(no subject)

[garote]

This is why I can never own the home I live in.

http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29

For a long time I've felt like the private property system in California was basically slavery ... now I know why.

Comments

[thegoodreverend.livejournal.com]

Explain? Prop 13, while a boondoggle for the state and a pain in the ass in terms of funding for state programs, eases the cost burden on homeowners. I don't like it, but it does save me money compared to if we didn't have it in place.

[garote]

Eases the cost burden on homeowners HOW exactly?

[garote]

To be more specific, compare the set of homeowners who bought property in 1995-2000 with the set of homeowners who bought property in 2000-2005. Because of Prop 13, one group is paying twice the property taxes of the other. How does that ease the burden on homeowners, as a complete group?

[thegoodreverend.livejournal.com]

Because each, individually, will be paying less in 5 years than they would have before prop13. That's how it works. Someone coming into the market in 2008 would have paid a base amount before and after Prop13 - it only affects future increases. These increases are lower then they were BEFORE Prop13.

[garote]

I see what you're saying ... but wouldn't it make more sense simply to set the property tax rate - 1%, 2%, etc - to the lowest value necessary for adequate funding, and leave it at that? With no prop 13 gerrymandering involved?

This is kind of what I meant by comparing the 1995-2000 buyers with the 2000-2005 buyers. Assuming the state wants/needs a certain amount of money from property tax, why are we making later buyers always pay more than earlier buyers? They both enjoy the same state-run services. I understand the reasoning behind the law, but the effect of the law is almost criminal.

And yes, I understand human nature - anyone tries to vote this down, and the retired baby-boomers will come screaming down from the hills with smoke pouring out of their ears and bite the rabble-rousing politician's head clean off. (And for that, I'm glad the boomers have essentially lost California to the Mexican-American population, by simply not having as many kids. Heh heh heh.)

[graue.livejournal.com]

http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29#Aftermath_in_California

There's really no point in my rephrasing this:

"Because homeowners keep their homes for longer, young households often rent for longer before buying a house.[4] Because Proposition 13 is a disincentive to sell, there is less turnover among owners near the older downtown areas, and prices have appreciated fastest in these areas. Young people who would be wealthy in other states are 'house poor' in California, and are forced to live dozens of miles from their workplace in order to afford a home.[citation needed]"

[thegoodreverend.livejournal.com]

That "citation needed" is telling - that's really just an opinion. Some economists do think that people hold on to property longer because there's a tax incentive to do so, but many others believe that because California's markets are so popular (and have high sales prices, especially compared to most other places) that any incentive to not sell is negated by the potential for a sale profit.

That incentive to hold on to property IS what saves California homeowners money - before prop 13, and in many other states, your property taxes go up (sometimes significantly) every time your property is reassessed with a higher value. This would lead to multi-thousand dollar bills that increased every year. With Prop 13, the 1% cap stops this, saving homeowners money.

All that said, the same mechanism that saved homeowners money took that money away from schools and cities, forcing them to find funding elsewhere. The socialist in me wants better wealth redistribution, and thinks Prop 13 is unfair for this reason. In terms of saving money for individual homeowners, though, Prop 13 has done exactly that.

I'm also curious - isn't the market up in the bay area suffering the same glut right now that we have? Prices are down 20-30% over the last 3 years, and homes still aren't selling (because of mortgage issues, overinflated prices and a general downturn in the economy). There hasn't been a better time in the last 10 years to buy for the first-timer, since you don't have to try to SELL anything, and prices are lower.

[garote]

"Before prop 13, and in many other states, your property taxes go up (sometimes significantly) every time your property is reassessed with a higher value. This would lead to multi-thousand dollar bills that increased every year."

Your first statement does not necessarily follow from your second. In order to make it so, you would also need to see a huge increase in the valuation of your property, without an attendant adjustment in the rate of property tax. But prop 13 basically outlaws that adjustment at the same time it makes the fixed rate unevenly distributed.

[thegoodreverend.livejournal.com]

This is California - in general, your property values go up. This has been true for just about the entire last century, and most of this one.

Prop 13 doesn't outlaw adjustments in value, it puts a cap on the taxes you can be charged. Believe me, value is determined by the market =)

[garote]

Of course Prop 13 doesn't outlaw adjustments in value. What I meant was, it outlaws the adjustment of that "cap".

And value is determined by market, yes. But Prop 13 states that after the point of sale, your property carries a fixed value for the purposes of taxation. That basically takes your property out of the market determination, from that point onward. No matter how much you might (for example) be able to charge for it in rent five years later.

[robocowboy.livejournal.com]

At the time the law was made, I think it probably made sense. The people who made that law didn't anticipate the insanity that took place from 2000-2005. People who didn't get their foot in the door before then were at a severe disadvantage, but it wasn't just because of the tax rate. The monthly mortgage payments on the average house in California quickly overtook the average monthly income. Changing the tax law won't fix that. Nothing can fix that but falling property values.

Unfortunately, we'll still be at a disadvantage because the cost of entry into the market will probably never come back down to the level it should. Instead, those who already own property will buy up more and become bigger, fatter land barons.

[robocowboy.livejournal.com]

The reason I'm saying that law might have made sense at the time is because when somebody buys a house (as a primary residence), they take into account the current costs so they can budget how they will live. If their property taxes run the risk of shooting up some unknown amount in the future, how can they really gauge what their monthly cash flow will look like?

Now, income property is another story. The law should be different for people who are making money off of what they own.

