Hello everyone. I’ve decided to share thoughts on Prop 13 and Prop 19 - which are related - based on some kind DM’s I’ve received. Voters deserve to have a broad vision and understanding of issues. My goal is to provide context and perspectives that others can consider as they reach their own conclusions. Warning – this message is a bit long (about 3.5 pages) and sometimes wonky. I tried to make it as short as I could, the issues are complicated. Stop reading now if the topic of high housing costs does not interest you.
Also let me admit that like everyone else I have my biases, which are: I want affordable housing for all. I want to live in a world with strong safety nets for those who lack high incomes. I want to live in a democracy where politicians serve “we the people,” not just the rich and powerful. My position on Prop 19? It needs to be either fixed or repealed. If you agree, and have not done so already, you can help make this happen but you need to ACT NOW, the deadline is Feb 5. Visit ForCalifornians.com. You need to download, print and submit your own petition in order to get a proposition on the ballot for the upcoming elections in November. Do not delay: please submit your own petition ASAP.
Buying a home is the American dream, but when one is forced to sell their home because property taxes on it have risen wildly, the dream becomes a nightmare. Almost 50 years ago, voters were desperate to find relief from this very problem. The result was Prop 13. I was a teenager then, too young to vote but old enough to hear my parents talk over the kitchen table. Voters were outraged by the lack of action from politicians to protect them from constantly increasing property tax bills. The anger was intense. They viewed the situation as essentially a money grab from politicians who were indifferent to their pain. Prop 13 passed in a landslide and is still considered the third rail in CA politics. Soon afterward, arguments were raised in court to say it was discriminatory because it favored older buyers over newer ones. The issue about its “fairness” has already been considered by the courts. They allowed Prop 13 to stand.
Multiple propositions were on the ballot in 1978, so voters had the chance to limit the protections of Prop 13 to residential property or to extend them to commercial property as well. They approved the same protections for both kinds of property. IMHO their anger over high taxes simply blinded them. Voters wanted to punish politicians and end the unceasing “money grabs,” they did not understand what the consequences of that vote would actually be. The biggest beneficiaries of Prop 13 turned out to be wealthy corporations, they have since implemented schemes that can freeze taxes on commercial property essentially FOREVER; it can now be sold in a way that does not change “ownership,” so taxes are not reassessed at current market values. However, taxes ARE reassessed when residential property is sold. The result is that the burden to fund schools and other city services has increasingly shifted from a SHARED burden between residents and business, to one that is born almost entirely by residents alone. Wealthy corporations pay less, residents pay more, schools struggle for funding, all thanks to angry voters who didn’t realize the impact of their votes.
The problem of wildly rising property taxes has historically been unique to CA, but it is now spreading to other states. The problem occurs wherever home values are rising wildly, usually in places where the presence of wealthy tech companies is very strong. A good example is Austin, Texas. In 2021, the City Council took action to offset the impact of rising home values on property taxes; they used a different approach than Prop 13, however. “City leaders doubled the current general homestead exemption of 10%, taking it to 20%, the highest amount permitted by Texas law. That means homeowners will not have to pay property taxes on one-fifth of the value of their primary home.” - https://www.kut.org/austin/2021-06-10/austin-raises-property-tax-exemption-for-homeowners-to-highest-rate-allowed The City Council wrestled with the knowledge that those who own more expensive homes will receive the most “tax relief” in this solution, but they approved the measure anyway. The City Council understands that their solution favors owners of more expensive properties over owners of less expensive ones. It seems that finding a solution that is “fair” in the eyes of everyone is a very challenging problem.
KEY QUESTIONS TO CONSIDER
A) Re Prop 13- Should property taxes be based on the “paper value” of a home, a number that the homeowner has no control over? Should taxes be allowed to rise to such a degree that the owner can no longer afford to pay them, and thus has no choice but to sell their home?
B) Re Prop 19- when a homeowner dies and leaves their home to their heirs, should the protections of Prop 13 continue? Should the heirs pay taxes at the “frozen” rates from Prop 13 in effect when the parent died, or should taxes be reassessed at current market rates, which are much higher? If the heirs cannot afford these higher taxes, should we care if they are forced to sell the home?
C) Re both of the above- if the owner/heir is forced to sell the home because they cannot afford to pay the taxes, what will happen to them as far as housing goes? Will they be able to buy another home in the area? Also, what do we know about the entity who is able to buy the home that the heirs can no longer afford to live in?
OBSERVATIONS
1) Class and wealth inequality play an important role in the answers to all of these questions.
