It is amazing how so many people continue to misunderstand the intent, extent and impact of California’s Proposition 13.  

• Is $6,000/yr on a modest 2br tract home too low?  

• Is it fair to charge tax based on the stupidest person’s in the neighborhood’s price?

• Is it fair to charge tax based on what the government thinks you owe?

• Is it fair to charge based on your pro rata share of what the government wants to spend?  

California and Prop 13 is the stuff of legend and many a Doctoral Thesis. Starting at the beginning: 

1974-1975 property valuations and property mil rates were spiraling out of control relative to municipal services rendered. So what. BFD. The big bad government was stealing and people were balking. Enter the “democratic” process. So in 1978 the “people” voted their bread and circuses by limiting property taxes to 1% of the 1975 assessed value and -sales- price thereafter.

Using a theoretical example. A house bought bought in 1995 for $250,000. Today’s price, $1m. Yeah, weird. So anyway the effective property tax rate is 1/4 of 1% annually. The sames house provided 
outright, at today’s price, property taxes would be $900 per month. The owner cannot relocate to a different but equivalent home because of the tax consequences. Think of it reversed. The owners’ personal travel budget makes it desirable to commute $900 worth (direct costs and my value) rather than move closer to work. 

Prop 13 so raised the value of good housing that it also all but requires two earner income families. That means two sub-optimal commutes and child care travel trips. See where the Exurban Nation comes from?

Prop 13 correctly protects people and businesses against arbitrary government distortions of the market. That’s one point of government regulation in the first place isn’t it?

I have no truck with the market aspects nor even the speculative portion of home buying decisions. I just think Prop 13 does a good job of capitating some of the non market risks with no external costs. I’m sure others feel otherwise and I’m only expressing an opinion among many. Perhaps we can go about this in reverse. I’ve got a 4 bed 2.5 bath SFR California ranch. How much should I be paying in taxes? California has 36.6 million people and spends/incurs $116 billion. That’s a whopping $3400 per person. How much of that should come from property taxes? It isn’t easy to answer in part because, for instance, what happens to the property tax that is sent off to Sacramento so that from there lots of money can be transferred from the high performing school districts to the worst school districts. You see in 1978 the same year as Prop 13 it was deemed illegal to spend different amounts locally as previously when California was 4th in the nation for school performance. So now we spend different amounts locally as directed by the State as commanded by the Supremes and are now lowered to the 4th worst in terms of results. 

Sorry, I got distracted. Were we talking about investments and government meddling?  No!  We are talking North San Diego County real estate.  As long as Prop 13 continues to protect NSD real estate from fractional confiscation it will continue to be a nice place to live and invest.  [At the right price of course.]  

You want tax reform?  I’d rather herd cats.

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