Attitudes of the uber-rich

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Originally Posted by MultiVerse

Objectively, without a doubt, the two are absolutely related. It is impossible to favor one group over another and not create a distortionary effect. In the case of Prop 13, house prices are around 15 percent higher and causes around a 5 percent decrease in moving rates.

The groups who benefit are existing homeowners. The groups who don't benefit are renters and younger individuals. If Prop 13 were repealed the net overall welfare benefit would make Californians, as a whole, around 2 percent richer.

I don't have any dog in this fight so if folks want to prioritize existing homeowners I don't care, but doing so is not cost free. There's no way to repeal the laws of supply and demand. Even though support for elimination of Prop 13 is quite low, property tax rates could still be lowered via an overall reduction in rates and allowing the housing supply to increase. Which is even less popular because it would also lower existing housing prices.

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Of the dozens of articles I've read on the housing availability/affordability issue--a huge issue here, none of them have mentioned Prop 13 as a significant cause, at least directly. Maybe governments would reduce permit fees if they had more property tax revenue.

What is your source that prices are 15% higher because of Prop 13? What is the control group? As far as the decreased moving rate--Prop 19 partially deals with that, at least for the over 55s. Now if you want to look at something that increases the cost of housing, how about the mortgage interest deduction? That one is obvious. Or the property tax deduction on Federal income tax. Or the recently discarded real estate agent compensation system, where both buyer and seller agents were financially incentivized to keep prices high.

And of course property tax as a primary source of local government revenue is grossly unfair. Prime example--Detroit, where white flight, probably the most radical in the country, bankrupted the city and enriched the suburbs. Hence the shit schools among other things in Detroit--and given that education is one of the few ways to crawl out of the permanent underclass.

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Originally Posted by MultiVerse

Objectively, without a doubt, the two are absolutely related. It is impossible to favor one group over another and not create a distortionary effect. In the case of Prop 13, house prices are around 15 percent higher and causes around a 5 percent decrease in moving rates.

The groups who benefit are existing homeowners. The groups who don't benefit are renters and younger individuals. If Prop 13 were repealed the net overall welfare benefit would make Californians, as a whole, around 2 percent richer.

I don't have any dog in this fight so if folks want to prioritize existing homeowners I don't care, but doing so is not cost free. There's no way to repeal the laws of supply and demand. Even though support for elimination of Prop 13 is quite low, property tax rates could still be lowered via an overall reduction in rates and allowing the housing supply to increase. Which is even less popular because it would also lower existing housing prices.

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Of the dozens of articles I've read on the housing availability/affordability issue--a huge issue here, none of them have mentioned Prop 13 as a significant cause, at least directly. Maybe governments would reduce permit fees if they had more property tax revenue. Or not. My far the biggest cause of the housing crunch around here has been, until recently, hostility of current homeowners towards density, height, and building in general. It wasn't long ago that developers were forced to reduce the number of units in a develop to get approval. Now it's the opposite.

What is your source that prices are 15% higher because of Prop 13? What is the control group? As far as the decreased moving rate--Prop 19 partially deals with that, at least for the over 55s. Now if you want to look at something that increases the cost of housing, how about the mortgage interest deduction? That one is obvious. Or the property tax deduction. Or the recently discarded real estate agent compensation system, where both buyer and seller agents were financially incentivized to keep prices high.

And of course property tax as a primary source of local government revenue is grossly unfair. Prime example--Detroit, where white flight, probably the most radical in the country, bankrupted the city and enriched the suburbs. Hence the shit schools among other things in Detroit--and given that education is one of the few ways to crawl out of the permanent underclass.

My sources are National Bureau of Economic Research (NBER) papers. The control is differential exposure to the Proposition 13 tax laws. For example, the impact is greater in coastal California cities and other areas where the increase in property values has been higher. So like your example of Detroit, the resulting distortionary & redistribution effects of lost tax revenue are from inland California communities in favor of coastal and other wealthier California communities.

I have four doctor friends in Northern California. I know what they make and none of them are in the top 10-15% in this state (including spousal income) - not with all of the tech money going around. They are all well off, but I wouldn’t consider any of them wealthy. I have wealthy friends and it ain’t close.

