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Andrew Jeffery
@credealjunkie
California's Prop 13 is an overlooked driver of CA's housing production crisis. Why? Because long-time owners of prime development parcels can sit on them forever thanks to a super low property tax basis. Here's a great example from Menlo Park, a wealthy suburb south of San Francisco. 545 Middlefield is a collection of 3 low rise office buildings totally around 80,000sqft sitting on 6-acres of land. Based on recent sales which peg land value here at around $20 million per acre, let's call today's market value of 545 Middlefield ~$120 million. Which equates to almost $1,500,000 in annual property taxes for a new owner. The current owner pays $200,000 per year, according to public records, because Prop 13 limits reassessments to a change in ownership. Hard to know if the current owner would sell if they were forced to pay market property taxes, but a 700% increase in tax bills would shake loose some interesting sites. Together with neighboring parcels along Middlefield Rd, there are almost 50 acres of low density, lightly used office and medical buildings smashed between some of the wealthiest suburbs in the country. These 50 acres front a main artery with good access to freeways, and building here would have limited impact on nearby residential neighborhoods (some additional traffic for example). But given how many years it took to redevelop the shuttered car dealerships a mile west on El Camino - which faced stiff local opposition - don't expect this stretch of Middlefield to change any time soon. I pick on Menlo Park because I grew up there and know the streets, but this story is repeated in wealthy suburbs around the state. Menlo Park and its kind struggle to even create a plan that's compliant with the state's housing goals, let alone implement it. In neighboring Atherton for example, city officials are pushing to comply by mostly building ADUs. Which is laughable - the median home sells for just under $16 million, according to RedFin. How many working class families will become tenants at an ADU inside a $20 million Atherton mansion? Locals often cite limited building sites as a reason they can't build more housing. Boloney. There's plenty of land and plenty of money, but thanks (in part) to Prop 13, we'll go on under-building housing and wondering why itโ€™s so freaking expensive.
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Sentinel
@3Sentinel4
I think it also disincentivizes cities from permitting new housing. It gets distributed at a county level at a fixed rate so it may not bring in more property tax revenue, and even if it does, it will decline in deal terms over time with the 2% cap
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Seth Borman
@SethBorman
Mason Gaffney did studies all the way back in the 80s showing that Prop 13 centralized land ownership and started to distort the land market. This isn't a surprise.
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@CA_Insider
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Isaac
@isaacsusername
Iโ€™ve done this calculation In San Diego: if you assess property tax equally, we could lower the property tax rate to under 0.2% and get the same tax revenues. Itโ€™s wild how much subsides some land owners are getting.
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Matt Sechrest
@mattsechrest
My first VC job was in one of those parks on Middlefield a couple blocks away, hasnโ€™t changed a bit in 30 years bc of antiquated property tax laws in CA
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KS-MVultra
@kevinskiles
Great post. For years I have said โ€œone single policy adjustment would solve CA housing shortage in 10 years after enacted - eliminate the property tax subsidy on commercial properties created by prop 13. Only single family homes, duplexes, triplexes and quad plexes get the locked
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Theo D.O. Lite
@HoleDigger2016
Iโ€™ve heard this argument and Iโ€™m sure thereโ€™s truth to it but considering the massive (relative to that time) value of real estate since prop 13 was enacted isnโ€™t there enough tax money coming into offset this effect?
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Make L.A. Great Again ๐Ÿ‡บ๐Ÿ‡ธ
@lalovestrump
Probably shouldโ€™ve just made it for single family or small owner occupied residential Or the cities should at least highly encourage / work with these commercial owners to do something with properties instead of having them sit
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Deva Hazarika
@devahaz
Prop 13 is absolutely not overlooked, itโ€™s the #1 issue discussed around housing crisis here. Challenge is doing anything about it, given we couldnโ€™t even get it changed for commercial. Residential gonna be even harder to get enough people for without a more creative approach.
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John Gregorchuk
@JMGregorchuk
If people could build they'd offer prices that would convince others to move. The problem is a 10 year cycle to redevelop, replacement deed-restricted affordable units, and a myriad of zoning and NIMBY land mines. Remove prop 13 and you have forced sellers but still no
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Steve Mushero
@stevemushero
So this and so much wasted land with low/no use. Combined with even medium height towers or even lower like the car dealership projects (all for Stanford) you can add a lot of housing. Time to find ways to make that happen and ignore all local resistance. Build.
