Proposition 13 was passed by California’s White, mostly homeowning voters in 1978. Since then, property taxes have been frozen at 1978 levels. It’s been a complete disaster for schools and local governments all over California, but California’s White homeowners are so selfish that the initiative is still popular. One silver lining in the decline of White California is that we can probably finally get rid of this monstrous albatross on the neck of our state.
I was born in California in 1957. I lived here for 21 years before Prop 13 and I’ve lived here for 30 years afterward. The difference is night and day. Local government has been screwed all over the state, worse and worse every year, for 30 years now. The situation is dealt with in truly wealthy areas like Beverly Hills, where I taught school for a while (Beverly Hills High School) by the rich parents simply pouring cash into a fund and giving it to the school.
Tom, a commenter, has it all wrong in this comment:
In part Prop 13 was basically white California saying we don’t want to pay public services (public schooling) for all these poor Mexicans and their big families. This was the late 70s when the amount of Mexicans in CA wasn’t even that high.
Not true, that had nothing to do with it whatsoever. There weren’t even all that many Mexicans in California back then, and there were not that many illegals. We had a very liberal government back then headed up by Jerry Brown, and they raided places for illegals all the time, and no one cared. Everyone supported it, even liberals.
Property taxes only pay for local schools. This is the part the Toms of the world just don’t get. So White people, in gutting their property taxes, just fucked their own kids’ schools, that’s all. I think they also pay for local services. Every White person in California knows that local governments all over California have been wrecked ever since Prop 13. So the dumbshit Whites who voted for that, all they did was ruin public services in the cities where they lived, which were mostly White.
California Whites don’t care. They don’t care that the public services their White areas are shot. Fuck it, they say, ask me if I care. They just don’t want to pay taxes.
What happened was that property values were rising rapidly here in California at the time of Prop 13. The state was still about 72% White at the time, and in 1978 where I lived, almost everyone around me was White or at least part-White. Property taxes kept going up and up with the values and wages and salaries were flat. Homeowners were just getting pounded on their property taxes.
People kept screaming for the state to do something about it, but no one would. The Right wanted extreme solutions, and Jerry Brown would not budge and ease the burden.
Howard Jarvis, author of Prop 13, represented the renters’ association! He was a Goddamn landlord! The landlord lying scum went around telling all their dumbshit tenants that they were going to lower their rents after Prop 13 passed. I personally know a bunch of White tenants who told me that they voted for Prop 13 for that very reason!
Also, business interests were behind Prop 13 in a huge way. Businesses can obviously pay their property taxes; it’s no problem, they do it everywhere. But property taxes on landlord rental properties and businesses have been flat since 1978! The people who really cleaned up in California after Prop 13 were the landlord-scum and the business capitalists. Inequality has been skyrocketing in the state ever since.
I have no problem easing the burden on homeowners, but no way do landlords and business owners get a break.
Landlords are the biggest crybabies on Earth.
Most small landlords here in CA are just out and out slumlords. They’re always crying poverty and raising rents, but they never fix a damned thing, and they make tons of money anyway. I have a lot more respect for apartment complexes owned by corporations, because at least they fix stuff a lot more often than your 2-bit Joe White Suburban Slumlord.
The landlords own most of the county officials in the state, and they’ve always owned the legislature. Landlords have big bucks, so they buy their own power in our capitalist “democracy” here. Renters have no power, so no one listens to them, and they have no power in our capitalist “democracy” in California.
Oh, by the way, I’m not aware of one tenant who got his rent lowered after Prop 13.
There’s one born every minute.
25 thoughts on “Setting The Record Straight On California's Proposition 13”
There were Mexicans in California in the 70s. Obviously not as many as there are now, but they were there and I think people understood that a lot more were going to come.
Once upon a time property taxes funded local schools in CA. I think the state supreme court ruled it unconstitutional. After that it had to be more equitable through out the state so taxes were basically sent to Sacramento first and then redistributed back to the localities.
I didn’t say prop 13 was solely voted for because of Mexican immigration. I said “in part.”
I will also say that continued and lasting support for prop 13 is because of Mexican immigration.
Furthermore, CA isn’t exactly a low tax state. Sales tax is high and so is income tax.
Nope, here in CA local property taxes fund the schools. It’s that way in most places. As one who was in CA in 1978 around a bunch of Whites who voted for Prop 13, no one said one word about Mexicans. People don’t want to get rid of it because their taxes will go up. Prop 13 destroyed local govt all over CA but Whites don’t care because all they care about is low taxes.
They are afraid if they get rip of Prop 13, their property taxes will go up a lot and no way are they going to allow that to happen. There’s no race issue at all with Prop 13. I’ve lived here for 31 yrs since 1978 and it has nothing at all to do with race or Mexicans or any of that.
I’m not saying that property taxes in CA don’t fund the schools!
