *your* house.

If there is no Prop 13, there will be more incentive for homeowners to keep home prices reasonable. Perhaps becoming more supportive in creating new housing?

It is therefore everyone’s *duty* to resist taxes in every way they can.

Instead, people see it as a "duty" to shift tax burden to someone else.

Instead, people see it as a “duty” to shift tax burden to someone else.

Um, no...that again assumes there's some mystical 'proper amount' of taxes that needs to be charged in a zero-sum game.

If tomorrow, Prop 13 vanished and suddenly the property tax revenue doubled do you truly think life would get better? Do you think the CA government would say "whew, thanks everyone, now that we have all this money we're going to from now on be really fiscally responsible! And we're going to pay teachers more and guarantee a better education for kids!". No way. They'd spend it all instantly in irresponsible politically-motivated ways and assume there'd be even more the next year. This is precisely what happened during the .com era.

See, maybe this is where we disagree. I have no problem paying taxes when I have some confidence that they go to people who will faithfully and carefully spend it on good and worthwhile things. Maybe this is how you feel the situation is today. But I don't and have zero faith in this ever happening, Rep. or Dem. sad to say. Hence, the only defense is to resist taxes.

Um, no…that again assumes there’s some mystical ‘proper amount’ of taxes that needs to be charged in a zero-sum game.

I am a strong believer of the society being a zero-sum game.

I just think our current development patterns (sprawling ever outward) are unsustainable and unwise for a lot of reasons, and are encouraged by a variety of factors, one of which is NIMBYism.

I totally agree.

Done! you come in with nothing and leave the same way……

Please explain.

MerrillClient, thanks for the insight.

I agree that repealing Prop 13 is politically improbable.

MC

You make a very good point. Not only do we have historically high home ownership, but due to skyrocketing prices a lager proportion than usual would not be able to keep their home if prop 13 was repealed. I think it goes without saying that prop 13 is going to be around awhile, if not for good.

Again, I believe property tax should be abolished and replaced with a more "equitable" form of tax. I think consumption-based taxation is a step closer to that...

You can't take it with you.

In the end we are all just dust in the wind...

@matt_walsh

I adore Prop 13 because of property owner rights. I am in favor of anything that reduces the tax burden on property owners.

Matt, I don't see prop. 13 as truly reducing the overall tax burden, but merely a way of shifting it to a different group (from older, existing owners to younger, new buyers). The government has a knack for always finding a way to collect what it thinks it needs, one way or another.

As long as there are property taxes you never truly ‘own’ a home. A $1M house costs you $1000+ a month in property taxes alone…forever.

Yes, and one of the reasons why CA's property taxes are so high compared to other states (IMO) is Prop. 13. Anything that reduces housing supply, increases prices and therefore also increases taxes over the long-run. You pointed this out with your example above. It may be an unintended consequence of Prop. 13, but it’s still a consequence nonetheless.

See the difference between tax revolt and rent control?

Yes –rent control is a bad, misguided policy that accomplishes almost the exact opposite of it’s stated purpose (help low-income renters), and Prop. 13 is a bad, misguided policy that…
--Hey, come to think of it they’re almost identical!

But if Grandma (or anyone, really) paid her/their house in full, then it is *entirely unfair* to let inflationary pressures or out of control government spending to drive you out of *your* house.
… I have NO PROBLEM if my neighbor pays $100 a month and I pay $1000 for the same house. I look at it as he has a smaller case of cancer than me, and I think that’s terrific. Giving him more cancer does not make my cancer any better.

Matt, as you probably can guess by now, I'm no lover of big government or socialism. Regardless, property taxes are pretty much a fact of life wherever you happen to live. It's a necessary evil to fund all those aforementioned schools, roads, police, hospitals, parks, libraries, etc. No, paying taxes isn't much fun, and, yes, government often taxes and spends way too much --and often spends it on things not in the public's best interests. Ok, we agree here. But what's the alternative? Show me a perfectly "fair" tax system and I’ll vote for it. No system of taxation is perfectly “fair” --such is life. But Prop. 13 takes an already unfair/unpleasant thing and makes it hideously unfair.

To try and twist your mind my way, realize this. The government does NOT charge taxes proportional to its needs. It bases taxes on what it can grab before people revolt (or vote the opposition). It is therefore everyone’s *duty* to resist taxes in every way they can.

Fine. Let’s all try to find a way to reduce taxes for everyone --not just a way to make them more unfair. When our elected officials misspends our money or overtaxes us, it’s also our *duty* to hold them accountable. Incumbents have an appallingly high % of re-election, regardless of party affiliation. Let’s start getting angry and “vote the bums out”!