Top 10% is like 170k and Top 5% is 340k. I don’t know any doctors - or dentists - making less than that

Top 10% household income in CA is $340k


Sent from my iPhone using TGR Forums

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Originally Posted by MagnificentUnicorn

Top 10% household income in CA is $340k

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That’s a little skewed however. Because it’s a huge state with a vast population and wild variation based on location. In much of the greater Bay Area and SoCal $340k ain’t shit these days. It’s not bad but it’s not wealthy.

Someone in the Central Valley might as well be on a different planet.

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Originally Posted by MultiVerse

My sources are National Bureau of Economic Research (NBER) papers. The control is differential exposure to the Proposition 13 tax laws. For example, the impact is greater in coastal California cities and other areas where the increase in property values has been higher. So like your example of Detroit, the resulting distortionary & redistribution effects of lost tax revenue are from inland California communities in favor of coastal and other wealthier California communities.

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Inland and coastal California are hardly comparable. They were not comparable before Prop 13 and they aren't now. Prop 13 was passed in response to rapid inflation in real estate prices which has continued to this day with a brief interruption during the great recession. If there is an effect of Prop 13 it is miniscule compared to the collapse of Detroit's tax base and the other factors I mentioned. But as I said before, people like to dump on Prop 13 because repealing it seems like an easy fix, compared to dealing with the underlying causes of economic inequality. It is to economic reform what recycling is to environmentalism.

There is an effect and it is not minuscule. House prices are around 15 percent higher and there is around a 5 percent decrease in moving rates. The increase is observed by the present value of the decline in
property tax payments.

After 1978 the average effective tax rate under Proposition 13 went from 2.5 percent to 0.7 percent. As a result house prices increased because property values for tax purposes became unequal to their market values. It also caused less willingness of individuals to change their housing over time because the effective tax rate declines by housing tenure and therefore by age. If you normalize Pre-1978 and Post-1978 Proposition 13 house prices you see that Prop 13 leads a ~15 percent increase in house prices.

The increase in house prices reflects the present value of the decline in future property tax payments. Intuitively, it makes sense. People are willing to pay more to escape rising rents and lock in lower future tax rates owing to the fact the value of a house for tax purposes is related to housing tenure. This however puts enormous strain on borrowing constrained home buyers like the young, for example.

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Originally Posted by TahoeJ

That’s a little skewed however. Because it’s a huge state with a vast population and wild variation based on location. In much of the greater Bay Area and SoCal $340k ain’t shit these days. It’s not bad but it’s not wealthy.

Someone in the Central Valley might as well be on a different planet.

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But it is wealthy (again, depending on your definition of wealthy, but certainly not shit)! They’re just choosing to use that wealth to live in a very desirable location.

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Originally Posted by old goat

Of the dozens of articles I've read on the housing availability/affordability issue--a huge issue here, none of them have mentioned Prop 13 as a significant cause, at least directly. Maybe governments would reduce permit fees if they had more property tax revenue. Or not. My far the biggest cause of the housing crunch around here has been, until recently, hostility of current homeowners towards density, height, and building in general. It wasn't long ago that developers were forced to reduce the number of units in a develop to get approval. Now it's the opposite.

What is your source that prices are 15% higher because of Prop 13? What is the control group? As far as the decreased moving rate--Prop 19 partially deals with that, at least for the over 55s. Now if you want to look at something that increases the cost of housing, how about the mortgage interest deduction? That one is obvious. Or the property tax deduction. Or the recently discarded real estate agent compensation system, where both buyer and seller agents were financially incentivized to keep prices high.

And of course property tax as a primary source of local government revenue is grossly unfair. Prime example--Detroit, where white flight, probably the most radical in the country, bankrupted the city and enriched the suburbs. Hence the shit schools among other things in Detroit--and given that education is one of the few ways to crawl out of the permanent underclass.

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The Detroit issue isn’t caused by property taxes, it’s caused by funding education at the local level instead of state. There’s no reason it needs to, or should be, funded at that level.

(My wife’s Ph.D is in education policy. She could write you a paper on that - probably has, actually.)

that's the new york way...


fact.

