Prop 13 & the land tax

Six houses, one lot size, one floor plan, the same schools, the same fire station, the same police response. The only thing that differs is the year each owner bought.

Under Prop 13 your bill is set by what you paid, plus at most 2% a year, not by what the house is worth now. Your assessed value (the number the county multiplies by the tax rate) is really a record of a purchase date. So is the bar under each house.

The design does real things for you: a predictable bill, no windfall reassessment when the market runs, and a local government that has to argue for money rather than collect it automatically. Hold on to all of that. The rest of this page is what it costs, and you get to weigh the two.

A bill anchored to your purchase date is a price tag on changing anything. Sell and buy elsewhere and the clock restarts at today's prices. Build something and the new part is assessed at what it cost. Sit on an empty lot for forty years and nothing happens at all.

The move. The kids are gone and the stairs are a problem, so you downsize. Under 55 the new place is assessed at what you pay for it, even if it is smaller, so the bill can go up. Prop 19 (2021) lets an owner 55 or over carry their assessed value to the new house, with any step up in price added on. Under a land tax the bill simply follows the lot you end up on.

The build. An ADU over the garage is a rental for a tenant or a room for a parent. Prop 13 calls it new construction: assessed at what it cost and added to your base, permanently. A land tax only ever looks at the lot, so it does not move.

The vacant lot. The parking lot's owner has not sold since 1978 and has built nothing to be assessed on, so it pays a rounding error while the apartment building next door carries the block. Identical land, identical location, identical everything the city provides. A land tax charges both the same, so holding land empty downtown stops being free.

Six identical lots, six identical bills, whatever anyone paid and whenever they bought. Nobody is raising money here: the rate is struck so the street pays the same total as it does today, just split differently. Drag the slider and watch the same dollars move between the houses.

Long-tenure owners paying more is not a rounding error and not something a clever design gets around. It is the change. What you would get for it, on this street:

• The bill for the family that just moved in falls, for the same services.
• Moving stops costing you money: your bill follows the lot, not the date.
• Building stops costing you money. An ADU, a second story, a rebuild after a fire: all invisible to the tax.

Your equity. Buyers pay less for a lot that owes more every year, so a permanent land tax comes out of the land's price. Economists call that capitalization. Part of the change therefore lands on today's owners as a lower sale price rather than as a bill. Phasing the tax in spreads that over years, which softens it but does not erase it. The other half of the same coin is the buyer: a newcomer is reassessed at whatever they pay, so today they carry a much bigger bill than you on the same house.

Land-rich, cash-poor. A retired owner on a fixed income can be sitting on a valuable lot with no way to pay a bigger bill. Deferral is the standard answer: the tax accrues as a lien against the house and is settled when it is sold or inherited. You keep the house, the bill waits, and the heirs inherit a smaller share.

Guessing the land value. The split between lot and building is estimated from vacant-lot sales, teardowns and land-residual models. Assessors already do this, and they are already sued over it. Prop 13's assessment, by comparison, is a number copied off a sale document, and that is a genuine advantage of it.

Zoning. Taxing land harder is supposed to push lots toward their best use. If the zoning says one house and nothing else may ever be built there, the owner has no better use to move to: they get the higher bill and none of the upside, and the tax is just a transfer. Whatever you think of upzoning, an LVT needs it to do the thing it is sold on. There is no lever here because there is no honest number to put on it.

Almost nobody here is proposing to replace Prop 13 tomorrow. The live arguments are rungs on a ladder, cheapest first.

1. Split roll for commercial property. Reassess business property, leave homes alone. Some of the benefit · already tried: Prop 15 lost 52–48 in 2020
2. Close the LLC-transfer loophole. Today a building can change hands through its ownership entity with no single buyer crossing 50%, so it is never reassessed. A little of the benefit · easy, narrow, few defenders
3. Stop reassessing new construction. Exempt ADUs and added units the way solar panels already are. Fixes the build penalty · statutory, no amendment
4. Fund deferral properly. California's postponement program exists but is small and hard to qualify for. No reform benefit on its own · but it is the price of every other rung
5. Land-based local taxes. Parcel taxes and assessment districts charged on land value rather than per-parcel. Local slice of the benefit · needs a two-thirds vote
6. A full land value tax. Split-rate first: tax land at a higher rate than buildings and turn the dial over decades. All of the benefit · a constitutional amendment, so: hard