No surprise that Proposition 13 gets some blame for the housing crisis in California—yet like so many attacks on Prop 13 the truth is opposite what opponents claim. Proposition 13 prevents greater housing woes by helping people keep their homes.
Case in point, the story in the Mercury News that reports the shell of a burned out house in San Jose on the market for $799,000 sold for at least $100,000 over the asking price. The 1066 square foot house was nearly destroyed by a fire two years ago, yet it fetches close to $1 million. A burned out shell!
Yes, the location is excellent, about a mile away from the proposed Google campus and the value is in the plot of land the house sits on. But the Prop 13 connection is important to the neighboring homes.
Prior to Proposition 13 re-writing the property tax law, a sale of a house would affect the assessed values of all homes in the immediate area. If a burned out house was tagged at $1 million, all the homes around it would be reassessed at considerably more. It didn’t matter when the neighboring homes were purchased or the income of the individual homeowners in the near-by houses; those neighboring homes would be faced with paying property taxes based on the new assessed value that was out of the homeowner’s control. Likely, many people could not hold on to their homes.
Under Proposition 13, the sale of a burned out shell does not jack up the assessments throughout the neighborhood. Thus, Prop 13 doesn’t increase the housing crisis but eases housing concerns for many.
The charge that Prop 13 adds to the housing crisis is based on the argument that by limiting property taxes, the cost of services for new residents would outweigh the new tax revenue received from those residences. Therefore, it is argued, local governments have little incentive to okay housing projects. Instead, government officials look to establishments that can produce additional revenues through sales taxes.
However, the Legislative Analyst’s Office took an in-depth look at Proposition 13 a couple of years ago and concluded that there was little evidence that the fiscal incentives for retail buildings, auto dealers and hotels over housing influenced city zoning and permitting decisions.
Meanwhile, the new owners of that burned out shell in San Jose know what their taxes will be and know how much they will increase in the future. They can do their own calculations (even for any new structure they build on the property) without leading to increased taxes on their neighbors.
Such a circumstance is what prompted United States Supreme Court Justice Harry Blackmun to write in declaring Proposition 13 constitutional (in the case of Nordlinger vs. Hahn 1992) an existing owner “does not have the option of deciding not to buy his home if taxes become prohibitively high.”
Under Prop 13, taxpayers enjoy tax certainty that prevents deepening the housing crisis. In a real sense, Proposition 13 was a social movement providing for the taxpayer security in their housing.