Comment by on_ | Hacker News Reader

Comment by on_ | Hacker News Reader

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I Have Read this Medium Post.

The author makes a great case against Prop F, prop F seems like a totally shitty law and isn't going to fix the housing problem. It sounds like that isn't what the law is about anyway, but there is a great way to fix the housing problem. The argument he seems to allude to in his notes, is that people seem to choose sides based on their sentiment surrounding the current resedential/housing market.

In economics there are 2 forces at the heart of most problems. These are called "supply" and "demand" and they govern price. SF has not been keeping up with it's infrastructure, is a decade behind in new construction, and building new resedential properties will take ~5-10 years to complete. They are not actively building properties that will sufficiently meet demand even now. So this won't go away.

Unfortunately, people who paid a lot for houses have a vested interest in not raising supply, and the amount of regulation surrounding new construction creates massive amounts of friction. It will be interesting to see how this problem get's solved. I agree with the author though:

It is not going to be Prop F.

Of course, California also interferes with the market to discourage selling real estate. Proposition 13 disconnected property tax rates from the value of the property (by capping the increase in assessed value at 2% per year, far below the increase in actual market value).

Which created a massive incentive to hold real estate as long as possible without selling, since the only time the tax rate can reset to being based on market value is at the time of sale.

Proposition 13 didn't do that; the various governments who petulantly refused to adapt their tax regimes to the Prop 13 limits did. The bizarre incentives created by almost 40 years of attempting to strong-arm voters into giving power back to legislatures could be fixed by legislatures without doing anything to Prop 13.

What exactly should they do?

Don't make all of your money from a property tax that does not increase as your costs to provide services increase.

There are options besides property tax for raising tax revenue. City-level local income tax is the first thing that comes to mind.

Are you proposing abolishing property tax? Because nowhere in ubernostrom's post did he talk about city revenues, just about the perverse incentives to land-owners by Prop 13, and those will exist unless property tax is eliminated.

I didn't respond directly to ubernostrom, and my comment doesn't discuss whether prop 13 creates a perverse incentive for landowners in any respect (although: it does).

I'm saying that if you tie your revenue stream (i.e. taxes) to something that is essentially fixed at 1970's levels, but you have to buy things with it in 2015 money, you are going to not have a good time.

You can still keep property tax as part of your revenue stream, but these governments need to diversify. I would personally rather they diversified into income tax than some of the alternatives, such as red light cameras.

Nothing is fixed to 1970s levels. Property taxes get reassessed when there's a sale on the property. How many properties in CA have not changed hands since 1970, ie more than 40 years? Probably none, since that's almost 2 generations of families.

I think you might be surprised. There are a ton of exceptions to reassessment [1]. A notable one is that transfers from parent to child are typically excluded, meaning that you can indeed pass down low property taxes from generation to generation.

Commercial property is also covered under the same rules, and there are ways to keep it from being reassessed [2][3].

Improvements to the property will trigger reassessment, if the changes pass a certain threshold. This incentivizes owners not to improve their property (particularly externally). Look around San Francisco, and you can see the effect this has had (along with other factors like rent control). Anecdotally, I've heard of people replacing one window a year because they didn't want to trigger a reassessment. That is just flat out absurd.

There is a cottage industry dedicated to avoiding property tax reassessment, entirely because of prop 13. This isn't how it works elsewhere in the country. There are other, better solutions out there. However, it is virtually impossible to alter or repeal prop 13 because it was a ballot proposition -- it will outlive all of us.

[1] https://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm

[2] http://closetheloophole.com/history

[3] http://www.sacbee.com/news/politics-government/capitol-alert...

Prop 13 is across California, not just San Francisco. You're saying that home sales in CA have been suppressed because of Prop 13? You would be wrong.

There are about 6M housing units available in CA, and about 500k sales per year. That's an entire turnover of inventory in 12 years. Your anecdotal evidence is interesting but wrong.

I did not state that property sales have been suppressed, I said that property tax revenue has been suppressed. My particular anecdote was around property improvement, not sales. And once again, a property sale does not mean that reassessment definitely occurred.

However it is hardly groundbreaking to state that prop 13 has created a "lock in" effect [1][2][3][4].

[1] http://econweb.ucsd.edu/~miwhite/wasi-white-final.pdf

[2] http://taxprof.typepad.com/taxprof_blog/files/2008-19151-1.p...