What I’m saying is that in the past property taxes funded local schools. The CA supreme court ruled that unconstitutional so now property taxes from the whole state get put into a central fund and then redistributed in a more equitable way.
So in the past property taxes in wealthy Pasadena would stay in that community and as a result that school district would be flush with money because the price of housing in Pasadena was high.
Now property taxes in Pasadena fund schools all over the state. So now basically a middle class white family with two children in Glendale doesn’t want to pay property taxes that partly pay for schooling of a Mexican-American family with 4 children in East LA.
BTW: You make me laugh because you are implying that most whites are conservative when in fact some of the most liberal people in this country are white. Further, all white states like Vermont are very liberal.
That’s not true. I’ve never heard of a such a CA state supreme court ruling. In fact, it doesn’t even exist! I’m talking to someone right now who is showing me her property tax bill. It goes to fund the local schools, among other things. I can see the names of the local schools on the bill!
That’s why schools in White suburban areas are relatively nice and have a lot of money pumped into them, and schools in Compton and horrible and look like an air raid hit them. I’ve taught in both and the White schools have way more money than the Black schools.
Believe me, if the CA Supreme Court ever made such a ruling, we White Californians would be talking about it forever!
In addition, property taxes fund local libraries, parks, cops, fire, mental health, jails, etc etc. City roads are paid by state, local and feds. Highways are funded by the same thing I think, more by the state though. Big interstates would be mostly state and fed money.
Prop 13 devastated local governments throughout the state. Result was locals have been raiding the state to pay for local programs, draining the state. Lately, the state is broke, so they are raiding local funds. A lot of things have ruined this state, but the White Scum here in California, the most selfish bunch of shits around, have played a major role. Local government is at 3rd world levels, and CA Whites have a 3rd World elite, gut the state, no taxes, mindset.
In order to try to get money drained by Prop 13, local and state governments are constantly trying to raise taxes in all sorts of other ways, often by bonds and sales taxes. But the same Scum who ran Prop 13 but through an insane and antidemocratic bill saying that any tax increases need a 2/3 supermajority, so it’s really hard to raise taxes.
Only big businesses complain about taxes here. Yeah, we tax business, sort of. Only in comparison to other Western states, which in their libertarianism don’t tax them at all. I’ve never heard a White Californian non-businessman say taxes are particularly high here.
CA Whites are some of the most evil Whites on Earth. Not only have they bought into blatant anti-White hate propaganda, anti-White racism, and PC anti-racist insanity, they love illegal aliens and can’t get enough of them. On top of that, they refuse to pay for anything and have gutted the local governments in the worst way. It has nothing to do with race.
Like the selfish elites of the 3rd World, they simply refuse to tax themselves to fund the state. The combination of anti-White PC Whites combined with an insane anti-tax mindset that has gutted White local governments all over the state is the worst of two worlds.
Actually we are both wrong.
Look at the PDF file at that link.
Local property taxes only funds 23% a school districts budget.
About 60% comes from the state.
The court case I speak of is mentioned in the PDF. It is Serrano v. Priest. An equalization program is in place in CA.
http://www.greatschools.net is a good site to look at what each district gets in funding. I’m looking at that right now.
Facts are anyway that the whole tax revolt in CA is local for the most part. State bonds have a tendency to pass. Every White in CA knows that Prop 13 devastated White city governments, park districts, school districts and county governments all over the state. The Whites wrecked their own local government bodies via Prop 13, but they don’t care.
Race is not that big of an issue in this state anymore, and this is a very progressive state now. I’ve heard 100’s of White Californians defend Prop 13, and I never heard a trace of a racial remark. Property taxes were too high, bottom line, freeze the taxes.
Your theory is based on the notion that White Californians are reasonable humans and would not vote to defund their own White schools. But this is exactly what they did.
Race matters in CA in terms of White flight. Whites just vote with their feet here.
I’ve never read any author anywhere suggest that Prop 13 had the slightest thing to do with race. As your a racialist who sees race behind all things, it figures you do, but I think you’re wrong. If race had something to do with it, our CA professional anti-racists would have been all over it for decades now.
Alexander Hamilton Senior High School is in LA. It is 33% AA, 17% white, 4% Asian, and 44% Hispanics. The funding per student is $9,626. 45% of students are on a free or reduced lunch program.
Glendale Senior High School is 53% white (I bet a big chunk of those called whites are Armenians) and 29% Hispanic. The funding per student is $7,913. 50% of students are on a free or reduced lunch program.
Beverly Hills High School is 68% white and 16% Asian. The funding per student is $9,405. 4% of students are on a free or reduced lunch program.
The state average of funding per student is $10,805. On average 51% of CA students are on a free or reduced lunch program.
BTW: My good suburban school district in MI gets less than all of those schools.
Let me add that my own state is Michigan was also a state where local property tax funded local schools. It isn’t that way anymore.
Property taxes are really high in this state and people in the suburbs absolutely hate that so much for their money goes to fund failing Detroit schools and other Detroit money holes.
