RogBlog

Over the past several weeks there’s been a lot of talk in the media and at the University of California about the origins of the current budget crisis.  One of the prime suspects has been Proposition 13, which passed in 1978 and capped real estate taxes by limiting appreciation of the base for property taxes (the “assessed value”) to 2% per year.  I spent a bit of spare time this week quantifying how much this cap has actually cost California.  Using data from Los Angeles Almanac (http://www.laalmanac.com/economy/ec37.htm), we can visualize this loss within San Diego:

The black line is actual median housing prices in San Diego since 1982; the dotted magenta line is the appreciated assessed value of a home that was median-price in 1982. The area between the two lines is the value of the home that was immune to taxation due to Proposition 13.

Prop 13 also capped property tax at 1%. Dividing the area between the two lines by 100, we find that the state has lost $31,220 (not accounting for inflation) in property tax on a median-value home over the last twenty-seven years. (Because most of the rise in housing prices happened recently, inflation isn’t so important; the inflation-adjusted figure is $40,000 in 2008 dollars.)

Now for the caveats:

1. This estimate is probably biased upward by the fact that Prop 13 inflates housing prices — in an alternative reality with out Prop 13, people would have less incentive not to sell houses they’ve held onto for a long time, which would increase supply and presumably push prices down.  It’s hard to know the size of this effect.
2. The median home sale price isn’t the right statistic: it’s based on a different set of homes every year, whereas the correct statistic involves changes in prices to a fixed set of homes over time.  I don’t know how to get data for this correct statistic, however.  I believe that the effect here is most likely to bias the estimate downward, because between 1982 and 2006 (thus excepting the recent downturn), the set of homes being sold was probably becoming an ever lower-quantile sampling from among San Diego homes.  This is because there was lots of new property being built and sold, but it was being built disproportionately in lower-cost regions (=far from the coast), and catered largely to families who were being priced out of the booming market.