Decades after a homeowner revolt in California ushered Proposition 13 into law, a new study reveals disparities in property taxes that help fund public services. As home prices rise, the burden falls increasingly on San Diegans who’ve recently purchased homes.
by Jesse Marx and Catherine Allen August 18, 2022 August 19, 2022
Sign up for The Morning Report with all your must-read news for the day.
When California voters approved Proposition 13 in 1978, its supporters portrayed the ballot measure as a much-needed means of keeping people, particularly seniors on a fixed income, in their homes. It was meant to provide stability in a time of inflation by capping property taxes annually — but also passed the burden of paying for public services onto future generations.
A national study by the Lincoln Institute of Land Policy, a think tank based in Massachusetts, attempted to quantify this gap. In June, it concluded that new homeowners in the city of San Diego are paying 37 percent more in property taxes than longtime homeowners for an identical house.
The researchers looked at cities across the country with tax assessment limits and found that the disparities created by Prop. 13 were stark.
New homeowners in San Diego spent on average more than $9,000 in property taxes in 2021, which was $3,400 more than longtime homeowners — a gap well above the national average in all the cities surveyed. Researchers said the city’s average duration of homeownership is 14 years, which is how they defined “longtime” homeowners. Their effective tax rate was 0.8 percent, compared to 1.3 percent for newer homeowners.
But because Prop. 13 limits annual increases to the value of property when it was purchased and because the median home price is skyrocketing, the gap is also rapidly growing. The disparity in tax bills for new and longtime homeowners grew by $600 last year alone. The disparity has grown by more than $2,000 in five years.
In San Diego and beyond, limits on property taxes are supposed to act as “insurance” against the rapid growth in property values, said study author Adam Langley, associate director of North America programs for the Lincoln Institute of Land Policy. Yet his research concludes that tax assessment limits like Prop. 13 cause significant inequities that governments have a responsibility to address.
Even so, one of the fundamental obstacles to reforming or abolishing Prop. 13 is that as newer homeowners age, the incentive to give up their perk diminishes.
Prop. 13 limits property taxes to 1 percent of assessed value and annual increases over the base year value of the home when it was purchased to no more than 2 percent. But once the owner sells the property, the assessed value resets to the market value.
Over time, as the value of a home increases, its owner receives an increasingly large tax break.
“Assessment limits, they create a lot of winners and losers,” Langley said.
But even when homeowners end up on the winning side, it can have unintended consequences.
Alan Underwood, a 40-year-old music teacher in the Temecula Valley Unified School District, was a renter in San Diego County for a decade. Four years ago, he and his wife bought a home in City Heights.
He said he’s grateful for the tax benefit but acknowledged that one’s good fortune is a matter of timing. If someone purchases the house next to his, they’re paying significantly more in property taxes for no other reason than they found the money later.
“Even though we make more than we did when we purchased, we wouldn’t be able to afford the house we live in now,” Underwood said.
The median home price in his neighborhood was around $400,000 in 2018. It’s now $700,000, but his annual property taxes remain relatively low.
“I can’t sell my house now and move somewhere — where would I go?” Underwood said. “I wouldn’t be able to find a place that I can afford.”
Many commenters have argued over the years that Prop. 13 came in opposition to liberal reforms of the 1960s and a more diversifed population, foreshadowing the rise of Reaganism in the United States. Others contend that the tax revolt was rooted in middle-class frustrations over the cost of living and fears of being displaced.
Whatever the cause, the long-term effect of Prop. 13 on the public sector is hard to overstate.
As CalMatters has noted, property taxes used to account for 90 percent of all local government income. Prop. 13 slashed property tax revenue by 60 percent, forcing officials to look elsewhere for revenue. In many cases, that’s meant raising the sales tax, which falls disproportionately on the poor, or hotel taxes, which greatly diminished during the pandemic.
The Lincoln Institute of Land Policy is by no means the only group to analyze the long-term ramifications of Prop. 13. Another study released earlier this year in the Bay Area found that the property tax windfall in Oakland was much greater for White, wealthier neighborhoods, where home prices have risen faster than Black, Asian and Latino neighborhoods. Their taxes remained steady while their equity exploded.
That raises another question, often buried in the Prop. 13 debate, of who can raise capital in the first place.