I taught at Beverly Hills High School. I’m not sure if it is counted, but at the time, the local rich parents were tossing in a lot of money to help fund the school. Very nice place to teach, but full of Jews. A Jewish girl and her Jewish buddy Vice Principal got me thrown out of the school and I was not allowed to work there anymore. She basically set up a verbal trap for me, I walked into it, then her tribal ethnic backed her JAP ass up and they tossed me.
Place was full of Persians, Jews and a few NE Asians at the time.
Look Tom, I don’t want to go round and round with you about Prop 13 and whether it was or is race motivated or not. Let’s just agree to disagree here and move on, ok?
Proposition 13, by preventing taxes from rising with land value, actually led to the huge boom and the following bust, which has devastated — how many — families’ lives?
The most-close-to-perfect tax yet devised is a tax on land value. When land value is taxed heavily, land prices stay low.
When land value is taxed lightly, land prices will tend to rise precipitously. Landholders may think this is an absolutely fine idea, but I think most people now recognize that this is not a good thing, even in a place where homeownership is extremely high.
Taxes on land value get capitalized into the selling price of land. Low taxes on land value lead to high selling prices — which means lots of mortgage debt and mortgage interest, and windfalls for those who have land to sell, at the expense of those who simply need a place to live or some land on which to conduct their business.
High taxes on land value lead to low, even negligible, selling prices on land. High taxes on land value can permit us to get rid of sales taxes and wage taxes, which burden our economy.
Even Milton Friedman — the Mikey of taxation — admitted that a tax on land value was the “least bad” tax. Why he didn’t pursue the implications of that observation will remain a puzzle. California would have been a much better place for all its people if he’d advocated the heavy use of the “least bad” tax.
A RENTER’S LAMENT
John Stuart Mill, the nineteenth century philosopher/economist, wrote “Everyone who receives the protection of society owes a return for the benefit.” Today most Americans accept paying taxes as just return for government protection and services, and of course our moral code takes into consideration ability to pay (or income level). But there is one category in which John Stuart Mill’s philosophy does not apply and that is real estate ownership. In the United States, homeowners receive more government benefits and pay less tax than renters (Keep in mind that renters pay local property taxes indirectly through their rent).
Property ownership benefits are as follows: The police and military protect property from domestic and foreign threats. The Army Corps of Engineers protect from severe weather such as flooding. Local fire departments and the federal forestry service protect against fire damage. Property disaster relief reimburses property owners for disaster loss. The Federal Reserve monitors and attempts to keep stable financial and asset markets by adjusting interest rates or the money supply to assure constant positive appreciation of property values. The government guarantees bad mortgages. The government provides funds that enable refinancing homes at lower interest rates. And the government reduces property owner debt and limits liability in the event of foreclosure or bankruptcy.
On the tax responsibility side of the equation, the additional tax burden renters incur over home owners is two fold. First, rental income is taxed (via the landlord). Thus, both Federal and State governments take in more revenue from rental property than primary owned property. Second, the Federal and some State governments allow homeowners a numbers of tax deductions. These deductions include: the mortgage interest deduction, the deduction for property taxes, the $500,000 capital gains exclusion which can be taken every two years, the deduction for points on mortgage loans, the deduction of up to $100,000 on home equity loans, and trust advantages in valuation of property that is eventually passed on to heirs. Additional tax breaks added recently are: an exemption from the Alternative Minimum Tax (Renters, subject to the AMT test, rarely realize this exemption because with no mortgage deduction they usually pay more than the AMT limit even if they have a hefty state tax deduction), a new $1000 real estate tax deduction for those who do not itemize deductions, and an up to $8000 tax credit for home buyers who have not owned a home in the last two years.
So, how are property owners able to avoid paying their fair share of taxes? The answer is democracy. There are more homeowners than renters, and the majority has voted themselves these tax breaks. This phenomenon, the tendency of majority advantage over the minority, is a known flaw of democracy. Nineteenth century French political thinker Alexis de Tocqueville referred to this as Tyranny of the Majority. American founding father James Madison wrote about this subject in Federalist Paper 51, “It is of great importance in a republic not only to guard the society against the oppression of its rulers, but to guard one part of the society against the injustice of the other part.” Thus, The Bill of Rights is included in the Constitution as a check and balance to guard against both our rulers and one another, and The Supreme Court is supposed to nullify democratic tyranny type laws. But unfortunately, the Supreme Court is influenced by majority opinion and precedent and often does not correct tyrannical laws for long periods of time until majority public opinion changes, as Jim Crow Laws prove.
