How Prop. 13 helped cause the housing crisis

Jeff vonKaenel

I am not now, never have and never will run for public office, which means I can talk about Proposition 13. This is something most elected officials cannot do, without having a prefix added to their title: “Former.”

As we all know, California is having a severe housing crisis. The median price of a house in California is 2.5 times higher than the national average. Nearly 70 percent of poor Californians fork over more than half of their paychecks for rent. And this is only going to get worse, because while we would need to build 180,000 homes each year to keep up with growth, we are only building half that amount.

California’s Prop. 13, passed in 1978, which limited the property tax annual increase to 2 percent a year until a home is sold, is a major part of the problem. Before Prop. 13, new roads, schools and sewers were paid for by the whole community. In California, after Prop. 13 reduced the tax base, the government had to add significant fees to new construction to help pay for services, which raised the cost of new housing.

Property taxes and fees on new housing are still not enough to cover services such as police and fire. However, when governments approve retail construction, they receive sales tax revenue. Retail also requires fewer services. Therefore, local governments tend to subsidize retail locations at the expense of housing.

Last Friday, Governor Jerry Brown signed 15 bills addressing the housing crisis. Senate Bill 2 will raise $250 million to $300 million per year for low-income housing. SB 3 will put a $4 billion bond before the voters. And there is legislation that makes it easier to build new housing by reducing red tape. But these bills patch the symptoms without curing the disease. The elephant in the room, Prop. 13’s low property tax rate, is not addressed.

Prop. 13 has created an unfair situation where different homeowners living in similar houses pay radically different levels of taxes while receiving the same level of government services. On my block, I pay $3,862 in annual property tax. My neighbor to the right pays $1,042 and my neighbor to the left pays $11,264. This is unfair. Every year that government costs go up more than two percent a year, I pay even less of my fair share.

With commercial property, which turns over infrequently, the situation is even more outrageous. A corporation can have all new shareholders, but since it is the same corporation, its property tax only goes up two percent a year. Since Prop. 13 was passed, the commercial share of property tax decreased from 45 percent of the total to 28 percent.

And now there’s the Realtors’ 2018 initiative, which would allow homeowners to retain some of their lower property assessment when they move to a new home. This helps realtors earn more fees, but removes even more tax revenue from an already strapped state.

We need to fix this. The nonpartisan nonprofit, Evolve, has a proposal that’s a good start. Their approach proposes regular reassessment of non-residential, commercial property in California. This would help correct the imbalances of the current system and raise an estimated $9 billion a year for the state.

We can’t solve our state housing crisis without fixing the unfairness created by Prop. 13.

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About the Author

Jeff vonKaenel
Jeff vonKaenel is the president, CEO and majority owner of the News & Review newspapers in Sacramento, Chico and Reno.