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Originally Posted by J. Barron DeJong

(My wife’s Ph.D is in education policy. She could write you a paper on that - probably has, actually.)

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Ah, so she’s the one whispering in your ear that prop13 is bad because of da edumacation fundies

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Originally Posted by J. Barron DeJong

But it is wealthy (again, depending on your definition of wealthy, but certainly not shit)! They’re just choosing to use that wealth to live in a very desirable location.

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Nonsense. Many of them have jobs - despite current trends - that still require them to show up to the office two days per week or live near a major airport for consistent business travel. $340k household income is *not* wealthy in much of California, full stop (if you have kids being a key distinction). I know very well because prior to my divorce that was almost exactly our household income. It's upper middle class (or in some places just middle class).

depending on what county in cali that you’re in, the definition of “low income” can be vastly different from what we would consider it to be here in the upstates.

“U.S. Department of Housing and Urban Development data shows that one individual making less than $104,000 in san mateo county is considered low income. That is almost seven times higher than the federal poverty line and about five times higher than the income limit for Medi-Cal, the state's Medicaid plan.”


https://www.smdailyjournal.com/news/...dicaid%20plan.



fact.

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Originally Posted by mcski

Ah, so she’s the one whispering in your ear that prop13 is bad because of da edumacation fundies

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Uh, no. Not at all. Don’t think she’s ever talked about Prop 13 to me. Her work doesn’t even revolve around CA, at all.

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Originally Posted by TahoeJ

Nonsense. Many of them have jobs - despite current trends - that still require them to show up to the office two days per week or live near a major airport for consistent business travel. $340k household income is *not* wealthy in much of California, full stop (if you have kids being a key distinction). I know very well because prior to my divorce that was almost exactly our household income. It's upper middle class.

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The vast majority of people living in San Francisco could have similar careers in less expensive cities which would allow them to have higher material standards of living even if their actual incomes went down. Living in San Francisco is a choice they’re willingly making.

Attachment 496881

If someone is making 2.3x median, in one of the wealthiest cities in the country, I don’t consider that shit.

There’s no standard definition of ‘middle-class’, but one that is used is half of median to 2/3 above median. $340k puts you $95k over the high end using that definition, again for one of the wealthiest cities in the country.

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Originally Posted by J. Barron DeJong

The Detroit issue isn’t caused by property taxes, it’s caused by funding education at the local level instead of state. There’s no reason it needs to, or should be, funded at that level.

(My wife’s Ph.D is in education policy. She could write you a paper on that - probably has, actually.)

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Well yeah, but try to convince a bunch of suburban voters, not to mention the MAGA voters in the rest of the state, to fund Detroit schools. And schools are not the only thing funded by property taxes. While we're at it, why stop at the state level--if education is funded at the state level by property taxes the poor states get screwed. The regional differences in this country are a disgrace. 160 years after the Civil War the Confederacy is still in the toilet. Well, they wanted states' rights. They got it.

MultiVerse--how you think that you can separate out the rise in property values due to Prop 13 from the other, much larger factors affecting the market is beyond me. The bottom line is that people like California, among other places. People who can afford to live here live here. The money goes to places that are desirable. That raises prices, more than any other factor.

Here is the current top 10 states for real estate price increases.
Idaho – 78.7% increase
Nevada – 74.2% increase
Washington – 64.9% increase
Utah – 64.7% increase
Oregon – 61.2% increase
Arizona – 61.1% increase
Montana – 58.2% increase
Tennessee – 56.2% increase
California – 54.6% increase
Colorado – 54.4% increase

California, NV, AZ, and OR have property tax caps of some sort. The others do not.

Even if we accept that Prop 13 has some theoretical effect on property values, how do you monetize the very real social problem of people being forced out of their homes by rising property values BEFORE Prop 13. Californians seem willing to accept the monetary cost of Prop 13 to fund the social cost of letting people keep their homes. Money is not the only thing that matters.

Taxation works when any increase is proportional to individual increases in income and wealth growth and in the overall rate of inflation. That is why income tax (before all the loopholes) and even the regressive sales tax work. Property tax, which is decoupled from the overall economy, does not.