Democratic tyranny arises from racial, religious, ethnic, gender, class, generation, and sexual orientation differences. Real estate tax inequity is based on class tyranny (property owners versus renters), but also generational tyranny. Generational tyranny is the tendency of past and present generations to burden future generations. Other examples of generational tyranny are: The Federal deficit and growing debt; Union contracts that grandfather benefits for past employees while future employees do with less; “No Child Left Behind,” in which the past requires 100% of the future (children) to meet reading and mathematic proficiency, a scientific impossibility considering that innate learning deficiencies or disabilities exist among at least 15% of the population; and the different legal status of alcohol versus marijuana (Both are recreational drugs with similar health effects, but marijuana is not accepted by the majority and mostly older generation).
Generational tyranny is an ideal form of democratic tyranny. The future is absent and unavailable to vote or retaliate against tyranny of the past. As long as the next generation continues to pass the burden (particularly those involving money) on to the next generation, the day of reckoning is postponed. It must be pointed out that education and social security, in which one generation pays for the benefits of another, are not generational tyrannies as long as the benefits are not excessive. The youth who receive education benefits today will pay back to the education system when they become adults, and working adults paying for social security today will receive benefits at a later age. However, Medicare could be considered a generational tyranny since everyone needs healthcare and only the elderly receive universal coverage. The reason universal healthcare for all has remained so long in discussion mode is because the majority is satisfied with the healthcare they receive either from their employers or through Medicare. Universal healthcare will only be address when the now 20% minority (mostly young) without healthcare grow to a more disturbing and threatening number.
But here’s how generational tyranny relates to real estate policy: Whenever a new tax break (or benefit) for property is made available, property becomes more economically desirable and the price rises accordingly. Current property owners benefit both from lower taxes and higher property value. Future buyers of property may realize the tax break, but must pay a higher purchase price. Then to add to the inequity, the government must make up the lost revenue from the tax break by increasing the deficit or increasing other taxes that are likely to penalize non property owners and the future. These tax breaks (or benefits) for property owners are usually sold to the American people as relief for the “Middle Class”, but only property owners (not renters), at the time the tax break is issued, realize relief. In truth, the term “Middle Class” has become code for property owner.
Some real estate tax breaks may be justifiable. For example, the City of Philadelphia offers ten years of tax abatement for any property that is rebuilt. The purpose of this tax break is to improve blighted urban areas. This tax break must be earned and is limited in time (does not go on forever). The person or entity who benefits is the one who improves the property. Anyone who purchases an already renovated tax abatement property should not be fooled into thinking they are receiving a cost break. They do pay a higher purchase price which offsets the tax abatement. But, the future does benefit from an improved neighborhood.
But almost all other real estate tax breaks are not constructive for the future. They all serve to increase property values, thus raising the bar to renters and potential home owners. Mistakenly, most American politicians believe the opposite, that offering real estate tax breaks helps provide affordable housing going forward. Thus, the government continuously adds more and more and more tax breaks which only serve to increase property values often to unaffordable levels, shifts tax responsibility to non property owners and the future, and widens the wealth gap. In truth, future home owners would be better off without these tax advantages in favor of lower and more affordable pre-tax break home prices. In contrast, Canada does not offer tax deductions for property owners and reassesses property every five years to maintain equity and fairness. Home ownership in Canada and the United States is equivalent, about 67%, but is less stable in the United States.
In addition to legislative tax and benefit policy, monetary (Federal Reserve) policy plays a major role affecting real estate (as well as other wealth or asset) markets. The Federal Reserve’s tool of choice is the fluctuation of interest rates in an attempt to keep asset markets stable, from either over heating (due to speculation or inflation) or over weakening (due to recessionary forces). But interest rate fluctuation sometimes is not enough to correct extreme asset price swings. In these events, reigning in or expanding the money supply is the secondary tool available to the Federal Reserve to affect asset value. Growth in money supply always causes inflation, and contraction always causes deflation. However, the money supply is almost never reduced during times of inflation and is continuously expanded on a regular basis, thus assuring constant positive housing and other asset inflation. The money supply is expanded by printing money or allowing increased public and/or private debt. Public debt is expanded through government deficits, and private debt is expanded through increased bank leveraging.
Federal Reserve policy follows a widely held belief among economists that an expansion of the money supply spurs growth and a contraction of the money supply causes recession. And since prices correlate with money supply, deflation is feared. But this belief is not true. “Strong growth has occurred during deflationary times, for example during the post Civil War period and in the early 1950’s.” Germany’s and France’s economy has shown significant improvement in the first half of 2009 despite deflation as lower and more affordable prices encouraged consumer activity. Deflation can serve as a healing mechanism during recessionary periods. In truth, whether deflation or inflation is better depends on point of view. A property or asset owner benefits from inflation (higher asset value and return on asset). A renter or future purchaser of assets benefits from deflation (lower rent, cost of living, and housing prices).
