Out at the peak

Thursday, February 09, 2006

Investors reaching

The following was said on SDCIA:
"I agree that with 600k new people and only 200k new homes the market in SD is probably going to be strong. The problem as I see it in CA is because of the higher house prices the property taxes are killing everyone. Since you can't do much about the greedy bureaucraps with the politicians in their pockets what CA needs is another prop 13!"

The problem with those thoughts is that 1) each house is going to hold three+ people average 2) Prop 13 is still enforced, you cannot re-enforce it. So demand will balance with supply, and I don't know what he means with another Prop 13. Perhaps he is suggesting that assessments should be artificially surpressed or transferable statewide. Assessment transfers are available for some counties already.

When you are calling for adjustments in the law to make something affordable, something is wrong. And since the law is very forgiving in CA (Prop 13 saved me and my family a bunch of money), something else has to give.

6 Comments:

  • Prop 13 is a third rail of California politics. I'm sure what they meant was that recent buyers need more tax relief than even Prop 13 provides.

    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. The whole world turned upside down. But you want to know why this screwed up commuting and transportation in general. Like I said, a doctoral thesis, hang with me here.

    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 time 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?

    By Blogger Rob Dawg, at 8:13 AM  

  • Right ... the writer wanted more of a tax break, but how could the law makers even structure one? That's my question. You already locked in your tax assessment for as long as you own your home. (I throughly enjoyed this with my house.)

    Could he be suggesting a tax rate cut across the board? Local government is completely dependent on what they get now. A tax break is always popular with voters, but the government would be crippled without that revenue.

    You could cap the tax revenue per parcel, but that would only be fair to the wealthy.

    By Blogger Out at the peak, at 9:34 AM  

  • It is absolutely clear what is coming. There will be an attempt next year to "fine tune" Prop 13 legislatively. The Dems "think" there's enough people out there feeling screwed by Prop 13 that they'll propose making it fairer. Expect a "renormalization" meaning take the entire city and divie last years total property tax reciepts by the current value of the properties being taxed. The new rate will look like it is less than the current 1.23% but it will represent a huge break for recent purchasers at the expense of business and long term owners. Thus there will be some shady horse trading to be business friendly, and old people gentle and such. IMO the response would be violence.

    IMO the only thing necessary is for two items, one municipal property tax reciepts capped at say CPI + 1% and elimination of the business loophole. If you buy a business property you are reassessed but if you juggle and say form a shell corp with only one asset and hen buy the shell 1/3rd in each of three years the property technically doesn't change hands. voila, no assessment. Criminal IMO.

    By Blogger Rob Dawg, at 10:52 AM  

  • Prop 13 is 'sacred' - right or wrong.

    There isn't a poitician in California that will sacrifice their career taking it on.

    By Blogger thejdog, at 6:11 PM  

  • thejdog: Yes, Prop 13 is pretty sacred! If that was overturned, we'd have pain over time as many people rely on their low assessment. It would force old homeowners to refi/sell as their tax bill would go from $2K to $10K (using my parents' house for this example).

    Anyway, the original poster was suggesting that there was an additional Prop 13 like tax relief. So Prop 13 would still stand, but somehow reduce taxes for new buyers. They could reduce the overall tax rate of 1.25% for everyone, but the CA government already needs more revenue than it gets.

    By Blogger Out at the peak, at 9:23 AM  

  • CA will always find the way to screw everything up :-) Simple solution - remove mortgage tax deductions as unfair; as well as 250K/500K appreciation tax break after 2 years. This will put everyting back on track.

    By Blogger immigrant, at 10:20 PM  

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