Health is wellth.

LTSI

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Originally Posted by J. Barron DeJong

The vast majority of people living in San Francisco could have similar careers in less expensive cities which would allow them to have higher material standards of living even if their actual incomes went down. Living in San Francisco is a choice they’re willingly making.

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Who said SF? I’ve never lived there. The entire Bay Area and beyond is expensive. I grew up in the north bay. Some of us have kids and we want to live near family.

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Originally Posted by TahoeJ

Who said SF? I’ve never lived there. The entire Bay Area and beyond is expensive. I grew up in the north bay. Some of us have kids and we want to live near family.

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If you’re expanding beyond SF proper then that likely just puts $340k even higher above middle class.

There are all kinds of reasons to choose to live in a certain area, including to stay near family. It’s still a choice about how to spend your wealth.

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Originally Posted by old goat

MultiVerse--how you think that you can separate out the rise in property values due to Prop 13 from the other, much larger factors affecting the market is beyond me.

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Because housing prices rise faster than inflation, that means there's an even higher present value of lower taxes.

When housing supply is limited you can calculate the present value of the property tax to see how the house price mirrors the full property tax over a given time horizon. Back of the envelope, if you buy a $500,000 house and pay 1 percent a year in property taxes that will require $5,000/year to pay taxes. The present property tax value is how much money would a person need to put into an account today to pay their property taxes.

That is, how much cash would be needed to generate the annual property tax payment. For simplicity, a 2 percent interest rate to pay a 2 percent tax rate is two dollars. You need a $500K earning 2% today to pay a 2% annual tax. At a 1 percent annual tax an interest rate you also need $500K. Your house is going to cost double the purchase price in present value terms or a 100 percent effective tax rate.

If however the interest rate is 2% and the tax rate is 1% then the tax rate is cut in half 1/0.02 = 50%. At today's ~5 percent rates the present value tax rate is 1/0.05 = 20%. If the annual tax rate doubles then so to does the present value 2/0.05 = 40%. And so on. The average effective tax rate under Proposition 13 went from 2.5 percent (2.5/0.05 = 50%) to 0.7 percent (0.7/0.05=14%).

In other words, house prices reflect the present value of the increase or decline in property tax payments. Specifically, in the case of Proposition 13 an empirical model of property tax capitalization shows each dollar reduction in property taxes due resulted in a seven dollar increase in property values:

https://escholarship.org/content/qt8...c52aa270a6.pdf

https://media.giphy.com/media/gEvab1...giphy.gif&ct=g

TL;DR = Proposition 13's large property cuts resulted in a 15 percent increase in home values. Property taxes are a tax on the imputed income living in a house you own. A person can't add the property tax to a tax burden without adding the related implicit income

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Originally Posted by old goat

MultiVerse--how you think that you can separate out the rise in property values due to Prop 13 from the other, much larger factors affecting the market is beyond me. The bottom line is that people like California, among other places. People who can afford to live here live here. The money goes to places that are desirable. That raises prices, more than any other
.

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Are you new here?? He knows everything - in his own mind. Lol

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Originally Posted by m2711c

fact.

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This is really fucking annoying.

fact.

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Originally Posted by J. Barron DeJong

If you’re expanding beyond SF proper then that likely just puts $340k even higher above middle class.

There are all kinds of reasons to choose to live in a certain area, including to stay near family. It’s still a choice about how to spend your wealth.

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You're just flat out wrong. SF isn't even the most expensive market in the bay area. And my ex wife had to be in the office every single day.

Do you have any kids?

Cities With the Highest Middle-Class Ceilings

1. Fremont, CA

Fremont has the highest minimum threshold for middle class at $104,499, going all the way up to nearly $312,000. Households here need a minimum income of $104,499 to be considered middle class. Fremont’s proximity to the high-paying jobs of Silicon Valley contributes to its high median income of $155,968. This Bay Area city has nearly 230,000 residents, and almost one-tenth of that population works at Tesla3.

2. San Jose, CA

San Jose is the third-largest city in California and home to high-profile technology companies, including Adobe, Cisco Systems, eBay, PayPal and Zoom. Middle class households here earn between $84,673 and $252,754.