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Logan
@LoganTeix
Really interesting post. I wonder if there's a way to craft a plan to release many of these locked up and often under-utilized office spaces. Maybe ramping property taxes up to market levels over the course of 10 years may be fair. Pair this with incentivizing developers to
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(((Carl Cole))) ๐Ÿฅ‘
@carlatcole
โ€œโ€ฆa plan that's compliant with the state's housing goalsโ€ โ€” those RHNA numbers were literally made up by Scott Wiener. You bought the YIMBY lie, chud.
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D. Denell in the Cali Inkwell
@PerfectUrPurpos
I agree, this issue has is long overdue for reform. Home & property ownership in our state has steadily become out of reach for the average California citizen. Proposition 13 must be amended, & all property owners should be mandated to pay their fare share of property taxes. An
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Andy Malone
@AndyM1928
Prop-13, and really the entire Ballot Proposition scheme, is the most damning indictment of Direct Democracy in modern times. Terrible system.
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Craig Big Balls of Common Sense
@CraigABrill
Prop 13 has nothing to do with it! Itโ€™s not your land! And forcing owners to sell because you think itโ€™s underproductive is the type of Soviet engineering we fought and won a Cold War over! People donโ€™t sell because they donโ€™t want to get it with huge capital gains taxes from
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Robert Zapp
@rbzappCT
Prop 13 is crazy. CA needs to phase it out over 10 years to minimize the damage but reverse that terrible plan. Also would lower income taxes.
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Rich Hoffman
@rich_hoffman
So you want to repeal prop 13 so people like my neighbor who is a 70 year old widow has to sell her house and move because her property tax would be 20k not 1200? This is what is wrong with liberals everything is about giving the state more money. Maybe people donโ€™t canโ€™t
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RoaminGorilla
@NikDavidYaron
People like you are a horrible part of society. Why are you advocating for more taxes to be collected, in a system that is wasting tax money?
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Law of Self Defense
@LawSelfDefense
Why was Proposition 13 passed in the first place? No idea? Because California was brutally driving homeowners OUT OF THEIR HOMES with ever-escalating property taxes. If your politicians weren't vicious little assholes, you wouldn't be the ONLY state in the nation saddled with a
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Leslie Ridings
@Leslie_Ridings
Even wilder is that prop 13 and similar state laws were put in place by deeply conservative interests when CA was a Republican state. Even though weโ€™re proudly โ€œprogressiveโ€ now, folks love taking advantage of regressive tax policies from across the ideological spectrum. Sad!
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Bruce Ross
@530BruceRoss
Not being pressured by taxes to sell your property is a feature of Prop. 13, not a bug. But couldn't those owners make an extraordinary pile of cash selling to redevelop anyway, tax considerations aside?
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Donal
@Spelt_D_o_n_a_l
Would developing the property trigger a reassessment of the tax basis? Thatโ€™s another factor limiting development; a CRE holder like this is *disincentivized* from improving the site. Land Value Tax fixes a lot of this.
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G in SV
@G_in_SV
I genuinely want to know, not looking for a fight What groups do you hang with that have resisted 13 as a force against redevelopment? Housing or commercial.
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Matt Mason
@MattMasonCA
That is only one side of it. One of the reasons to build is you know what your tax bill is to be 10-15 years later. If we go back to the pre prop 13 system where govt just raises property taxes at will, it would be too risky for a lot of projects to get off the ground.
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Virginia Postrel
@vpostrel
I rent a small office in WLA whose owner pays half as much property tax on this prime spot as I do on a condo I bought in 1992 (i. e, my property tax is low).
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John Gonzales
@JohnGonzalesLA1
There are a lot of dynamics, actual likely results, and secondary effects. Reform of Prop 13 needs to include a significant reduction of many peopleโ€™s property taxes to make for very small & gradual tax increase. Other tax in CA needs to be reduced. Hardship exemption is necโ€ฆ
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Chuck Darrow
@acd_4
Development didnโ€™t slow down because of Prop 13. It slowed down because Slow/No Growthers took over the Sewer and Water Boards, and Supervisors and Councilmen ran on platforms opposed to development. There were letter to the editor and Op Eds every week in every major/mid 1/
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TegridyOtter
@UnicornRX00000
Thatโ€™s why itโ€™s profitable to take out the whole neighborhood like Palisades when opportunity arise. sure, prob XYZ allows to default to historic rate if they can rebuild in two years, but the state will do everything in its power to stop that building permit from passing.
