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Proposition 13's impact quantified

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  • Proposition 13's impact quantified

    http://media-newswire.com/release_1099339.html

    A steep decline in California housing prices is undermining the effectiveness of the state's property tax system that was created through Proposition 13 three decades ago, according to a study by University of Southern California professor Dowell Myers.

    The study, which is based on comparative data from opinion surveys and housing trends, finds a system under stress that is creating "severe generational inequity" magnified by recent dramatic losses in housing values.

    Myers is a professor of urban planning and demography at the University of Southern California's School of Policy, Planning, and Development. The study -- The Demographics of Proposition 13. Large Disparities Between the Generations and the Unsustainable Effects of Housing Prices -- is available online at www.usc.edu/schools/sppd/research/popdynamics/whatsnew.htm.

    Proposition 13 was originally designed to prevent older homeowners from being evicted from their homes due to inflation's impact on property taxes. The measure set a cap as to how high the taxes could rise each year. Approved by voters in 1978, the system appeared to work as long as housing values rose over time.

    Californians who bought property in 1975, for example, have increased their housing value from the initial average home value of $41,600 to $329,800 in 2009, falling from a peak of $555,700 in 2006.

    This group, however, is paying less than the national average in property taxes: Californians who bought their homes in 1978 pay an average of $1,571 in annual property taxes compared to the national average for the same purchase year of $1,994 – even though their home values are twice as high as the nation's average.

    "Prop 13 may have worked too well for some: Long time residents now pay lower property taxes than the national average, yet at the same time they have captured much greater wealth from California's high housing values," said Myers. "Now however, it's the young adults who face eviction since they were the most recent purchasers of homes before the housing bubble burst."

    Myers' study suggests that the system -- which is based on ever-rising house values bringing more revenue -- is so broken that it may require an overhaul. The current system may have survived a 15 percent drop in housing values in the early 1990s, but housing values have plummeted about 40 percent from their most recent peak.

    The biggest losers in this housing environment have been newer homeowners, who are typically younger. Of California homeowners under age 30, 78.5 percent bought their homes in 2003-2007, compared to 68.5 percent of those between the ages of 30 and 34 and 52.9 percent of those ages 35-39. In contrast, only 19.7 percent of owners ages 55 to 59 are recent home buyers.

    Buyers after July 2003 suffered most from the market crash, when current values fell below their mortgage principal and below their tax assessments, Tax assessors are now issuing what are called "decline-in-value reassessments" to help the young but that also reduces the high taxes required to subsidize the discounted, low taxes of longtime residents, according to Myers.

    Myers created several categories to measure the financial impacts of Prop. 13 on demographic groups broken down according to race and ethnicity, but found that age was actually the most significant factor. Some key findings:

    The average "tax savings" -- the difference between 1 percent of current house value and actual property taxes paid -- was $3,213 for homeowners between the ages of 70 and 74 compared to $796 for those between the ages of 25 and 29.

    Myers looked at which groups receive less or more tax savings benefits based on when they bought. According to this formula, people who bought homes between 2003 and 2007 -- who are generally younger -- are contributing 3.08 billion in above average tax payments to offset the 1.89 billion in excess savings enjoyed by longer-term, mostly older, homeowners.


    Public support for Proposition 13 fluctuates along with the rise and dip in housing prices. For example, overall support for Proposition 13 among likely voters was 40.1 percent in 1998, after several years of declining prices, compared to 48.3 percent in 2008, at the end of the boom years. Support for the measure increased more among homeowners than renters, and especially among liberal voters who are homeowners, rising from 34.5 percent in 1998 to 48.9 percent in 2008.

    Myers said the study should help shed light on how Prop. 13 is impacting Californians in different ways, and he expects it will provide a basis for policy makers to consider whether there is a need to reconfigure the current property tax system. Currently, California obtains 22.7 percent of its state and local tax revenue from property taxes compared to the national average of 30 percent.

  • #2
    Re: Proposition 13's impact quantified

    In Florida we have a similar law called "Save Our Homes" which has created all sorts of unintended consequences.