An owner/heir who is forced to sell clearly has much less money than the entity that is able to buy. The buyer has the means to pay the now much higher tax bill, and also a MUCH BIGGER sum, namely the current market value of the home itself. Note: the ability of buyers to bid up prices for homes was a key factor in driving up property values (and thus property taxes) for EVERYONE before the protections of Prop 13 were in effect.
Should we as a society allow those with significant financial means to use them in a way that forces those farther down the ladder to lose their homes? A home is an economic asset, but more importantly, it also provides one of the three most important needs of humans: food, clothing, and shelter. Forcing people to lose their shelter is an extremely harsh act. IMHO such a society is increasingly Darwinian; homes are transferred from those who lack significant financial means to those higher up the ladder.
2) Without the protections of Prop 13, lower-income and average workers are forced to lose their homes simply because those homes have appreciated in value “on paper” (an oft repeated phrase back in 1978, because no sale had taken place to establish a true market price). Even seniors who once had high incomes would be forced to sell, because wages raise over time and high wage earners today earn vastly more than high earners in the past.
Is there any other kind of asset in our society where the owner is FORCED to sell because it has appreciated in value? Consider stocks: taxes are NEVER COLLECTED until they are sold. There is never a penalty inflicted on a stock holder because it has appreciated too greatly in value. Furthermore, when a stock is sold capital gains taxes are much LOWER for stock held long term as opposed to short term. The social benefit argument is this: buying stock is a financial investment which involves risk; investment/risk needs to be encouraged and rewarded. Note that buying a home is also a financial investment which involves risk; it is an investment in a community. But it is more than that, it is shelter. Why should an owner who takes that risk be punished (that is, forced to sell their home/shelter), if the community becomes increasingly desirable?
Keep in mind: the only entities capable of buying homes that have appreciated greatly in value are high wage workers and/or well-funded professional landlords.
3) Now let’s talk about Prop 19. Under Prop 19, the only heirs who are able to keep and live in an inherited home are those who have the financial means to pay the wildly inflated taxes. Heirs who have lower incomes are forced to sell. What are the odds that the heirs of “teachers, service workers, and kids who don’t code” have become high wage workers? Fairly low, I think. Most families have 2 kids, so the sale proceeds would usually be divided by at least 2. Not only do these heirs experience the pain of losing their parent, perhaps a parent for whom they have been providing in-home elder care in the final years, they then experience the pain of losing their family home. This is not an abstract hypothetical, I have friends who are living through this exact experience.
Where do the now-homeless heir(s) go? Clearly they cannot afford to buy a comparable home, since they could not even afford to pay the taxes on it. I believe that most of them will not be able to buy any kind of home in the area, their proceeds (/“windfall”) will be too small. Prop 19 has been described as the “Lose the Locals” act.
Keep in mind: the only entities capable of buying homes that have appreciated greatly in value are high wage workers and/or well-funded professional landlords. Is there a social benefit to forcing those who were raised in this area to be forced to turn their homes over to higher wage workers and/or professional landlords? I don’t see one.
4) Progressives believe that ABILITY TO PAY should be a factor when setting tax rates. The idea is that those who can afford to pay more should pay more; it’s better for someone with a larger income to pay a bit more than to force a lower-income person to take food off the table. A good example is income taxes. The rates are tiered. Higher wage earners pay increasingly higher tax rates on each successive income threshold.
Prop 13 is actually a PROGRESSIVE tax. The buyer’s ability to pay is set at the time that they buy a home. Those who buy more expensive homes have the ability to pay more in property tax than those who buy less expensive homes. Everyone gets the same deal: the property tax is set at a value of 1% of the original purchase price, with small yearly increases afterwards. This is easy to understand when two purchases are made in the same year, obviously a guy buying a more expensive home has the ability to pay more in property taxes then a guy who buys a less expensive one.
The situation is more difficult to grasp when one guy bought a house 30 years ago, and another guy buys essentially the same house today at a much higher price. The new buyer clearly has the ability to pay 1% of the much higher price in property tax. Does everyone else in the neighborhood who owns essentially the same house have the same ability to pay that amount? No. Remember why Prop 13 was passed in the first place: to provide protection to existing homeowners from tax schemes based on current market values of property when home prices are increasing wildly. The new buyer has impressive financial means to be able to buy a home in CA at today’s inflated prices. Their good fortune should NOT be used to force others - who lack the same means – to lose their homes. When those who are highly paid literally drive lower income people out of the area, the situation can be described as class war.