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bengrama
@wannabfoode
The problem is property taxes are based on some arbitrary assessed value which essentially taxes an unrealized gain. They should be based on a combination of lot size and structure size as a percentage of the budget they support.
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JohnK
@jkog
At some point the property is too valuable not to develop. Once developed or renovated, the tax base is reset. Prop 13 slows the process down and enables residents to stay in their home as they age. Without it, elderly residents would have to scramble late in their life.
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Patrick Connor
@pcon34
I think we should reduce property tax because we canโ€™t track where the money goes & how effectively it is being spent. If the property taxes collected are going to education how come scores are coming down and districts are always begging for more?
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Andrew Ross
@aross2450
โ€œOwners should be able to do what they want with their property.โ€ (When they want to build on it. If they donโ€™t want to build, government should step in.)
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Andrew T. Clark
@AndrewTeeClark
The source of many of our problems
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Andrew T. Clark
@AndrewTeeClark
And why are California school budgets so constrained? Itโ€™s prop 13. The answer is *always* prop 13, whenever the question is โ€œwhy does XYZ suck in California.โ€ x.com/nextdoorsv/staโ€ฆ
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Chris
@NoBlades_NoBows
How do you get voters to repeal/modify Prop 13? You need to drastically shake up how property taxes are assessed, like using zoning rather than assessed value. This would lower prop taxes for a majority of voters, while raising taxes on all of the coastal, metro minority.
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Habadashery
@ThreeHatsInARow
Triggering a re-assessment can be thought of as a massive one-off wealth tax and as such prop 13 not only permits this squatting but encourages it!
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Ryan Berryman
@ryandb
Get rid of property taxes then the buyer can offer a reasonable price that the seller will be willing to accept, without tax differentials preventing the transaction.
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STP NorthEnder Guy
@stpguy33
This is a prime example where a land-value tax would solve this type of redevelopment. It would add significant density and vastly increase the property tax base, thus actually allowing property taxes for the nearby NIMBY land owners to less burdensome
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Lilly Michael
@lilly_Michael
As real estate professional, it is logical to relocate elderly residents to make way for development.However, as people age, their need for familiarity and stability increases.Cities should be responsible with their finances and avoid taxes that rob elderly people of their homes
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chimmers magoo
@CrumpleyB
it was so disheartening that the states voter turned down prop 13 repeal for commercial properties. will this be back on the ballot in a different form?
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Radical Centrist
@earthstepper
I get your point on CRE, but if we had annual residential reassessments, given the absurd governance, it would force me and many others to sell and move.
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Bumbling Bay
@BumblingBay
You also donโ€™t want seniors to be evicted from their long time homes due to exuberant property taxes. Prop 13 is IMPORTANT.
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Surfer_on_X
@Surferonx777
Voters repeatedly and soundly have defeated every attempt to weaken 13. You'll never win that fight. Good news is we can increase housing supply through upzoning and cutting red tape.
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Gone Haywire
@G0neHaywire
It time for the proper tax to be impound yearly proper tax to be collect at sale and force a true up any time the names on the deed change.
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Shaya
@shayalow
Prop 13 has cause more harm than good. California is full of owners in inappropriately sized homes, usually too big as they age. They are not being sold to the next generation because of low property taxes.
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Luk
@relaxbro111
Tons of elderly will lose their homes in a year if prop 13 goes away. I have a better idea: eliminate all property tax. Absolutely insane to force people to pay to keep a home they own outright because we donโ€™t build enough new infrastructure and housing to accommodate more ppl
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Ed
@ApisBocce
People can keep the property theyโ€™ve paid for as long as theyโ€™d like instead of being forced to move/sell because ofโ€ฆ govt. Yeah thatโ€™s a bullshit argument. If it was easier to build the market would move them very easily.
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Fr0hickey
@fr0hickey
Leave Prop 13 alone. The only way you will get me and other like me to get rid of Prop 14 is if there is a 20yr sunset on property taxes if the house is not sold. Otherwise, peddle your tax and spend like there is no tomorrow elsewhere.
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