3. Arlington, VA

Arlington, situated on the banks of the Potomac River, benefits from its proximity to Washington D.C. and a highly-educated workforce. Over 76% of residents 25 and older hold a bachelor’s degree or higher, more than double the national average4. The federal government is Arlington’s top employer, with the Department of Defense and a number of other agencies based there5. Middle class households here earn up to $251,302 per year, while those earning less than $84,186 miss the threshold.

4. San Francisco, CA

While some large tech companies are based in San Francisco, including Salesforce, Uber and Twitter, the city is also home to non-tech brands like Wells Fargo and The Gap. Middle class households here earn between $81,623 and $243,652. But buying a home in the City by the Bay can be a challenge. The median home value in Frisco is $1.2 million dollars6.

5. Seattle, WA

In Seattle, households earning up to $221,562 are still considered to be middle class. Those earning less than $74,223, however, haven’t yet entered this middle income group. Nearly 66% of residents 25 and older hold a bachelor’s degree or higher and there are plenty of high-profile local companies to work for, including Amazon, Starbucks and Boeing.

linked article

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Originally Posted by TahoeJ

You're just flat out wrong. SF isn't even the most expensive market in the bay area. And my ex wife had to be in the office every single day.

Do you have any kids?

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‘The entire Bay Area’ is what you referred to. Much of the Bay Area has lower median income than SF proper.

Regardless, earning $340k gives you economic freedom in a way that a family earning $150k absolutely does not enjoy, regardless of where you choose to live.

Your wife had to be in the office every day, for a job she chose to take, near a city you decided to live in. You still made a choice and to accept the financial impact. You had the freedom to make that choice in a way that lower earning households aren’t able to.

And yes, we have kids. We chose to move to a very expensive area, because it’s where we want to be. Because of that, we aren’t able to afford many of the other things we could if we were to live in a less expensive/less desirable location. No one should feel sorry for us.

The conversation was prop 13. All we wanted to do was live in our hometown to be near family. Without prop 13 we would have been forced out due to wild real estate price increases.

And sorry, but no fucking way is $340k around Marin / Sonoma “wealthy.” It’s just not.

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Originally Posted by TahoeJ

The conversation was prop 13. All we wanted to do was live in our hometown to be near family. Without prop 13 we would have been forced out due to wild real estate price increases.

And sorry, but no fucking way is $340k around Marin / Sonoma “wealthy.” It’s just not.

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And again, there are more efficient, more equitable ways to achieve that goal compared to Prop 13’s max 2% assessed value cap, along with all the other bad policy that was also in Prop 13.

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Originally Posted by MultiVerse

Because housing prices rise faster than inflation, that means there's an even higher present value of lower taxes.

When housing supply is limited you can calculate the present value of the property tax to see how the house price mirrors the full property tax over a given time horizon. Back of the envelope, if you buy a $500,000 house and pay 1 percent a year in property taxes that will require $5,000/year to pay taxes. The present property tax value is how much money would a person need to put into an account today to pay their property taxes.

That is, how much cash would be needed to generate the annual property tax payment. For simplicity, a 2 percent interest rate to pay a 2 percent tax rate is two dollars. You need a $500K earning 2% today to pay a 2% annual tax. At a 1 percent annual tax an interest rate you also need $500K. Your house is going to cost double the purchase price in present value terms or a 100 percent effective tax rate.

If however the interest rate is 2% and the tax rate is 1% then the tax rate is cut in half 1/0.02 = 50%. At today's ~5 percent rates the present value tax rate is 1/0.05 = 20%. If the annual tax rate doubles then so to does the present value 2/0.05 = 40%. And so on. The average effective tax rate under Proposition 13 went from 2.5 percent (2.5/0.05 = 50%) to 0.7 percent (0.7/0.05=14%).

In other words, house prices reflect the present value of the increase or decline in property tax payments. Specifically, in the case of Proposition 13 an empirical model of property tax capitalization shows each dollar reduction in property taxes due resulted in a seven dollar increase in property values:

https://escholarship.org/content/qt8...c52aa270a6.pdf

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Let's talk about real people living in real houses earning actual money and paying actual taxes.