    Like in California it put the biggest tax burden on those that were new owners. Perhaps the consequence with the biggest impact is that it put an even greater burden on out of state owners, investors and commercial property landlords. Now, when the state needs those people the most the tax structure is driving them away.
    Greg

    Comment


    • #3
      Re: Proposition 13's impact quantified

      Proposition 13 was originally designed to prevent older homeowners from being evicted from their homes due to inflation's impact on property taxes. The measure set a cap as to how high the taxes could rise each year. Approved by voters in 1978, the system appeared to work as long as housing values rose over time.
      I think this is how prop 13 was sold to the electorate, but the real intention was to shield commercial property owners from property tax increases. A few old souls have benefitted (some would say unduly, given their capital gains windfall), but the real beneficiaries have been large property holding corporations.

      http://www.caltax.org/MEMBER/digest/feb2000/feb00-4.htm

      Another example of an electorate whipped into voting against their best interests.

      Comment


      • #4
        Re: Proposition 13's impact quantified

        Originally posted by lurker View Post
        I think this is how prop 13 was sold to the electorate, but the real intention was to shield commercial property owners from property tax increases.
        Texas also has a limit on property tax increases, but it only applies to senior citizens, and only applies to their primary residence. Texas also makes it impossible to foreclose on a senior's primary residence, even for taxes. If the senior can't pay the taxes, they accumulate against the property, if necessary until the senior dies and the local government has to attach the estate of the deceased to collect what it can.
        Most folks are good; a few aren't.

        Comment


        • #5
          Re: Proposition 13's impact quantified

          These are classic examples of how a well intentioned government policy has turned into a disaster.

          Prop 13 and SOH's put an increasingly heavy burden on one segment of the population. People ultimately vote with their feet and dollars.

          Part of the reason why the South FL property market is so weak is that real estate taxes are disproportionately high.

          Texas has no income tax, right? But Texas generates a lot of revenue from oil and corporate tax. Texas is home to the second largest grouping of Fortune 500 companies after NY, I believe.

          Florida has neither of those advantages. Florida has some revenue from tourism but that's about it.
          Greg

          Comment


          • #6
            Re: Proposition 13's impact quantified

            Originally posted by lurker View Post
            I think this is how prop 13 was sold to the electorate, but the real intention was to shield commercial property owners from property tax increases. A few old souls have benefitted (some would say unduly, given their capital gains windfall), but the real beneficiaries have been large property holding corporations.

            http://www.caltax.org/MEMBER/digest/feb2000/feb00-4.htm

            Another example of an electorate whipped into voting against their best interests.
            You nailed it lurker. Very little commercial property, protected under Prop 13, is officially sold out from under that cap. Prop 13 acted as a FIRE accelerant in pushing up housing prices and shortening homeowner turnover (3.5 years in 'good times'). Prop 13 is the Cali twist to Hudson's property tax cuts. Raises the price of the property, paying greater transaction costs, with the 'reduced' property taxes being indirectly paid through new muni bonds, city/county fees, etc. The golden circle jerk.

            Comment


            • #7
              Re: Proposition 13's impact quantified

              Fwiw there is serious talk of a split roll in CA:

              Prop 13 protection for owner occupied SFR's, but no prop 13 for anyone else. Still keeps grannie from being taxed out of her home, but investors wouldn't be able to pocket the difference when they charge market rent on a property with a low base year.

              Comment


              • #8
                Re: Proposition 13's impact quantified

                Originally posted by ThePythonicCow View Post
                Texas also has a limit on property tax increases, but it only applies to senior citizens, and only applies to their primary residence. Texas also makes it impossible to foreclose on a senior's primary residence, even for taxes. If the senior can't pay the taxes, they accumulate against the property, if necessary until the senior dies and the local government has to attach the estate of the deceased to collect what it can.
                Sounds good.

                In MA a senior can defer a portion of property taxes against the eventual sale of the house. I wholeheartedly support property tax deferral against assets, provided reasonable (think 10 yr treasury) interest is charged (MA rates are IMO too high).

                However there has been a movement in our state to exempt seniors from some of the property tax on the basis that "their kids aren't in school". This directly subsidizes their kids' inheritance at the expense of increasing taxation on another struggling segment of the population: young parents.

                Comment

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