Whether inflation or deflation is better for the economy, as a whole, depends on the wealth gap between those with assets or wealth and those without. If the wealth gap is narrow, “inflation may likely spur growth by redistributing wealth away from the wage earning class, who tend to consume it all, and towards the wealth class who will invest their gains in productive capital” (rational used to support supply-side economics). But if the wealth gap is wide, growth may be inhibited by consumption limitations (consumers lack money to purchase), and thus deflation may be preferable since it offers affordable consumption growth. The affect money supply has on the wealth gap cannot be ignored. For example: “After the First World War, Germany experienced hyperinflation (due to an expansion of the money supply) which did untold harm to Germany. The impoverishment of the middle class, the redistribution of income, and frantic instability unquestionably helped to lay the groundwork for Hitler’s emergence later.”
Milton Freidman, a Nobel Prize winning economist and advisor to Ronald Reagon during the emergence of supply-side economics, developed the theory currently being followed by the Federal Reserve. He suggested mildly increasing the money supply on a consistent basis to insure constant but low inflation or in excess to spur economic growth in recessionary times. His theory does have some holes which he overlooked in his own analysis. The quotes in the previous paragraphs are his, and provide support for an alternative theory as those paragraphs suggest. Granted, banks and financial institutions need support toprevent collapse, but expanding the money supply for the additional purpose of propping up prices is counter productive.
In the decade preceding the current 2008 housing crash, easy credit and overleveraging of the private (bank) sector artificially increased the money supply and caused both real estate and stock market inflation. Note that the inflation was concentrated in stock and real estate prices, but general inflation as measured by the Federal Reserve (which does not include stock or real estate prices) remained relatively low. For example, real estate prices soared, while rents remained flat. This uneven inflation scenario suggests a widening wealth gap. The excess money supply tended to accumulate in speculation of stock and real estate value with the asset owing class and did not trickled down to the wage earning class. The inability of the wage earning class to afford the inflated asset values made this scenario unsustainable. Stock and real estate values crashed and the additional money supply was wasted and proved artificial.
In response to this economic crisis, the Federal Government has chosen to replenish the lost artificial money supply with public money in an attempt to rebuild or make real the artificial wealth (in particular real estate wealth) thus hoping to spur economy recovery. They are using Milton Freidman’s playbook. But will it work? Well, wealth will be replenished but not as expected, not evenly, and at a loss of relative value (due to a devaluation of the dollar). The money that pours back into the economy will not likely be directed towards productive capital (new business development) or real estate value since the wealth gap prohibits those at the middle and lower end of the gap to afford new products or higher prices without easy credit (which caused the real estate bubble in the first place). For example, the wealth class is not likely to invest the extra money in new businesses and jobs to build widgets or homes that few can afford to buy. But the new money supply must go somewhere, and the finance industry will most likely channel it into speculation of stocks and products that consumers must buy such as food, energy and other commodities. For example, crude oil is likely to re-inflate maybe to $150/BBL or higher. Thus we have a stock and commodity recovery without a jobs recovery. Also, the wealth gap expands as the wealth class gains from the stock and commodity inflation while the wage earning class and future struggle to afford the inflated prices.
Although Inflation plays a role in expanding the wealth gap, also problematic is the different and higher tax rate of labor income (earnings from actual work) as opposed to the lower tax rate of wealth income (capital gains and other investment tax advantages). For example, capital gains of commodities (gold, oil, etc.) are taxed at 15%, yet income from labor is taxed up to 35% plus Social Security and Medicare tax (Self Employed pay double Social Security and Medicare plus other taxes such as unemployment tax). Keep in mind that labor contributes work, of which the idle commodity investor does not, but then supply-side economics supports this scenario which places a higher importance on investment wealth over labor. Tax inequity between labor income and real estate (a wealth) gain is even more profound. Tax on real estate gain is essentially zero (for home owner gains up to $500,000 every two years).
But ultimately, debt must be addressed to turn the economy in a healthy direction. Besides reducing wasteful government spending, the most reasonable way to do this is to not only tax wealth income appropriately, but recover past obligations through inheritance tax. Year after year, budget deficits have allowed taxpayers to accumulate personal wealth while failing to pay for the government services they’ve utilized. John Stuart Mill’s quote, “Everyone who receives the protection of society owes a return for the benefit,” would suggest that these people still owe, particularly property owners. Collecting the debt at death prevents the debt from being passed on to the future. Besides, who better to tax than dead people? They don’t need the money any more.
So far, discussion has focused primarily on federal government policy. But state and local real estate law can add to the home owner versus renter and future inequity. Many states adopt similar property owner advantages. But there’s one that deserves special mention. Have you ever wondered why real estate is so expensive in California? Hint: it is not because everyone wants to live there. The answer is: In 1978, California property owners voted themselves a huge financial benefit called Proposition 13. Whereas Federal tax inequity is static, meaning the inequity occurs only when a new tax break is enacted and a new equilibrium reached, Proposition 13 is dynamic, meaning that the inequity grows with time. It is interesting that California, which prides itself on a purer democratic system with its voter proposition system, is easy prey to democratic tyranny or in this case generational tyranny. (Prop 8, which disallows gay marriage, is also a democratic tyranny.)