See, maybe this is where we disagree. I have no problem paying taxes when I have some confidence that they go to people who will faithfully and carefully spend it on good and worthwhile things. Maybe this is how you feel the situation is today. But I don’t and have zero faith in this ever happening, Rep. or Dem. sad to say.

Again, Matt, show me a "perfectly fair" tax system and I'll vote for it. It just doesn't exists, but if as a society we want basic public services, we still have to pay them somehow. Demanding the impossible is just a way of trying to avoid the inevitable.

Hence, the only defense is to resist taxes.

Sorry to burst your bubble here ;-), but Prop. 13 isn't really tax avoidance --it's just tax redistribution.

You know, sometimes I'm a bit slow. But I am seeing now how Prop 13 is inefficient. In the short term, as long as you stay in your home, you pay less taxes. But these days, people don't stay put. And with rising property "values" the amount the government can tax is considerably higher. So in the end the government doesn't miss a dime in tax money. And Harm is right, those buying into the market later take on a disproportionate amount of the tax burden. But I still think that too many people are now dependant on prop 13 to keep their home affordable to change it anytime soon.

But I still think that too many people are now dependant on prop 13 to keep their home affordable to change it anytime soon.

I'm afraid you (and Peter) are probably right about this. Prop. 13 is such a sacred cow, and so many people have the same protective knee-jerk reaction against ANY change to it (without understanding the UCs we've discussed), it's probably untouchable for now.

About the only way you *might* get voters to abolish it would be to cap the maximum rate much lower than Prop 13's current 1% of home's price, but make it apply equally to all owners. Set it so low that even long-time owners won't have to pay any more, and recent buyers will get a HUGE tax cut. Of course, the problem with that (from govt's perspective) is they lose out on tax revenue *big time* and go even further into the red, unless they jack up the sales tax --which would not be popular.

Another strategy might be to get a new NIMBY prop. tax initiative on the ballot even worse than Prop. 13. How about having current owners (as of the day the initiative passes) pay ZERO taxes, while people who buy after it passes get slapped with a HUGE tax rate --say, 15%. This would have some big points in its favor:

1. It appeals to the voters' worst (and most powerful) motivating impulses: greed & selfishness.
2. Current owners easily outnumber (and out-vote) potential buyers-to-be.
3. The prospect of gigantic prop. tax bills for future buyers would make housing price appreciation *very* unlikely after it passed. If anything this could pop the bubble by itself.
4. Over time, as the number of new owners grows and existing owners gradually diminished (death, relocating, foreclosures, etc.), public/voter anger over the law would grow, and support for abolishing it (and other laws like it) would steadily grow.

End result: In about 20-30 years, we should be relatively free of Prop. 13 style laws.

End result: In about 20-30 years, we should be relatively free of Prop. 13 style laws.

The horror, the horror.

I'm only kidding of course. ;-)

---Or AM I???
(cue Hollywood "shocking surprise" music)

astrid -- no worries, I just corrected it.

Honestly I have no faith in the world. I guess we just need to wait until the "market" resolve all the problems and see if we destroy ourselves in the process.

Capital Gains for your principal residence are tax free, and always have been. The rule for occupancy is 1 night, and the amount that is tax free is unlimited. Could be $10million or more. From this I imagine that the loosening of your Capital Gains exemption in 1997 may not have caused as much increase as many seem to think. This Capital Gains on principal residence is true in Britain too.

Van Kouver,

If Canada & UK has have had their homestead exemptions in effect for a very long time, then no doubt you're right about this being already "priced in" to the housing markets up there. However, this is a relatively recent development in the U.S., and I think it has been a significant (though by no means the primary) driver of prices here in recent years.

Consider your situation as a post Dot.com day-trader in late 2001. The NASDAQ has lost 2/3 of its value, and to add insult to injury 9-11 just smacked travel/air/tourism industries. Assuming you cashed out in time, you're now sitting around wondering what the "next big thing" will be speculation-wise. Hey, didn't Congress just recently pass a homestead exemption law? Instead of paying capital gains based on my marginal income tax rate (30%?) when I sell an investment property, now I get to keep 100% of the profits up to 1/2 a $mil. Wow! Compared to negative-to-flat gains on stocks, what a great deal!

On top of that, mortgage lending standards have grown incredibly loose, thanks to the GSEs buying up a$$loads of mortgages and re-selling them to investors world-wide as MBSs --essentially eliminating any default risk for the banks. Then, to add gasoline to the fire, the Fed goes and drops rates to 1%, negative in real terms. Whoopeee --I'm getting paid to speculate!

And from there, greed/mob psychology takes over and you get a pretty much self-fertilizing feedback loop (while it lasts). That's how I see it anyways.

