Attitudes of the uber-rich

[old goat]

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 If Prop 13 were repealed the net overall welfare benefit would make Californians, as a whole, around 2 percent richer.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.

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.

[old goat]

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.

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.

[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.

[TahoeJ]

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.

[mcski]

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

[MagnificentUnicorn]

Top 10% household income in CA is $340k


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[TahoeJ]

Top 10% household income in CA is $340k

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.

[old goat]

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.

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.

[MultiVerse]

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.

[J. Barron DeJong]

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.

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.

[J. Barron DeJong]

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.

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.)

[m2711c]

that's the new york way...


fact.

[mcski]

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

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

[TahoeJ]

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.

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).

[m2711c]

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.

[J. Barron DeJong]

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

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.

[J. Barron DeJong]

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.

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.



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.

[old goat]

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.)

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.

[sb]

Health is wellth.

LTSI

[TahoeJ]

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.

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.

[J. Barron DeJong]

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.

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.

[MultiVerse]

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.

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

[skaredshtles]

[MultiVerse]

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

[mcski]

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
.

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