New homeowners pay more in taxes than long-time homeowners

California voters It was intended to provide stability in the face of inflation by capping property taxes each year — but it also passed the burden of paying for public services to future generations.

A national study by the Massachusetts-based Lincoln Institute for Land Policy attempted to measure this gap. In June, new homeowners in the city of San Diego were paying 37 percent more in property taxes than longtime homeowners for the same home.

The researchers looked at cities across the country with tax caps and found that the disparity created by Prop. 13 was huge.

New homeowners in San Diego spent an average of more than $9,000 in property taxes in 2021, which was $3,400 more than longtime homeowners — a gap that exceeded the national average for all cities surveyed. Researchers say the city’s average length of home ownership is 14 years, which is what they define as “long-term” homeowners. Their effective tax rate was 0.8 percent and 1.3 percent for new homeowners.

But the gap is growing rapidly as Prop. 13 limits annual increases in property values ​​and the average home price continues to rise. The difference in tax payments for new and long-time homeowners grew by $600 last year alone. The difference has grown to more than $2,000 in five years.

A row of single-family homes in Rolando near San Diego State University. / Photo by Jesse Marks

Limits on property taxes in San Diego and beyond should act as “insurance” against rapid growth in property values, said study author Adam Langley, associate director of North American programs at Lincoln Land Policy. However, according to Prop. 13 Limitations on taxation create significant inequities that governments are responsible for addressing, the study concludes.

However, Prop. One fundamental obstacle to reforming or eliminating 13 is that as new homeowners age, their motivation to give up their benefits diminishes.

Article 13 limits the property tax to 1 percent of the assessed value and annual increases to no more than 2 percent of the home’s value in the base year of purchase. But after the owner sells the property, the assessed value reverts back to market value.

Over time, as the value of a home increases, the owner gets an increasingly large tax break.

“Assessment caps, they create a lot of winners and losers,” Langley said.

But even when homeowners end up winning, it can have unintended consequences.

Alan Underwood, a 40-year-old music teacher in the Temecula Valley Unified School District, has been a tenant in San Diego County for a decade. Four years ago, he and his wife bought a house in City Heights.

Alan Underwood, a music teacher, and his wife It stands outside the Urban Heights home they bought in 2018. / Photo by Jesse Marks

I am grateful for the tax benefits but acknowledge that one’s good fortune is a matter of time. If someone buys the house next door, they’re paying a lot more in property taxes for no other reason than they get the money later.

“Even though we made more than we could afford when we bought it, we can’t afford the house we live in now,” Underwood said.

The median home price in their neighborhood in 2018 was around $400,000. Now it’s $700,000, but the annual property taxes are relatively low.

“Now I can’t sell my house and move anywhere else – where can I go?” Underwood said. “I can’t find where I can.”

Many commentators have argued that Prop 13 represented a counter to the liberal reforms of the 1960s and exemplified the rise of Reaganism in the United States. Others say the tax revolt is rooted in middle-class frustration over the high cost of living and fear of being displaced.

Whatever the reason, Prop. 13 The long-term effects on the public sector are difficult to predict.

CalMatters notes that property taxes account for 90 percent of all local government revenue. Prop 13 cut property tax revenue by 60 percent, forcing officials to look elsewhere for revenue. In most cases, that means raising sales taxes on the poor or hotel taxes that have been cut sharply during the pandemic.

The Lincoln Land Policy Institute is by no means the only group examining Prop 13’s long-term implications. Neighborhoods where home prices have risen faster than black, Asian, and Latino neighborhoods. Their taxes were stable while their equity exploded.

This raises another question, often referred to as prop. 13 Buried in the debate, who can raise capital first.

Journalist Beth Damon, who bought a house with her husband in North Park a decade ago and later moved to a planned community in La Mesa, is content with the argument that retirees living on fixed incomes deserve relief. But as she pointed out, the housing market 40 years ago and today are not in the same universe.

Wages have stagnated for decades, so regular people, working regular jobs, have been effectively barred from the things that past generations loved.

“Even having a house in San Diego is just bananas,” she said.

She was only able to do this because her husband, an electrician, was in the Army and received a VA loan.

Another complication is that over the years, Prop. 13 has been expanded to include transfers between family members. The Los Angeles Times In 2018, he reported that many of those who inherit property with tax relief do not live there and instead use the homes as investments. The newspaper found that up to 63 percent of foreclosed homes in Los Angeles County are used as second homes or rental properties.

A residential street in Pacific Beach. / Photo by Jesse Marks

That was true for Kevin Wood of North Park, who now lives with his wife and two children. Wood said the previous family has owned the house since the 1950s, paying up to $1,000 a year in property taxes, but they haven’t lived there.

When Wood bought the house nine years ago, he paid about $5,000 a year in property taxes, which is now more than $9,000 after the house was assessed.

“It’s definitely a shock when you first see the total and then realize how much the previous homeowner was paying,” Wood said.

Despite the problems Prop 13 has caused for governments, politicians are reluctant to attack it. It remains particularly popular with senior homeowners, and is resistant to legal and legislative challenges.

“Prop. 13 will help protect people from the current housing crisis.” “So it makes it politically harder to do something about housing prices, because a lot of people aren’t affected by them if you’re a long-term homeowner,” Wood said.

Although seniors on fixed incomes from Prop. 13 Back is said to be the main reason, but businesses also benefit greatly. Before its passage, for example, commercial properties in Los Angeles County accounted for about half of the property tax rolls, but that figure has dropped to 29 percent. Meanwhile, the single-family home accounted for 40 percent in 1975 and represents 57 percent today.

In the year In 2020, another ballot measure, Proposition 15, would have lifted the property tax cap on commercial properties to support local governments and education. But even that was a step too far. Voters across the country shot him down.

As a bicyclist and father, Wood said funding is needed to improve the quality of roads and improve the public school system, one of Prop. 13’s “biggest losers.”

He, like many others we spoke to, would find it difficult to afford to buy anywhere else today, not only because his tax benefits are hanging on, but because housing is so expensive.

“For young people who want to buy, they have the double whammy of not having enough houses out there and housing prices in general going crazy, but Prop. 13 will keep people from selling,” Wood said.

In a recent study, the Lincoln Land Policy Institute evaluated other approaches to property tax relief for those who really need it. One such option is the property tax “circuit breaker” program, which provides a credit when property taxes exceed a percentage of a person’s income. If a tax is more than five percent of a household’s income, property tax relief is given to those specific individuals.

Doing so avoids shifting the burden of public services onto new homeowners, so it’s “more affordable for everyone,” Langley said. In the current situation, he added, “there is no consideration for the income and the fact that people are burdened with property taxes.”

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