When you buy your first home, you’ll be hit with a triple whammy in California:
▪ High housing prices — especially in desirable areas like San Luis Obispo County, where the median-priced home is $530,000 — often coupled with wages that have not kept pace;
▪ A slew of fees levied on new developments to pay for things like roads, schools, parks and libraries;
▪ Property tax bills that could be thousands of dollars higher than your neighbors’.
For that, you can thank Proposition 13, the tax reform measure passed in 1978 — long before many of you were born.
In a nutshell, Prop 13 set the tax rate at 1 percent and it changed the way California assesses property. Assessments are now based on purchase price, rather than on current market value. That’s a boon for older homeowners who have hung onto their property for a long time, but it’s a burden for young families buying homes at greatly inflated prices.
Consider this example: “I pay 10 times the property tax as my older neighbors...,” San Diego homeowner David Evers wrote in a letter to the Los Angeles Times. “We both have houses and lots that are the same size and we both receive the same services. It is the younger members of society who are subsidizing the older members through this tax scheme.”
Yes, it’s unfair, but doing something about it is considered next to impossible; Prop 13 has staunch defenders who won’t give up their tax break without a terrific fight.
They point out that it’s not just property taxes, but a variety of factors that contribute to high housing costs—including government fees that can add tens of thousands of dollars to the cost of a new home.
We agree, but let’s not overlook the fact that local governments began imposing those fees to make up for revenue they lost due to Prop 13.
Supporters also insist Prop 13 protects ALL property owners, including future homeowners. On its website, the Howard Jarvis Taxpayers Association brags that it is “committed to keeping property taxes affordable for future generations.”
It is true that Prop 13 guarantees stability; homebuyers know there are strict limits on how much their taxes will increase, but that’s small consolation for the many young people who will never be able to afford a home in the first place.
The Howard Jarvis Taxpayers Association also claims homebuyers determine their own tax rate: “Your taxes are not based on your neighbors’ taxes, but are based on the price you voluntarily agreed to pay for your new home,” it says.
How about a little empathy?
Given the lack of inventory of homes — particularly affordable homes — buyers have little choice. They can “volunteer” to pay in the neighborhood of $500,000 for a modest home, or can “volunteer” to continue to pay rent, which averages $1,500 per month in San Luis Obispo.
So what can be done?
If we had a magic wand, we would take steps to make the system more equitable through a series of small increases in taxes for long-time property owners, coupled with small decreases for new homebuyers.
Given the lack of political will for such a change, though, it makes more sense to focus reform efforts on commercial and industrial properties, which also enjoy tax advantages under Prop 13.
There have been proposals to gradually increase property taxes on commercial and industrial property; it’s estimated that would bring in $9 billion per year. There’s also been support for closing loopholes that have allowed wealthy corporations to purchase property and avoid having it reassessed, saving themselves millions of dollars in the process.
That’s a good place to start, yet even partial reform won’t be easy. According to Joel Fox, former president of the Howard Jarvis Taxpayers Association, business interests have pledged millions of dollars to defeat a measure to raise commercial property taxes.
In the face of such intransigence, we should double down on programs and policies aimed at keeping housing costs down.
That means supporting — make that demanding — projects with density and a healthy mix of housing types. Think starter homes of the 1950s and ’60s.
That means relaxing some standards, such as minimum lot size and parking requirements and — sorry, San Luis Obispo — limits on building height.
That means getting creative — for example, zoning land for communities of “tiny homes.”
That means supporting, promoting and expanding affordable housing programs, especially programs for first-time home buyers.
And, when the time is ripe, it means looking at Proposition 13, with an eye toward addressing inequities in the system.
The tax reform measure that brought relief to one generation should not bury future generations in debt.
A primer on Proposition 13
Before Proposition 13, California’s property taxes were based on the market value of property. Taxes were increasing so dramatically that many feared they would lose their homes.
California voters overwhelmingly approved Proposition 13 in 1978, despite warnings that it would result in severe cuts in government services.
Now, property taxes are based on a property’s purchase price. In the year a property is purchased, it’s taxed at its purchase price. After that, assessed value increases by 2 percent or the rate of inflation, whichever is lower. Homes are reassessed when they are sold, though a provision has been added that allows children to inherit their parent’s or grandparent’s property without triggering a reassessment.
Proposition 13 also changed the requirements for local governments to impose other taxes. It requires two–thirds of voters to approve special taxes, such as the half-cent transportation sales tax that was on the November ballot in San Luis Obispo County that was narrowly defeated.