October 11, 2011

Mad Men On Manzanita

53 Manzanita Living

In the words of a tipster with respect to 53 Manzanita over in Laurel Heights: "This is a time capsule of early 1950s…Mad Men without staging." Built in 1949 and occupied by the same family (and perhaps some of the same furnishings) ever since.

The current tax basis for the 2,739 square foot property? That would be $151,805 with a total tax bill of $1,672 last year. Assuming a sale around asking ($1,595,000), the property will generate roughly ten times the tax revenue for San Francisco next year.

∙ Listing: 53 Manzanita (3/3) 2,739 sqft - $1,595,000 [MLS]

First Published: October 11, 2011 12:00 PM

Comments from "Plugged In" Readers

Regarding the little jab at taxes at the end, they've likely paid $101,992 since 1950 without even adjusting for inflation, which is a considerable amount. Yes, property owners do take it plenty in the ass given the asking price is approximately the same as the 1950 inflation adjusted amount.

[Editor’s Note: It’s no jab, simply a statement of fact. And while the tax bill hasn’t been adjusted for inflation (unlike the market value of the underlying asset), keep in mind the cost of providing infrastructure and support services throughout San Francisco has adjusted over the same period of time.]

Posted by: kg at October 11, 2011 12:36 PM

Love this place. Over asking?

Posted by: eddy at October 11, 2011 12:42 PM

From the listing: "Updated Kitchen". Looks like they might have bought a new fridge in the 60s, so I guess it's technically accurate...

And I take it the weird angle of the "backyard" photo means there are some significant privacy issues there.

Posted by: tipster at October 11, 2011 12:42 PM

Remarkably well stated.

Posted by: unwarrantedinlaw at October 11, 2011 12:43 PM

curious.

in the movie calvin webber's pad was underground.

Posted by: wrath at October 11, 2011 1:00 PM

Kg,

If the prop-13-protected owner paying 10% of market value takes in the ___, where does the non-prop-13 protected owner take it?

Posted by: fred at October 11, 2011 1:05 PM

@Editor, it reads like a jab given that it could simply go without mention and we'd have all the information we need.

To your point, the next buyer will be updated to a base at asking price. It's not until many years later (15-20 years) will the benefits of their ownership start to kick in. Until that point the new owners will carry a heavy burden in contrast to the majority of citizens. With turnover, it's all relative. Not complaining. Just pointing out the incentive is something that's earned.

Posted by: kg at October 11, 2011 1:17 PM

@kg, they have paid $101,992 since 1950? So what? That's over 61 long years!

If I buy 2 MUNI FastPass a month, in 61 years I would have spend $105,408, $3,416 more than their estimated property tax.

Posted by: Wai Yip Tung at October 11, 2011 1:27 PM

kg, your assumption that "the incentive is something that's earned" is unwarranted. I had a co-worker at my last job whose GRANDparents set things up so that he could inherit their paid-for home and the Prop. 13-limited tax basis. He certainly didn't earn anything, yet he was paying a small fraction of the property taxes of his neighbors on the same street with similar property.

You have to take into account Prop 58 rules and Prop 193 before you go valorizing recipients of Prop. 13's benefits.

Posted by: Brahma (incensed renter) at October 11, 2011 1:39 PM

My wife's grandparents lived in a mobile home in Hayward that looked just like this - including the kitchen, the exterior, the low ceilings, and the narrow hallway. This place is bigger but no less hideous. I guess there are at least no mobile home park fees here. So there is one advantage.

The fireplace is pretty cool. The rest - bleh. Sorry, but this isn't "mad men," it's just "old men."

Posted by: A.T. at October 11, 2011 1:41 PM

KG - Your numbers are wrong. Per http://www.usinflationcalculator.com/, that place would have had to cost 170k in 1950 to be the equivalent of $1.6m today. It surely cost far less than 170k back then.

The owners will have made a HUGE amount of money on property appreciation, all while paying below-market taxes for decades. Hard to see how they're getting screwed. 100k in property taxes spread over 60 years is NOTHING.

It's the people like me, who pay almost 10x more per year in property taxes, with virtually no hope of similar property appreciation in the future, that are getting hosed in this scenario. No way of painting this as fair.