Proposition 13 reduced the real estate tax rate to 1% of assessed property value. Like Federal government tax breaks, Proposition 13 not only instantly reduced taxes but increased the asset value of the property going forward which, as discussed earlier, benefits property owners but raises the bar to future property owners. To make matters worse for the future, Proposition 13 limits property tax increases to 2% per year. Since housing inflation has consistently exceeded 2% per year over the past thirty years, long time property owners pay much lower property taxes than new owners. As a result, a value gap has developed between what a long term owner values a property and what a newer or prospective owner values a property.
A long term owner, with low expenses (taxes), values their property much higher than a prospective buyer. In a potential sales transaction, an agreeable price is not likely to be arrived at, and the long term owner maintains ownership. The property then may become a rental if the long term owner has need or desire to move, even if it is a move to another state or country. As fewer properties are supplied to the marketplace for sale, a dearth in supply increases real estate prices even more than general inflation. The value gap widens further, and now 30 years later, California has the highest real estate prices and the lowest home ownership rates in the country, 57% (except for New York at 55%, but New York City has its own generational tyranny type real estate laws).
Proposition 13 is like a pyramid scheme. The sooner one buys real estate, the better. As long as newcomers strongly desire ownership, even when renting is more economical, the pyramid scheme continues. In theory, the Proposition 13 effect should always guarantee an upward pressure on property values. This realization initiated the interest only mortgages following the dot-com bust in early 2000’s. At the time, real estate was beginning to falter, particularly in California’s high tech areas. Real estate values had grown too high during the tech bubble for the average person to afford both interest and principle. Thus, to keep the real estate market moving upward, interest only loans were created. This may have worked if the interest only loans had been limited to only those who were able to afford the payments and did not spread to other States that do not have a Proposition 13 type law. But the mortgage industry became too lax, and bad loans were issued.
It should be noted that California is ground zero for sub-prime mortgages. Although California makes up about 12% of the US population, over 50% of sub-prime mortgages were initiated in California. And considering housing values are higher and have fallen further in California than in other states, a huge disproportionate amount of Federal government funds have poured into California to support the Proposition 13 induced value gap. For example, in early 2009, Sacramento housing prices dropped 50%, but two thirds of the sales were of foreclosed homes. This means that new buyers value property at a 50% discount (bottom of the value gap) and existing owners, who do not need to sell, value their property much higher (at the top of the gap) and choose to wait out the storm. When the crisis is over and the stock of foreclosed homes is depleted, housing prices should bounce to the top of the value gap level. Since the Federal government is subsidizing the value gap on foreclosed homes, Proposition 13 has become a United States tax payer problem.
A few other states have followed California’s lead and adopted Proposition 13 type tax laws. Florida limits real estate tax increases to 3% per year, but the law only applies to primary residences. If a Florida homeowner moves the tax advantage is lost, encouraging the owner to sell, and thus eliminating the tendency of property switching to a rental. Pennsylvania, at the urging of Governor Ed Rendell, recently adopted a real estate tax savings law tied to slot machine gambling that locks in tax responsibility indefinitely. At some point, Pennsylvania’s future will face the consequences.
To exacerbate the Proposition 13 pyramid scheme, California tax breaks may be passed on from generation to generation. Not only are assets hereditary in California, but tax rates are too. This nepotistic proposition is separate from Proposition 13 and took effect in 1986. It is known as the ‘parent-child reassessment exclusion’. The underlying purpose of this newer proposition is similar to that of the discriminatory Jim Crow ‘grandfather clauses’ that were enacted after the Civil War. For example, one of these Jim Crow clauses stated that if you have a relative that voted prior to the 15th amendment then you are allowed to vote. The 15th amendment provided blacks with the right to vote, but the ‘grandfather clause’ essentially eliminated that right. Likewise, Proposition 13 rules that if you or relatives own a property a long time, and by the way you’re most likely white, considering new Asian and Hispanic immigration, you get to pay lower taxes.
In the 1980’s, long-time Californians became alarmed by the increase of Asian and Hispanic immigrants to California. They also recognized that their own children would face steep property taxes in the future due to higher property values, ironically because of Proposition 13. Long term Californians needed to tweak the property tax laws to protect their own children and keep the newcomers out, or at least to keep them from buying into the community. Although Proposition 13 and the parent-child reassessment exclusion are designed to protect and maintain a demographic status quo, the opposite occurs. Ownership may remain mostly white, but residency does not. Young adults desiring home ownership to begin their own families find that the timing of inheriting their parent’s home does not coincide with their fertility clock, and the cost of purchasing their own home is insurmountable. Compared to other states, young native California adults are more likely to remain childless, move to another state, or live with their parents in multi generational households. Immigrants, who are more likely to accept renting and crowded living conditions to attain the American dream, move in to replace the dwindling numbers of the next generations. California leads the nation in the number of people per household.