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Originally Posted by J. Barron DeJong

And again, there are more efficient, more equitable ways to achieve that goal compared to Prop 13’s max 2% assessed value cap, along with all the other bad policy that was also in Prop 13.

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Let's scrap property tax and raise taxes on high earners, eliminate corporate tax loopholes, and intitute a wealth taz. Could you deal with that please? I'm busy doing my defensible space, or else I may not have to pay any property tax soon.

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Originally Posted by old goat

Let's talk about real people living in real houses earning actual money and paying actual taxes.

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Sure, Prop 13 was a citizen tax revolt against oppressive taxation that was passed with 63 percent of the vote. It created billions in tax breaks for many California homeowners. Reducing property taxes rather than other taxes meant savings in property taxes increased property values. This should be obvious to anyone with a mortgage whose monthly payment includes taxes and insurance.

These are basic economics forces at play. A mortgage payment ratio is the mortgage payment (principle & interest) plus taxes and insurance divided by income. A lower ratio helps buyers qualify for a higher priced house. In addition to income or cash on hand, future expectations of taxes and appreciation play a big role in housing demand.

Property taxes are viewed as a permanent second mortgage. A homeowner views property tax payments in their projections of affordability. A house with lower future property taxes is worth more than a house with higher future property taxes. There's a clear direct relationship between lower property taxes and higher home prices.

That's why so many people in this thread argue without Prop 13 they know people who couldn't afford to stay in their homes, because that second property tax mortgage would eat away at the ability of owning their home in the future. Therefore lowering the total future cost of ownership increases the present value of homes.

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Originally Posted by MultiVerse

Property taxes are viewed as a permanent second mortgage. A homeowner views property tax payments in their projections of affordability. A house with lower future property taxes is worth more than a house with higher future property taxes. There's a clear direct relationship between lower property taxes and higher home prices.

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This was true once upon a time. But California has since seen a ridiculous influx of massive wealth that has thrown the real estate market sideways and basic economic models don't necessarily apply any longer - or are at least far more nuanced.

Yeah, agreed that's why I wrote "income or cash on hand." It's still a mortgage of sorts even if a person doesn't have a primary mortgage. For those people who can afford to pay cash, lowering the total future cost of ownership makes buying a house even more desirable which increases demand.

Case in point, in 2003 Warren Buffett said that he pays property taxes of $14,410, or 2.9 percent, on his $500,000 home in Omaha, Nebraska, but pays only $2,264, or 0.056 percent, on his $4 million home in California. Long term, it can cost less in taxes for the wealthy to own in California thanks to Prop 13.

Four more pages of old fucks being out of touch. Fill out an app at your local big box store and start paying your taxes, geezers.

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Originally Posted by MultiVerse

Yeah, agreed that's why I wrote "income or cash on hand." It's still a mortgage of sorts even if a person doesn't have a primary mortgage. For those people who can afford to pay cash, lowering the total future cost of ownership makes buying a house even more desirable which increases demand.

Case in point, in 2003 Warren Buffett said that he pays property taxes of $14,410, or 2.9 percent, on his $500,000 home in Omaha, Nebraska, but pays only $2,264, or 0.056 percent, on his $4 million home in California. Long term, it can cost less in taxes for the wealthy to own in California thanks to Prop 13.

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Buffet sold his Laguna house 6 years ago for 7.5M. He bought it in ‘71 for 150k. At that time, the majority of Laguna was still mostly middle class. His would have been one of the nicer ones and about 3-4x a middle of the road house. Laguna is a good example of somewhere a lot of artist types would have been pushed out without p13 getting passed when it did

To be clear I'm not arguing for or against Proposition 13. I'm merely describing the economics of Prop 13. There is really only one way to lower the cost of housing: build more housing. Of course, there is only a limited amount of desirable land in places like Laguna. Non-universal property tax relief measures OTOH help one group at the expense of another. Maybe seniors and artists are more deserving, but that comes at the expense of higher overall home prices.

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Originally Posted by old goat

Let's scrap property tax and raise taxes on high earners, eliminate corporate tax loopholes, and intitute a wealth taz.

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Sounds good to me.

Really good.