[garote]

Yes... this is problematic, because while the classification between a residence and a business is clear, the classification between a residence and a rental is veeeeery hazy.

It's probably also why my landlord in Santa Cruz asked us to never tell any roving census taker that we were tenants.

[robocowboy.livejournal.com]

any incentive to not sell is negated by the potential for a sale profit

The ability to pull equity out of real estate negates the need to sell. If you can buy property in an area guaranteed to go up in value, hold onto it for decades, and pull money out of it year after year while also renting it out, where is the incentive to sell?

During my lifetime, my parents pulled themselves from near poverty to what would probably be considered upper middle class, put themselves and several family members through college, and survived a few dissasters all by doing one thing: never selling their home. When we moved they would line up a tenant that would cover the mortgage and buy a new home in the new town we were moving to. They only did this three times, but at the time of each move they were able to pull enough equity out of the original house to finance the next purchase.

They have since sold two of the extra homes and used the money to pay off the mortgage on the home they live in. The other one is kind of like insurance in that the mortgage is covered by rent and if something bad happened they'd have the equity to fall back on.

Real estate law and tax law are designed to allow people to get rich off of owning property. My parents weren't in it for the money, just to pull themselves up. Many people, though, use the legal loopholes and tax breaks to become land barons and slumlords. In recent years, selling property was used by many as a get-rich-quick scheme because of the rapid increase in property values. In the long run, though, owning property gives much greater advantages than selling it.

[garote]

"because California's markets are so popular (and have high sales prices, especially compared to most other places) [...] any incentive to not sell is negated by the potential for a sale profit. "

So, you're saying, "Yeah, it's broken, but other things are not broken, so the system as a whole still works."

This is basically how the incentives of price and tax rate graph out for buyers and sellers:

	Buyer	Seller
prices are high	price: don't buy tax rate: don't buy	price: sell tax rate: don't sell
prices are low	price: buy tax rate: buy	price: don't sell tax rate: sell

In other words, Prop 13 has no motivational effect on buyers, and tends to make sellers behave in the opposite way they otherwise would. What's helpful about that?

[thegoodreverend.livejournal.com]

I think you're giving Prop 13 WAY too much credit in terms of its influence on home sales. The other driving factors in California have a much, much, larger effect on housing availability and price - Prop13 passed because people are greedy and wanted to pay lower taxes. As a homeowner who's not particularly rich, I think it has almost no effect on whether people sell or not.

Right now, where you live, there are a glut of homes on the market. Asking prices are 10-20% LOWER than they were 2-3 years ago. Interest rates have come down in the last year, for a variety of reasons. For first time buyers with good credit, it's a fantastic time to buy a house, for all the above reasons. And none of this has to do with Prop 13.

[garote]

Oh I agree, prop 13's influence relative to sale price is quite small. But my point is, the little influence it does have is both damaging ... and unnecessary.

As for the glut of homes on the market ... yes, asking prices are now 10-20% lower than they were 2-3 years ago. On property that is still priced 20-40% outside the bounds of sanity.

Why would I buy at the prices of today, when I can expect NO appreciation for several years, and pay both property tax and interest totaling more than I currently pay in rent? It doesn't make sense. Like that UCLA economist whose presentation I linked to several years ago said: Prices will never come down to what they should. Instead, the market is going to slow to a crawl, for years, as the people without houses save more money, and the people with houses plug along at what they've got (or default and lose their property in a fire sale, where it gets snatched up by what Tavys aptly named "land barons")

Yep, it's renting for me, thanks :)

[thegoodreverend.livejournal.com]

Why buy?

A) Unless you're planning on turning around and selling, the appreciation of your house is pretty much a moot point.

B) Your property taxes and interest are rolled into your mortgage (or, they can be) as one large payment. We bought our house when prices were still pretty high (and hadn't started coming down yet), and even then we payed just a couple hundred more a month than we did with rent. Difference being that we were now paying TOWARD something, instead of just throwing our money into the rental hole. Rents have NOT come down as much as housing prices (if they've come down at all where you live) -- it's very likely that you'd pay about the same or even less now with a good mortgage.

C) Owning your own home gives you the freedom to do with your home as you please. You may have a great landlord situation, but not everyone does, and sometimes, you want to take out a wall or put in a new fixture - most rental agreements don't allow that.

D) Eventually, your home will make you money as an investment, well above the difference between your rent and your mortgage. This is especially true in California, and especially awesome if you sell and leave a higher priced area for a lower one.

There are a lot of reasons - I'm curious why you think you'd be throwing money away with a mortgage, but that you're not with rent.

[garote]

Weeeeeeellll lemme take a cruise through MLS listings and see if things are as batshit as they were a few months ago...

[garote]

"Weeeeeeellll lemme take a cruise through MLS listings and see if things are as batshit as they were a few months ago..."

...

Yes, they're as batshit as they were a few months ago.
The only way to get a good deal is to be able to put %20 down on a $500,000 house. And I don't have one hundred fucking thousand dollars in cash just sitting around.

[thegoodreverend.livejournal.com]

Loans can be harder to get a hold of now, because banks are a little less forgiving. That said, credit unions haven't changed much in their offers - we were able to get a no-down loan with a competitive rate. They're out there if you look around.

[garote]

And you bought your house .. when? ;)

[graue.livejournal.com]

I just want to say your opening five words cracked me up.

[graue.livejournal.com]

That does seem poorly thought out.