Posted by: dch at October 11, 2011 1:49 PM

"Yes, property owners do take it plenty in the ass given the asking price is approximately the same as the 1950 inflation adjusted amount."

Non-sense. There's no way this house cost that much in 1950. Huge windfall to these folks because Prop 13, and lots of other people have been getting screwed. Even if it's $100K over 60 years (don't trust kg's numbers at all, given the huge mistakes already), that's very little. They got far more in services from the city, most likely.

Posted by: sfrenegade at October 11, 2011 1:55 PM

It drives me insane when realtors say "updated kitchen" when that update occurred 40+ years ago. I would bet that the original cabinets are still intact as are most of the appliances. That isn't "updated" in my book. There oughta be a law ...

Not sure about that price point, this would be a gut job for me and my taste.

Posted by: Lori at October 11, 2011 1:56 PM

maybe prop13 homeowners should have to come up with their own services. Sorry pal, try the Daly City fire department.

Posted by: EH at October 11, 2011 2:19 PM

Editor wrote:

> The property had a "tax bill of $1,672
> last year"

Then kg wrote:

> Regarding the little jab at taxes at
> the end, they've likely paid $101,992
> since 1950.

It looks like kg forgot that they have not been paying $1,672/year in taxes for the past 61 years (1,672 x 61 = $101,992). Odds are they have paid less than $50K over the past 61 years (it is easy to calculate the taxes paid from 1979 (the start of Prop 13) to the present but you have to estimate between 1950 and 1979 (even with my high home value and high rate estimates I still get under $50K in total property taxes paid over the last 61 years.

Posted by: FormerAptBroker at October 11, 2011 2:27 PM

Lori wrote:

> It drives me insane when realtors
> say "updated kitchen" when that update
> occurred 40+ years ago.

Back in the late 70s when Carter was in the White House and I was in High School almost every home and apartment in the Bay Area that got new carpet was getting green (or orange) shag carpet that looked just like the carpet in this place has, so I bet the "updates" were "only" about 30+ years ago...

Posted by: FormerAptBroker at October 11, 2011 2:36 PM

@Wai Yip Tung, you must have missed that I noted my estimate was NOT inflation adjusted. Your example of muni purchases is flawed for exactly that reason -- can't assume today's fare is the same as 1950.

@Brahma, I think this is an edge case, but I'll give it to you. Sounds more like an urban myth and some sketchy tax filing if you ask me.

@dch, numbers are off because it was a general statement. You're right 1.6M is more like 170k in 1950. That's just a 13% appreciation over 61 years after removing the inflation adjustments -- not a huge chunk of change. If 100K (again, not inflation adjusted... re-read my original comment) is nothing over 61 years, I'll set up a bank account now and you can start sending me payments.

@sfrenegade, it says in the post that the house cost $151k in 1950. Plug that into an inflation calculator and see what that's worth in 2011 money. Subtract that amount from the asking price. It's roughly a 200k difference.

Posted by: kg at October 11, 2011 2:45 PM

kg - 100k is nothing in comparison to what the owners have gotten. People like me have been subsidizing their city services for decades as they pay far below-market property taxes while simultaneously seeing their property skyrocket in value.

They've made a seven-figure profit while not even paying the city enough to cover the services they get. The new owners will receive the same services, pay 10x more, and have virtually no hope of an equivalent profit when they sell.

How on earth is that fair, and how have the current owners in any way been screwed?

Logic would be appreciated this time.

Posted by: dch at October 11, 2011 2:56 PM

One more thing: the tax base is 151k, but that is NOT how much the house cost in 1950. My understanding is that the 151k figure reflects the tax basis in 1979(?) when prop 13 passed. The house would have been far far cheaper in 1950.

Posted by: dch at October 11, 2011 2:58 PM

@dch, if that's true then yes, I've misinterpreted that number. Sticking by my logic however that they've paid a hefty sum out of pocket over 32 years.

Posted by: kg at October 11, 2011 3:04 PM

Typical conservative. Completely failing to understand the numbers but lashing out against having to pay a meager sum for generous benefits you get that are heavily subsidized by the rest of us. All the while using anti-gay epithets. Take it up the... Excuse me?

