Fixing Prop 13

I've always tried to think of ways to bring down housing costs. Houses should be places to live, not investments. Just like high gold prices right now are too expensive for people that actually use gold, if you took the speculation out of the housing market, housing prices might actually be affordable for people that need a house just for living in.

The economic downturn combined with my planned move to Marin County (and knowing that it would be difficult to afford to buy a house here) had me writing a letter to the Mono County Board of Supervisors last year. I proposed
an idea that I thought would bring down housing costs--but really would only be effective for my situation if implemented statewide. Still, I figured my local government was the place to start--at least to plant the seed of an idea. The idea would also discourage the owners of vacant parcels from leaving them vacant and unused.

My idea was to tax second homes and vacant parcels at a rate that is higher than the first home. I put a lot of thought into it and had a lot of detail in the letter. Several people at the Mono Basin Regional Planning Advisory Committee meeting where it was discussed really liked the idea, including Supervisor Vicky Bauer. Vicky liked it because it was a way to discourage all the vacant second homes in June Lake that don't contribute to the community. But the fatal flaw of the idea is that it would require changes to Proposition 13, the 1978 law that required property taxes to be set at 1% of a property's value and increased at no more than 2% per year.

So now I'm in Marin County, paying a ridiculously large amount for rent, and looking for a house in a price range that is almost nonexistent. This is where my wife grew up and she wants to be here. I would have the same problem with housing prices in Torrance, where I grew up. There is something seriously wrong with our economic and political system if you can't afford to live where you grew up.

If you can't go home, does it make you an exile, a refugee, or an outcast?

Still, my boundless optimism (which often annoys the heck out of people) tells me it is possible. And I keep thinking about what is wrong with our system and how to fix it to bring housing prices down. So I have a new idea. It would lower housing costs and increase government revenue, just like my idea I proposed to Mono County last year.

Here's the idea. When you buy a house, and you get your first property tax bill, you get the choice of

1. Paying taxes on the Prop 13 value of 2% increase per year, or
2. Paying taxes on the assessed value with no limits on annual increases

 You sign the contract and send it back. If you chose #1, at the end of your ownership of the parcel (or upon sale if you give it or trust it to someone) you must sell it to the county at the 2% increase in value from when you bought it. Plus improvements, of course, if they have been taxed. The county then would mark up the price with some administrative fee and sell it for no more than that. If you chose #2, then when you sell it there are no restrictions.

Here's how it would lower home prices.

People that chose option 1 would lock in the benefits of Prop 13, but they wouldn't get a huge windfall when selling the house like they do now. The house would sell for the Prop 13 value, not the market value. This would limit the available cash people get from the sale, reducing the amount they are able to pay for the next house they buy, lowering demand for expensive houses, causing prices to fall. The county would sell the house at real values adjusted for inflation, not influenced by speculation. The glut of these lower-priced homes would bring all prices down... or maybe create two tracks of home sales, the speculative ones and the ones for living.



People that chose option 2 would be free to do whatever they want, but they would have to pay taxes based on the actual value. These are the speculators and investors, and it makes sense to tax their assets at market rates, not rates designed for people that just want a place to live.

10-17-11 Update:  Investors are "cornering the market," with absentee home buyers buying one in five homes in August. This is making it hard for people that just want a place to live to compete. I'm realizing that my idea outlined above would provide low cost homes for speculators to snatch up, so any homes on the low-cost track would have to be sold only to owners intending to occupy the residence as their primary one. If this idea were to actually happen, I'm sure additional things would be thought of and tweaks would be necessary, but the point is that there are solutions out there worth trying! Hopefully politicians will start listening to the 99%!