I don’t get it. If grandma’s house appreciates to $1,000,000, why wouldn’t she just take out a reverse mortgage on the vastly inflated value to pay the property taxes?

Of course, the heirs wouldn’t get it then. But I don’t see why they’re entitled to skip out on the property taxes either.

Ah, but you forget this is the ENTITLEMENT GENERATION we're talking about here, prop26 (nice moniker, btw). We want it ALL and we want it RIGHT NOW!! We're entitled to a lifestyle of never-ending consumption and luxury, but don't want to PAY for any of it! Shifting the burden to other as-yet-unborm generations? Not MY problem....

This one's for all of us out there who feel Prop. 13 and existing Urban Boundary Limit (UBL) laws are a "good start", but haven't gone nearly far enough in redistributing the tax burden from old to young, and keeping housing costs high by artificially limiting the supply of housing in California.

The time has come to finish what Howard Jarvis and Paul Gann have started. I give you "Propostion GREED":

Generational
Redistribution of
Expenses to
Exploitable
Descendants

So what is Propostion GREED all about and why should I vote for it? Let me explain:

Whereas Prop. 13 caps property tax for existing homeowners at 1% of your home's assessed value, Prop. GREED eliminates property tax altogether. That's right --ZERO! As of the day the initiative passes, current owners will pay ZERO taxes. Of course, to help make up for the loss of tax revenue, people who buy after Prop. GREED passes will unfortunately see their tax rate go up a tad --to around 15%. The rest of the revenue shortfall can be made up by taxing renters.

You might wonder about potential opposition by non-owners to such a measure. This shouldn't be a problem, as about 60% of California households already own (at least) one home and many of the current non-owners are either low-income, too young to vote, or well... let's just say "not-too-politically aware". The best news of all is most of the "opposition" hasn't even been born yet!

In the unlikely event that the disenfranchised do manage to mount significant resistance, we'll just label them "jealous bitter renters" (JBRs) and re-frame the debate with emotional (and factually misleading) appeals. We can redefine the opposition in such a way that they seem cruel and stupid even to oppose our initiative.

Examples:
"Prop. GREED is all about helping elderly people on fixed incomes! It's so unfair that the government can kick grandmothers out of their homes over taxes, don't you agree? You do like elderly people, don't you?"
"Oh, so you're PRO-TAX, are you? You love sending your money to the tax-and-spend politicians in Sacramento, eh? Ok, whatever you say, 'Comrade'..."

Ok, so maybe you're still concerned about the potentially price-depressing effects on your house, given the 15% property tax rate for people who buy after it becomes law. Not to worry --we've got your back on this one! Prop. GREED also contains a provision that prohibits any new residential construction from being approved after it passes --not even new apartments. It's sort of like a statewide UBL on steroids! This will cut off housing supply at the knees and virtually guarantee never-ending appreciation for your house! (And of course it will exempt home upgrades for existing owners, just in case you want to add another bedroom or build a guest house.)

So remember to vote early and vote often --for "Proposition GREED"!

Urban Boundary Limits are a great thing that have kept the Bay Area from being as spread out and smog ridden as LA or Houston or Atlanta. They also allow us to keep open space near our cities, making them much more livable.

The flip side, is that the shortage of developable land pushes up prices. I think that the increased standard of living pushes up prices, too though, because it is definitely much nicer to live in an area with good planning than someplace like Houston, where they have no planning whatsover.

Yes, I agree we need higher density. It is coming, slowly but surely.

I know it is fashionable to complain about how hard it is to do infill development here, but I have seen three large (20+ units) condo development within six blocks of my house, since I moved in three years ago.

Now granted, all of them are on the Mission border or in the Mission, where the neighbors won't complain. It could not happen around the corner. But even on my block, I am seeing single family homes torn down and replaced with larger, two unit buildings.

So it is happening. Just not fast enough to keep up with demand.

Urban Boundary Limits are a great thing that have kept the Bay Area from being as spread out and smog ridden as LA or Houston or Atlanta. They also allow us to keep open space near our cities, making them much more livable.

Jimbo, While I don't think ALL forms of urban planning is necessarily bad --quite the contrary-- I don't see how UBLs have produced the benefits you describe. Ultimately (ignoring the current speculative bubble) I see one big long-term driver of housing demand in CA: population growth, nearly all of which is immigration driven.

Any attempts at trying to limit/"manage" this population growth through NIMBY UBL laws, merely avoids dealing with the root cause, and quickly produces supply shortages and higher prices. It also shifts the burden of housing the additional population onto neighboring communities who don't have UBLs, makes longer commutes, etc. If anything it INCREASES urban sprawl, not reduces it. Increasing housing density/building condos is a good start, but keep in mind that such things are *not* popular among people who support UBL type laws.