There are many challenges to keeping housing affordable in California, especially for the millennial generation. Instead of finding real solutions to complex problems, however, some Californians have used Proposition 13 as a scapegoat for housing costs and a variety of societal ills, including the collapse of a Los Angeles freeway during the Loma Prieta earthquake.
Blaming affordability problems on Proposition 13 ignores the complexity of the housing issue, and the decades’ worth of policies that deter development and lead to demand that exceeds current supply.
At a more basic level, the criticism of Proposition 13 misses the reality that by limiting property taxes and capping annual increases, the initiative makes home ownership much less costly than it would be if property taxes were still doubling from year to year, as they were prior to Proposition 13 in some parts of the state.
In the 1950s, California had a suburban boom of new starter-home communities that were affordable and allowed first-time homebuyers to build equity and ultimately move into other properties as families and careers moved forward. Today, new development has not kept pace with our population’s housing needs.
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Builders and developers who want to build new neighborhoods or apartment complexes face a litany of state agencies and fees that increase the cost of housing. Instead of looking at $200,000 starter homes, millennials are competing with older homebuyers and all-cash investors to buy much more expensive homes.
Much of what has been written over the past month in this newspaper ignores the historical context of Proposition 13: In 1978, Californians young and old were facing skyrocketing property taxes that made housing unaffordable. Proposition 13 established a way of valuing property for tax purposes that reflects what the owner can afford to pay.
Prior to Proposition 13, local governments reassessed property based on the county assessor’s opinion of how much a property might be worth. The result: Value was set at a property’s “highest and best use.” Meaning, for example, if a one-acre lot with a single-family home was next to an apartment building on the same size lot, an assessor could deem the parcel’s highest and best use to be as a multi-residential complex, leading to property taxes based on that inflated value, even if the owner had no intent to ever use the property for anything but a small home.
Such assessments prior to passage of Proposition 13 led to property taxes increasing 367.21 percent from 1960 to 1978.
Many homeowners, including senior citizens living on fixed incomes, could not afford to keep the homes they had worked so hard to create. Seniors were taxed out of home ownership, and young first-time buyers faced significant uncertainty about whether they could actually afford to keep their new homes for more than a few years. Indeed, Proposition 13 was an effective solution to a housing affordability crisis.
Proposition 13 afforded millions of Californians the ability to stay in their homes, created certainty for first-time and prospective homebuyers, and promoted stable and sustainable long-term revenue for local governments, since home ownership promotes anchoring in a community.
Opponents wrongly blame Proposition 13 for budget shortfalls, and often make the false claim that Proposition 13 shifted the property tax burden from businesses to homeowners.
State data shows that businesses paid 58.16 percent of local property taxes the year Proposition 13 passed. Today, businesses pay 62.86 percent of local property taxes. Businesses have always paid a greater share of the property tax, and they still do.
An analysis by the Commission on the 21st Economy found that property tax revenue under Proposition 13 is “the most stable of major state and local sources” of revenue and has grown over time.
Since homeowners know how much their tax bills will be, and first-time homebuyers can budget accordingly, Proposition 13 provides certainty to homeowners and buyers. At the same time, city planners know how much revenue they can expect, and can plan accordingly to prevent sudden and drastic cuts to important government services.
To solve the housing affordability crisis, we should focus on the systemic issues facing housing development—the factors that increase construction costs and limit supply—to make California affordable for every generation.
Teresa Casazza is president and CEO of the California Taxpayers Association (www.caltax.org).