Beth Demmon, a journalist who bought a home with her husband in North Park a decade ago and later moved to a planned community in La Mesa, is sympathetic to the argument that retirees living on a fixed income deserve relief. But as she pointed out, the housing market 40 years ago and today are not in the same universe.
Wages have been stagnant for decades, so regular people, working regular jobs, are effectively barred from the things that past generations enjoyed.
“Even having a house at all in San Diego is just bananas,” she said.
She was only able to do it because her husband, an electrician, was in the Army and secured a VA loan.
Yet another complicating factor is that, over the years, Prop. 13 has been expanded to include transfers between family members. The Los Angeles Times reported in 2018 that many of the people who inherit property with the tax breaks don’t live on site and instead use the homes as investments. The newspaper found that as many as 63 percent of homes inherited in Los Angeles County were used as second residences or rental properties.
This was true for the people who owned the North Park house Kevin Wood now lives in with his wife and two kids. Wood said the previous family had owned the home since the 1950s, paying up to $1,000 in property taxes a year, but they didn’t live there.
When Wood bought the house nine years ago, he was paying about $5,000 in property taxes a year, which is now more than $9,000 after being reassessed for an addition to the house.
“It’s definitely kind of a shock when you first see the total, and then you understand how little the previous homeowner was paying,” Wood said.
Despite the problems Prop. 13 has caused for governments, politicians are rarely willing to attack it. It remains popular, especially among older homeowners, and resistant to legal and legislative challenges.
“Prop. 13 helps insulate people from what the current housing crisis is,” Wood said. “So it makes it harder, politically, to do something about housing prices, because so many people aren’t affected by them if you’re a longtime homeowner.”
Although older people on fixed incomes are often said to be the main reason behind Prop. 13, businesses also benefit tremendously. Prior to its passage, for instance, commercial properties in Los Angeles County accounted for nearly half of the property tax roll but that figure has dropped to 29 percent. Meanwhile, single-family homes accounted for 40 percent in 1975 and represent 57 percent today.
In 2020, another ballot measure, Proposition 15, would have taken away the property tax cap for commercial properties to fund local governments and education. But even that was a step too far. Voters across the state shot it down.
But they did approve Proposition 19 the same year by a slim margin. That ballot measure limited property tax benefit transfers between family members by reevaluating the property only if a child of the former owner establishes primary residency there within the first year.
As both a cyclist and a father, Wood said he sees a greater need for funding to improve the quality of the roads, as well as improve the public school system, which has been one of the “big losers” from Prop. 13.
He, like others we spoke to, would have a hard time buying another place today, not just because the tax benefit is worth hanging onto but because the cost of housing is so prohibitive.
“For younger people who want to buy, they’re faced with the double whammy of there’s just not enough houses out there and housing prices in general are going crazy, but Prop. 13 discourages people from selling,” Wood said.
In another recent study, the Lincoln Institute of Land Policy evaluated other approaches to property tax relief for the people who truly need it. One of those alternatives is a property tax “circuit breaker” program that offers a credit when the property tax exceeds a percentage of someone’s income. If a tax is above five percent of household income, property tax relief is provided to those specific individuals.
Doing this avoids shifting the burden of public services onto new homeowners, so it’s “more proportional for everyone,” Langley said. As it stands, he added, “there’s no consideration of income and whether people actually are overburdened by their property taxes.”
Update: This post now includes information about Proposition 19.
Roiling Rancho Santa Fe School District" width="1200" height="900" />
Something went wrong. Please refresh the page and/or try again.
Jesse Marx is a former Voice of San Diego associate editor. More by Jesse Marx
Catherine Allen is an intern at Voice of San Diego. More by Catherine Allen
The first question I ask anyone who makes these arguments is “How much is a fair property tax to pay?” $5000/yr? $8000? Should there be a lifetime cap? Then I move on to “Why are prices so high and who benefits?” Lack of affordable housing with low taxes? Builders only build expensive houses so taxes are high? Homes have become investment vehicles a la AirBnB that support tourism and low wage jobs? Government revenues from housing have risen steadily and occasionally gone parabolic. Expenditures track closely. Yet complaints about schools, roads and wages are a constant over generations. No Prop 13 isn’t a gross inequity between older and newer homeowners. Viewed with an objective lens and within the larger government housing revenue complex, it is a symptom of societal failure due to lack of leadership and insider bureaucratic dealing that benefits those at the top at the expense of everyone else. Or we could just blame HGTV!