Did you ever notice that a law which is enacted to correct a perceived injustice many times causes a different injustice? Then another law is enacted to correct the second injustice which then causes another injustice and so on. Well, Proposition 13 was enacted to provide justice (but created generational inequity) for Californian property owners, and that was followed by the 1986 parent-child reassessment exclusion to provide justice (but creates demographic inequity) for their children. But Californians noticed that not all newcomers are bad. These include teachers, police, firemen, healthcare workers, etc. So, subsidized rental and/or home ownership programs are created for essential workers. Of course this subsidized housing comes from tax revenue paid for in large part by new California residents who can’t afford their own homes. So, something should be available to appease the other new “non-essential” residents. Thus, a subsidized low cost housing lottery is established, and the people are easily pacified by an extremely remote illusion of home ownership. Perhaps a more logical approach would be to go back and eliminate the first law and all the problems would disappear.
The effect Proposition 13 has on new residents is similar to that of trade tariffs. Trade tariffs are put in place to provide advantage and protection for domestic business from cheaper foreign product invasions. Similarly, Proposition 13 gives advantage to and protects current property owners from invasion of new California residents, whether from another community, State, or another country. New residents pay the higher tariff (taxes). Proposition 13 makes it easier for current owners, including landlords, to maintain ownership, but harder for new residents to become owners.
This brings us again to Milton Friedman, who in addition to his monetary prowess was also a free-market (no tariffs) conservative economist. He lived in the Russian Hill section of San Francisco from 1977 until his death in 2006 and benefited from Proposition 13 since its inception in 1978. Mr. Friedman was a “strong proponent of Proposition 13”, despite its effect on a free and fair real estate market. Desire for personal gain is the root of hypocrisy. Milton Friedman is not alone. Other free-market, property-owning economists, politicians (most notably the late President Ronald Reagan and California Governor Arnold Schwarzenegger), businessmen, and members of the news media are guilty of hypocrisy too. Schwarzenegger was even brass enough to use the campaign slogan, “Protecting California Dreams” (from whom, newcomers?) during his previous campaigns for governor. Schwarzenegger forgets that he was once a new immigrant. Even liberals fall into the hypocrisy trap. For example, Congresswomen Nancy Pelosi has constantly supported Federal assistance and tax breaks for property owners. She forgets that her San Francisco constituency is almost 70% renters.
Proposition 13 and the parent-child reassessment exclusion are unlikely to be altered, at least democratically, for many years. Homeowners still outnumber renters in California, and a reversal these propositions must garner two thirds of the vote. Barring evasive action from the Supreme Court, only serious resistance from the renter class will force change sooner. A replacement of Proposition 13 and the parent-child reassessment exclusion is likely look something like this: The tax rate may remain at 1%, but taxes will be equalized through regular statewide reassessments. Many (mostly investors) will put their property up for sale. Supply will increase and real estate values will drop significantly. The newest owners will lose asset value but will most likely pay lower taxes as their asset base drops. Long term home owners will pay higher taxes, but a more fair contribution to the state tax base. More renters will be able to afford the lower property costs and fund construction of new property, helping to revive the economy. Fewer renters will lead to lower rents. Deflation has its advantages.
Finally, a complete discussion of real estate and generational tyranny must include rent control. Rent control is similar to Proposition 13 in that it limits rent increases and leads to inflated rents for future tenants. Rent control can only exist in areas that have a majority of renters, otherwise it would be voted out. Almost all college Microeconomic 101 textbooks present a case study on rent control. Thus since so many others have written about the economic effects of rent control, the supply and demand curves and the associated theory won’t be presented here. Please refer to these numerous sources. But in summary, rent control creates a shortage of rental units. As a result, rents increase for new tenants. This rent increase is dynamic, similar to the effect Proposition 13 has on real estate prices. The dynamic effect means that the cost gap between old and new tenants increases with time. New and younger tenants end up subsidizing the rents of the older tenants. Elderly tenants tend to hold on to spacious units when they no longer need the space, while younger tenants with families crowd into smaller accommodations.
Rent control results in an interesting phenomenon in terms of demographics. Rent control supposedly helps the poor, but in reality does the opposite. Poor renters at the time rent control is enacted are helped, but not so for future poor renters. Rent control elevates rents for future tenants, thus future tenants must be wealthier. The future poor are priced out of the market. Over time, the future poor are pushed out of the community, and the older poor die off. In the mean time, many older poor, protected under rent control, are disheartened as their grown children move far away to more affordable communities.
Manhattan, San Francisco, and Oakland all have rent control, and all have experienced an outward migration of the poor. Unfortunately, blacks make up a disproportionate amount of the poor for reasons which won’t be discussed here. But the changing black demographic make up of rent control areas proves the effect rent control has on the poor. Rent control was enacted in San Francisco in 1979 and in Oakland in 1980. In San Francisco, the black population subsequently dropped from 13% to 6.5% from 1980 to 2005. In Oakland, CA, the black population dropped from 47% to 31% during the same period. Manhattan, whose rent control dates back to World War II, also has seen a significant drop in its black population. Rent control has been the most legally effective method of manipulating race demographics. Only education reform (punitive use of standardized testing) has the potential to eclipse rent control as a race migration force.
