There’s little question that California’s rapidly rising home prices have become something of a crisis for low- and middle-income people. “California is rapidly becoming a renter majority state,” according to a Register summary of a recent Los Angeles real-estate conference. And because their hopes of ever buying are pipedreams, low- and middle-income Californians “are trapped in housing with rapidly escalating rents.”
It’s not just a problem for family budgets, but one that affects the nature of our communities. There’s a reason homeownership is referred to as the “American Dream.” People buy homes, settle down, raise families and take part in these communities where they are rooted. They build equity, too. Indeed, our high home prices are a prime reason so many Californians high-tail it to other states, where home prices are more affordable.
What can policymakers do about the situation? As someone who follows the Legislature, I’m used to hearing inadequate and misguided “solutions” that focus mainly on building more government-subsidized “affordable housing.” But even by Sacramento standards, the “solution” offered at that above-mentioned California Association of Realtors conference is eye-popping.
“The obvious place to do something is on the property tax,” said Chris Hoene, executive director of the California Budget & Policy Center, a Sacramento think tank, according to news reports. Hoene said we (policymakers and voters) should amend Proposition 13, the 1978 initiative that capped property taxes at 1 percent of a property’s value (plus local bonds) and limited increases to 2 percent a year.
Prop. 13 remains the “third rail” of California politics, he admitted, in that anyone who touches it meets a speedy political death. Hoene didn’t offer specific reforms, per the Register, but his basic argument is the proposition restricts local governments’ ability to raise taxes to pay for affordable housing. Also, by restricting tax increases until properties change hands, it forces local governments to rely on development fees, which discourages home building.
In reality, eliminating—or amending—the crowning achievement of the state’s 1970s-era tax revolt would indeed address the housing affordability problem, but not in the way that Prop. 13’s critics are suggesting. It would be the equivalent of fixing a city’s urban problems by dropping a bomb on it. That’s because it would increase—often doubling, tripling and more—the property taxes Californians pay on their homes and would be something of a nuclear option that would obliterate an incalculable amount of home equity.
If, all of a sudden, I had to pay an extra $400-$500 a month to the tax collector, the value of my home would fall. Borrowers and lenders would have to calculate that new payment amount in the qualification formula. It would immediately raise my taxes and transfer it to our state and local governments, which are notorious for squandering the pile of money they already receive. It could crush the state economy, too, and even hurt the rental market, as taxes would rise on multifamily units, also.
Prop. 13 passed because rapidly rising home values were accompanied by rapidly rising tax bills. That was forcing people, especially the elderly living on fixed incomes, out of their homes because they couldn’t afford the new payments. California’s governments have not become more fiscally responsible since then, so the same thing would happen. Implementing a split-roll—i.e., removing tax limits from commercial property—would obliterate business development.
Let’s put an end to the silly argument that government-funded affordable-housing programs are any solution to the current affordability problem. These overpriced projects mainly subsidize a handful of lower-income people who essentially win the lottery. There’s not enough money in the world to subsidize our way out of the state’s housing crunch.
The causes of the housing crisis are obvious. Local governments put builders through the ringer to get approvals to build new housing units. NIMBYs (Not in My Back Yard) oppose zoning changes that allow higher-density housing in suburban areas and environmentalists file lawsuits to stop new housing in undeveloped areas. Growth controls abound.
As an example, the state Supreme Court in 2015 rejected the environmental impact report for the Newhall Ranch project that would have provided 20,000 housing units north of Los Angeles, even though the board of supervisors had approved the project a dozen years earlier. The court expressed concerns about the “threespine stickleback” fish and the project’s impact on global warming.
Approval efforts continue for that project, but if it takes decades to permit housing or the courts put fish over development projects, and all the while population keeps booming, guess what? There’s going to be a housing shortage and those existing housing units will soar in price. Rents, of course, will increase precipitously. Lower-income people won’t have a chance to get their foot on the first rung of the housing ladder.
The answer is to get government out of the way and let the housing market work. That may not be as attention-grabbing as calls to undermine Proposition 13, but it’s the only real solution to the housing crisis.
Image by Victor Maschek