Donald Sonck says:How about focusing on the fact that California has the highest overall tax burden in the country on both business and residents, rather than one small component of this state’s punishing tax code.
John C Modlin says:Prop 13 is not the issue. The state of California brings in plenty of tax money. The problem is in how they spend it. They collect billions in gas tax every year, but they still have some of the worst roads in the country. The politicians have been promising to make things better for decades, all they need is more money, and the only ones getting richer are the politicians and their political friends. Notice I am not talking about one party or the other, they are all bad, and that is the root of our issues in California. Even if you got rid of prop 13, that money would just go into the black hole that is the California budget and nothing would change, and it wouldn’t cause more housing to be built.
MathIsEasy says:Just a little arithmetic refresher…. $9,000 is 66% more than $5,600, not 37%. ($5,600 is 37.8% less than $9,000.)
RDK says:Instead of focusing on the disparity between taxpayers, maybe you should be writing about why property taxes should be so high for new buyers. If someone bought a house in 2018 and paid $500,000 and was paying $5,000 + 2% annual increases and sold in early 2022 for $850,000 why should the government get a piece of the action and start to receive $8,500 in property tax?
Boatster says:Look at it top down. Does California – state, county, city etc.. – collect enough tax revenue from its citizens? Of course it does. If you are going to push to increase property taxes as a source, you need to concurrently argue/explain what taxes you propose to cut. High property tax states like Texas don’t have any income tax; that would an honest argument to make.
Allen Carter says:Prop 13 is fundamentally unfair. I’ve been here for 25 years and my taxes are 3 times higher than my next door neighbor who inherited the house and picked up his parents’ tax rate. A couple bought a house across the street and pays 3 times what I pay. Where is the fairness? Another thing that we see is how these inherited homes become run-down eyesores.
Michael says:You $$ is also worth less than half of what it was 25 yrs ago.
Fairness is not considered.
How many layers of profit in home building? Fair?
I’ll be retiring soon I’ve owned my home for 29 years. With the booming property value increasing my home has increased over 7X the amount I paid for. If it wasn’t for Prop. 13 I’d have to sell after 37+ years. I’m in a prime location and not interested in selling because the buyers “Fair” offer could not equal what I have or even support myself. I’d have to rent a studio for the rest of my life and be trapped.
Steve Springer says:I am surprised that someone could write in article like this and not include Prop 19 which went into effect in 2021. Prop 19 limits inheritance property tax benefits to the transfer of a residence that will be used as the primary residence of the transferee. The whole paragraph “Yet another complicating factor is that, over the years, Prop. 13 has been expanded to include transfers between family members….” Is outdated and thus is wrong.
RDK says:Prop. 19 has resulted in increased rents as heirs, who don’t live on the property, are faced with a major property tax bill.
Dennis Pierce says:If we were to sell a 12 unit apartment building that is taxed at Prop 13 rates, the new owner would have to raise rents $550 a month per unit to pay the property taxes. As it stands now, we can rent at under market rates because of Prop 13.
Indeed! And seen through the prism of real time, real politics and real consequences. District 2 SDCC of which I have been a resident since 1967. My papa from Poland who according to America was not to smart owned 5 homes in Clairemont. Yet many on this site call 1978 Jarvis/Gann unfair. I thought you were smart! Maybe go out and break your balls like papa otherwise stop crying. I’m Smiechowski Polish
uncle sam says: this is a moronic articleWhen it comes to paying for local government services, there’s THREE reasons that seniors SHOULD pay lower property taxes. Many other states understand this, providing big PT breaks to seniors. 1. Seniors seldom commit “jail time” crimes — major government law enforcement and incarceration costs.
2. Seniors don’t add to rush hour traffic. They aren’t responsible for our peak-hour transit infrastructure problems.
3. Seniors don’t breed! K-12 public schools are easily the single biggest cost that local governments pay for.
I just reviewed my property tax bill as a first time homeowner and wow. I knew it would be hefty, but I had no idea that Proposition 13 was the big driver of this. I am prepared for this bill, but I find reform is necessary – especially for seniors.
Leave a commentWe expect all commenters to be constructive and civil. We reserve the right to delete comments without explanation. You are welcome to flag comments to us. You are welcome to submit an opinion piece for our editors to review.
This site uses Akismet to reduce spam. Learn how your comment data is processed.