FINAL THOUGHTS
Younger people are angry that housing is so expensive here. Being trapped in a situation where one is forced to pay high rent instead of being able to spend that money on a home of one’s own is lousy and painful. The anger is intense, indeed it reminds me of the anger in the air when Prop 13 was passed. I am concerned that this anger is being milked by politicians, much in the same way that voter anger was milked back in 1978. A political movement has risen that encourages voters to cast blame on existing residents for the high cost of housing. I respectfully disagree that high costs are primarily caused by so-called “NIMBYs”. The actual explanation about why we have high costs here is much more complicated, but it is related to capitalism itself. The simple explanation about why we lack AFFORDABLE housing is because nobody has figured out how to get rich building it, so there is not much incentive for doing so. On the other hand, for-profit builders can indeed get rich building expensive, market-rate units that are only “affordable” to the highest wage earners. They have focused on building such housing for literally decades in Silicon Valley, and will continue to do so as long as there is a market for it.
I fear that younger voters today do not understand the consequences that will come about if they get what they think they want. Repealing Prop 13 and/or keeping Prop 19 gives the same result: only the wealthiest in the land will have the ability to buy and retain their homes. Everyone else will be at the mercy of landlords. Is that the kind of society in which we wish to live?
I am especially concerned with the increased acquisition of homes by corporate landlords; I believe they will be the biggest winner from Prop 19, just like wealthy corporations were the biggest winner from Prop 13. Corporate landlords have a fiduciary duty to their shareholders, they actually have a duty to extract as much rent as possible from tenants. If one’s goal is to make housing more affordable, it seems like a pretty lousy strategy to pass legislation that increases the amount of housing controlled by professional landlords.
Voters should be aware that the DOJ is investigating (and lawsuits have been filed against) a corporation called RealPage for creating software that enables landlords to maximize rents by sharing non-public information, including tenant salaries and vacancy data: “The U.S. Justice Department has thrown its weight behind private lawsuits accusing technology company RealPage of conspiring with property managers and owners to overcharge rent for student and multifamily housing.” - https://www.reuters.com/legal/government/renters-suing-realpage-get-us-backing-pricing-lawsuits-2023-11-16/
My position on Prop 19? It needs to be either fixed or repealed. If you agree, and have not done so already, you can help make this happen but you need to ACT NOW, the deadline is Feb 5. Visit ForCalifornians.com. You need to download, print and submit your own petition in order to get a proposition on the ballot for the upcoming elections in November. Do not delay: please submit your own petition ASAP. Thank you.
Update 1/25/24: Metrics from NextDoor show me that this post has been read by over 15,000 people in the first 2 days since I published it. Wow. I am astonished, and deeply humbled. Thank you so very much.
Update 1/26/24: Here is a link to a thoughtful essay published a few days ago in the San Diego Tribune, it is an excellent read: “Opinion: How Prop 19 gutted property tax protections and is worsening California’s housing crisis ” - https://www.sandiegouniontribune.com/opinion/commentary/story/2024-01-24/opinion-proposition-19-property-taxes-housing-crisis-affordability-california
“Behind the “Potemkin village” of Proposition 19 was the California Association of Realtors, which spent millions lobbying and campaigning for its passage as supposed champions of homeownership and property tax equality. Their real motivation? Your money.
California properties have surged in value to where the median price is approaching an astounding $900,000, worse in cities. San Diego County officially crossed the million-dollar threshold in September 2023. Add in high property taxes and it becomes too expensive to move. Thus, Californians have the longest tenure for homeownership nationwide. Proposition 19 was devised to increase property turnover (ergo more fees to real estate agents and taxes to legislators).”
When heirs are handed massive tax bills, it makes continued ownership a hardship so they are motivated to sell. Keep in mind: the only entities capable of buying homes that have appreciated greatly in value are high wage workers and/or well-funded professional landlords. Is there a social benefit to forcing those who were raised in this area to be forced to turn their homes over to higher wage workers and/or professional landlords? Also keep in mind: those who inherit appreciated stock, yachts, or even private jets are not inflicted with any kind of penalty that makes continued ownership of these assets a hardship. Is that fair?
Prop 19 is actually a scheme that INCREASES the amount of unaffordable housing in CA. Under Prop 19, the only heirs who are able to keep and live in an inherited home are those who have the financial means to pay the wildly inflated taxes. Heirs who have lower incomes are forced to sell.
Update 1/27/24: Metrics from NextDoor show that this post has been viewed by almost 22,000 people. I never expected that kind of response for it. I am so grateful to those of you who are sharing it with others. I have also been advised that many people have stepped forward to help with "FixProp19" campaign. You can help too, let's get this issue on the Nov. ballot, but you need to ACT NOW, the deadline is Feb 5. Visit ForCalifornians.com. Please do it today! Thank you.
~ Leslie Bain