[3] http://www.doctorhousingbubble.com/prop-13-california-housin...

[4] http://www.nytimes.com/2006/05/07/realestate/07california.ht...

Yes, actually you did say that property taxes are fixed to the 1970s, which I said was wrong.

Based on the level of home sales and the current median home prices, it's safe to say that there is more than enough turnover to reset property taxes, and the idea that property taxes are fixed to the 1970s, which was your initial statement, is utter nonsense. Linking articles that are 10 years old and from the middle of the housing bust is also nonsense.

No one is talking about prop 13 now because there is more than enough housing turnover across CA, and more than enough hungry home buyers willing to pay whatever price, regardless of the property tax.

And since I know you just skimmed the articles you posted and didn't read it, here's a finding that pretty much talks about today's environment, and it completely invalidates what you are saying about Prop 13:

"Rapidly rising housing prices may also have contributed to reduced tenure by increasing home sales, including speculative home purchases. Low mortgage interest rates over that period may have also increased home sales, especially for first-time home buyers, which in turn, would decrease average tenure."

Sorry that you're so fixated on prop 13 not contributing to any issues with local revenue collection or housing shortfalls. I continue to disagree. Either way though, neither of us are likely to get to express our opinions by voting in our life times.

To your point that "no one is talking about prop 13": a constitutional amendment to modify it was proposed 3 months ago [1]. Obviously that will never go anywhere -- the state can't even pass a balanced budget with regularity. But then, that's the whole problem with propositions, isn't it?

Otherwise, I think that you can rest easy, your point has been made. You prefer to make accusations (article skimming! anecdotes that are anecdotal!) rather than constructive dialogue. Welcome to the Internet, it's full of people you won't get along with.

[1] http://www.sacbee.com/news/politics-government/capitol-alert...

Property taxes are awesome: they do not distort economic activity (if done right), and they are hard to evade (since you can't hide your land).

OK. So then I take it we can agree that they shouldn't be artificially capped for some people because they got here first.

Definitely. Just make property taxes proportional to self-reported value of the property.

(With the catch that you have to sell to any would-be buyer who offers to pay the reported value. Just to keep people honest.)

So you want to increase the tax burden on productive economic activity to benefit people who are just capturing rent. That's a horrible idea.

I don't believe that's what I said. Cities in California have services they are obligated to provide -- police services, for instance. The cost of those services over time has increased proportional to salaries. However, the revenue gathered to pay for those services has only increased proportional to property values -- which are artificially trapped in the 1970's to a large extent.

That is an untenable situation, and it is a large part of California's problem at a local level.

It's basically rent control for property owners. California: The land of rent control.

This is true but in most cases it doesn't matter because your next best alternative is not changed. If you have owned a home for 10 years and want to buy a new home in another area, you will still want to sell your home. If you just moved to CA and want to own a home, you will still want to buy despite prop 13.

> If you have owned a home for 10 years and want to buy a new home in another area, you will still want to sell your home.

Actually, as an outsider looking in, the incentives seem set up such that you'd be far more inclined to rent your existing home than sell it.

Why would you want to be a landlord in SF? Even if its not rent controlled, a bad tenant is going to be a nightmare to get rid of.

I'm sure that it isn't all smelling roses and cashing checks, but rental property in San Francisco is literally a license to print money for many landlords.

Simply by virtue of having owned the property for several decades, you stand to make a significant amount of money from tenants.

Consider someone who has owned a property since the 80's. This person might have paid $600,000 for something valued at double that amount today. Their mortgage (if they even still have one) is $2400/mo, property tax works out to $500/mo, and they can charge $4000/mo for rent.

Lots of people in lots of places around the world rent their properties out for far lower returns.

Someone who owns a house from the 1980s, of which is likely very rare, is getting pretty close to retirement age, and would probably rather sell the house and move away than rent it out. And there will be a very willing buyer waiting to buy it, regardless of the property tax.

Rents are headed straight up and people are desperate for anywhere to live. Its a good gig to be a landlord in SF even if the laws are tenant friendly

This is of course patently false, since the real estate market in CA has gone through the roof, and cities are flush with new property tax money at sky high valuations.

The house we bought was last bought at $150k, and we bought it for 10x this amount. The amount of turnover in real estate in our city in the Bay Area has reached a fevered pitch, so the cities are actually benefiting from more tax revenues.

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