Contributors
Jon Coupal- Columnist

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers Association -- California's largest taxpayer organization with offices in Los Angeles and Sacramento. [go to website]

Prop. 13 More Important Than Ever
Prop 13 and escalating home values
[Jon Coupal] 9/24/03

The latest figures on California home values are in and they are eye-popping. The median price for a previously owned single-family home is $383,320, up 19.1% from the same period last year, according to the California Association of Realtors. To put this in context, 25 years ago the average home sold for $70,890, ten years ago it was $188,240.

Although it may look like longtime homeowners have struck it rich, in reality any escalation in value is worthless paper profit -- unless, of course, one sells their home. But what then? If one wants to remain in California, chances are all the proceeds from the sale will go back into the inflated cost of a new home, and the result will be no profit at all.

For potential first-time homebuyers, the point may be academic, as they struggle to amass enough for a down payment. Still, if there is any consolation, this heated market should begin to flame out as interest rates inch upward.

The current run-up in home values can be attributed to a number of factors, but many of those making high offers on property are motivated by interest rates of just over six percent. They consider it more attractive to pay more for a home and less to the bank, than to wait for a decline in the market and risk loan rates that will make homeownership even more expensive.

Economists are quick to point out that another factor in the high cost of California housing is supply, which is limited by a regulatory climate that can add thousands of dollars to the cost of a new home and discourages builders from adding to the housing stock.

The other side of supply is, of course, demand.

It has been said that if the Pilgrims had landed in California instead of on Plymouth Rock, America today would not stretch any further east than the Sierra Nevadas. To a great extent homebuyers are a victim of the state's great climate, scenery and recreational opportunities because it is likely that there will always be more people who want to live in California than there is land, water and clean air available, and this will keep an upward pressure on prices.

While prices for California homes are likely to remain above the national average, and homeowners have little control over the cost of a mortgage, there is one bright spot for both new and longtime homeowners: Property taxes are kept reasonable because of Proposition 13.

In the old days, prior to Proposition 13, you shuddered in fear when the house next door sold for 70% more than you paid for your home. This was because you knew that your tax bill would reflect what your neighbor could afford to pay for a home, not what you were able to pay ten or a dozen years earlier. Based on this year's market trends, if it were not for Proposition 13 all homeowners could expect to see their taxes jump about 19% next year.

Thanks to Proposition 13, annual increases are limited to two percent and both the new buyer and the longtime homeowner have security. The longtime owner, perhaps retired and on a fixed income, knows that property taxes are predictable and are unlikely to force them from their home. The new buyer also benefits because they know what their taxes will be for years into the future and they can budget accordingly. And if the house next door to them sells for twice as much in a dozen years, they know that their taxes will remain stable.

There can be no doubt that Proposition 13 helps all homeowners. Even many of those who criticized the tax reform measure when it was on the ballot in 1978 have come on board as supporters.

In 1991, the Howard Jarvis Taxpayers Association held hearings on the future of Proposition 13 and invited some of the state's most prominent political leaders to address the issue. One of the speakers was then-State Senator, and now California Democratic Party chair, Art Torres. Torres candidly admitted that like most of his colleagues, he had opposed Proposition 13 when it was on the ballot. But over time, he said, he had come to appreciate it and he tells young people today that it is because of Proposition 13 that they will be able to buy and hold onto a home.
So if the purchase price of a new home is steep, and interest rates are increasing, at least Proposition 13 has good news. Proposition 13 guarantees that property taxes will remain predictable and reasonable for all.