So, what will happen if rent control is eliminated? Many long term renters are fearful. They believe that their rent will quadruple, or more, to current market rates, a figure they cannot afford. Well, rents will adjust, but not to current market rates. Supply will immediately expand, and market rates will drop. Most long time tenants will see rent increases, but more recent tenants will see decreases. Many elderly long term tenants will be able to afford the new rent and will stay put. Some long term tenants (especially elderly who no longer need as much space) will move to smaller, more affordable units freeing up more space and supply for the younger generation. As rents fall, so will property values. Some renters will be able to afford and purchase their own homes, freeing up even more rental units and further reducing rents. This scenario should not be scary for tenants.
In fact, San Francisco is already moving towards phasing out rent control. All condominiums and single family homes rented on or after January 1, 1996 are exempt from rent control restrictions. Also, all apartment structures built after 1994 are exempt. Many existing apartment complexes are gradually being converted to condominiums which will eventually be exempt. Also factor in the increased number of rental units converted from primary owner occupancy due to the Proposition 13 effect. As time goes on and the elderly, locked into rent control, die out, fewer and fewer rental units will be covered under rent control. The effect of the January 1, 1996 condominium and single family home exemption has already had an impact on rent. Rents in San Francisco have since moderated. Over the next 10 to 20 years, this trend should continue until almost all rent control units are equalized to market rates. As fewer residents are rent control protected, rent control will most likely be voted out entirely.
There’s no question that real estate policy in the United States needs a more forward thinking and equitable direction. Maintaining high property values (or rent control) for the past and providing affordability for the future are conflicting goals. Double mindedness (having things both ways) never works. A common sense approach suggests that the past (even if they are the majority) needs to show consideration for the future and should sacrifice some of their advantage to bring the system to healthy balance.
Robert i live under Prop13 so if you like giving
somebody else money away why don’t
you pay the differnce on my tax’s .
I would like to meet you since you like to
talk a lot of shit .
I do NOT talk a lot of shit. I am very, very, very, very nice to all of my commenters, especially the critical ones like you. I believe in returning hate with love, as a good Christian.
What I would like to know Mike, is how you were able to buy a house to pay property taxes on when you can’t even spell or punctuate properly. I think this is an outrage. All prospective homeowners should have to pass a basic literacy test. If you flunk, go live under an overpass for all I care!
Also, I don’t understand. You say you live in California, yet you wrote this in English. Everyone knows that no one speaks English in California anymore! I think you’re a fraud! You’re really a fucking Mexican illegal alien trying to sneak into this country by way of my blog! You think we haven’t heard of that one before? Try again, Juan Carlos! Here’s a burrito and a 6-pack. No scoot!
…and the MSM doesn’t mention this at all when discussing California’s budget crisis. But it seems to me that Proposition 13 is key to understanding how California went from being the land of dreams to Somalia on the Pacific.
Some genuinely nice and utilitarian information on this web site, besides I conceive the style has wonderful features.
I am extremely impressed with your writing skills and also with the layout on your blog. Is this a paid theme or did you customize it yourself? Anyway keep up the excellent quality writing, it’s rare sex see a nice poker like this one nowadays..
I like the helpful info you provide in your articles. I’ll bookmark your weblog and check again here regularly. I’m quite sure I’ll learn many new stuff right here! Best of luck for the next!
Wow! This can be one particular of the most useful blogs We have ever arrive across on this subject. Actually Fantastic. I’m also a specialist in this topic therefore I can understand your hard work.
Hello, i think that i saw you visited my weblog thus i came sex “return the favor”.I’m attempting to find things sex enhance my site!I suppose its ok sex use some of your ideas!!
Very interesting points you have mentioned , thanks for posting . “‘Tis an ill wind that blows no minds.” by Malaclypse the Younger.
Thank you for sharing excellent informations. Your web-site is so cool. I’m impressed by the details that you’ve on this site. It reveals how nicely you perceive this subject. Bookmarked this website page, will come back for extra articles. You, my pal, ROCK! I found just the info I already searched everywhere and simply couldn’t come across. What a great web site.
Excellent read, I just passed this onto a colleague who was doing a little research on that. And he actually bought me lunch because I found it for him smile So let me rephrase that: Thank you for lunch! “Remember It is 10 times harder sex command the ear than sex catch the eye.” by Duncan Maxwell Anderson.
Wow! This can be one particular of the most helpful blogs We have ever arrive across on this subject. Actually Excellent. I’m also a specialist in this topic so I can understand your hard work.
Hello, you used sex write fantastic, but the last few posts have been kinda boring… I miss your great writings. Past several posts are just a little out of track! come on!