I'm having a tough time buying it. Imagine someone who's old and in the (lucky) position to sit on a highly appreciated real estate lot. Their potential behavior:
(a) enjoy the low property tax they have to pay, while patting themselves on the back
(b) sell to downsize and pocket the difference, retire to greener pastures
I think (a) is more rational if you're on a giant farm, and this way you don't have to sell the pieces to pay the property tax bill any time the land value fluctuates because of external economic cycles.
(b) is more rational with any residential estate. That's why a San Francisco magazine would complain about the influx of young tech workers, not the influx of little old retired ladies, and most older houses in Atherton and Palo Alto are bought for teardown value.
So consider a 65 year old who purchased a house in San Francisco in the early 70s for $50,000. This house is now most likely worth about a million now. However, it is taxed at a far lower rate.
They can sell and repurchase in California and keep their old taxes provided that they don't purchase a more expensive house (this is limited to people over 55 and is a one time thing)
There is also one other major exemption - heirs to a property can keep the old property tax rate! I've always been amazed that California is essentially creating a low tax aristocracy based on inherited titles to land, but that is exactly what we have done.
Now, I suppose the retiree could sell the house and move to Texas, but now you're going to be paying a much higher tax rate. If you're a true prop 13 aristocrat, you'd probably have to buy a house that is worth no more than 20% of your current house's value to come out ahead, and you'd need to uproot to texas to do it.
If you're a young family looking to buy for the first time, or looking to trade up (triggering a reassessment of your property taxes), then it does make economic sense to move to Texas. Your prop taxes will be high, but you won't face California's income tax, and you also won't have to subsidize the low tax rates for the titled, landed aristocrats next door.
As for the young tech workers... well, the SF Bay Area is incredibly well positioned for high tech. It has an incumbent advantage and Berkeley, Stanford, and UCSF all within a stone's throw of each other. I think that our regulatory environment is a disadvantage, but clearly not enough to offset. I remember PG mentioning during an interview at the Hoover Institute that bad as things are, things would have to get incredibly bad to drive high tech out of California (I recall him joking "don't tell them").
Comments
I'm having a tough time buying it. Imagine someone who's old and in the (lucky) position to sit on a highly appreciated real estate lot. Their potential behavior:
(a) enjoy the low property tax they have to pay, while patting themselves on the back
(b) sell to downsize and pocket the difference, retire to greener pastures
I think (a) is more rational if you're on a giant farm, and this way you don't have to sell the pieces to pay the property tax bill any time the land value fluctuates because of external economic cycles.
(b) is more rational with any residential estate. That's why a San Francisco magazine would complain about the influx of young tech workers, not the influx of little old retired ladies, and most older houses in Atherton and Palo Alto are bought for teardown value.
I'm not sure it works like this. Keep in mind that most states don't have a tax system like prop 13. Texas actually has fairy high property taxes...
http://www.nytimes.com/2007/04/10/business/11leonhardt-avgpr...
So consider a 65 year old who purchased a house in San Francisco in the early 70s for $50,000. This house is now most likely worth about a million now. However, it is taxed at a far lower rate.
They can sell and repurchase in California and keep their old taxes provided that they don't purchase a more expensive house (this is limited to people over 55 and is a one time thing)
http://www.boe.ca.gov/proptaxes/faqs/caproptaxprop.htm
There is also one other major exemption - heirs to a property can keep the old property tax rate! I've always been amazed that California is essentially creating a low tax aristocracy based on inherited titles to land, but that is exactly what we have done.
Now, I suppose the retiree could sell the house and move to Texas, but now you're going to be paying a much higher tax rate. If you're a true prop 13 aristocrat, you'd probably have to buy a house that is worth no more than 20% of your current house's value to come out ahead, and you'd need to uproot to texas to do it.
If you're a young family looking to buy for the first time, or looking to trade up (triggering a reassessment of your property taxes), then it does make economic sense to move to Texas. Your prop taxes will be high, but you won't face California's income tax, and you also won't have to subsidize the low tax rates for the titled, landed aristocrats next door.
As for the young tech workers... well, the SF Bay Area is incredibly well positioned for high tech. It has an incumbent advantage and Berkeley, Stanford, and UCSF all within a stone's throw of each other. I think that our regulatory environment is a disadvantage, but clearly not enough to offset. I remember PG mentioning during an interview at the Hoover Institute that bad as things are, things would have to get incredibly bad to drive high tech out of California (I recall him joking "don't tell them").