No wonder people like me tell people like you to STFU.

Posted by: Adam at October 11, 2011 3:22 PM

Reminder - life's not fair. Make your choices wisely.

Huge amounts of money on appreciation...didn't pay for services received...there's all sorts of blurring of concepts going on here between investment returns, tax policy, enjoyment of choices in life, owning your own home etc. The owner's choice to hold for this period to their perceived, and hopefully real, benefit is great.

Posted by: ts364 at October 11, 2011 3:27 PM

@Adam, if that's directed at me -- it's unfortunate you can't afford to have a meaningful discourse in the face of an honest misinterpretation. My expression was not meant to be anti-gay. Sorry it offended you.

FWIW, using CPI data to adjust for inflation they've paid equivalent of $85,425.57 in tax since 1979. How exactly are you doing more than that to subsidize?

Posted by: kg at October 11, 2011 3:37 PM

@kg I wondered how long it would take for someone to comment on your tasteless wording.

Posted by: SJNative at October 11, 2011 3:45 PM

It may not have been anti-gay or it may have been, as said by gutter educated kg.

But it was crude, stupid, inappropriate and not necessary.

There are many other ways to say the same thing, using a more intelligent set of words.

But I was offended as well.

Posted by: Modernqueen at October 11, 2011 4:12 PM

remember guys, hate the game, not the players

kudos to the owners for having been able to exploit a rotten system for so long. They have been playing fair, broken no rules, crossed no ethic line

I am not angry at them. I envy them. I am angry at the system that allows all this.

Posted by: asiagoSF at October 11, 2011 4:13 PM

Modernqueen, please accept my apology.

Posted by: kg at October 11, 2011 4:17 PM

"@sfrenegade, it says in the post that the house cost $151k in 1950. Plug that into an inflation calculator and see what that's worth in 2011 money. Subtract that amount from the asking price. It's roughly a 200k difference."

Yeah, except that would be silly. Under Prop 13, the valuation goes up 2% every year. It didn't cost $151K in 1950 -- that's just your misunderstanding of how valuation works under Prop 13. See also what dch and FAB said.

In addition, this also means they didn't pay $100K in taxes over 60 years, although that could easily be adjusted for inflation too if you could figure out what those numbers were.

Considering that a buyer of this house at asking will pay in 1 year what these guys would pay in 10 years at the current valuation, these guys have it easy.

Posted by: sfrenegade at October 11, 2011 4:20 PM

"@Brahma, I think this is an edge case, but I'll give it to you. Sounds more like an urban myth and some sketchy tax filing if you ask me."

Certainly not an edge case. This is what the combination of poorly drafted and overbroad propositions allows.

Posted by: sfrenegade at October 11, 2011 4:24 PM

@sfrenegade, thanks for reiterating what I have also tried to clarify. Since clarifying, I calculated they've paid ~85k since 1979 after adjusting for inflation. Frankly, I'm not sure how taxes worked between 1950-1979.

I think my original point was that they have it easy *now*, but they didn't when the taxes were first imposed. That's the incentive for buyers to shell out some serious cash.

Look, I recently bought a 800k home and I pay a handsome monthly sum of taxes under the premise that it benefits me over time. I see it as win/win in a sense that the city gets more of my money up front, and I benefit from sticking my neck out longer term. If I chose not to buy, what would the city get? Nada. And trust me, it's not like I haven't had to make sacrifices.

Posted by: kg at October 11, 2011 4:32 PM

Hey, Grandpa Joe or his family is gonna walk with 1.5M cash tax-free and there's nothing we do about it.

oh well, if only we could all go back in time...
Vintage San Francisco Real Estate Ads From The 1950′s
http://laughingsquid.com/vintage-san-francisco-real-estate-ads-from-the-1950s/

$9,250 or $12,500 sounds pretty good

Posted by: fred at October 11, 2011 4:33 PM

Living in this ugly place for 60 years sounds way more like a punishment than a bonanza regardless of the tax nut. But the neighborhood is nice. I'm with Lori - it should sell as a gut and remodel.

Posted by: A.T. at October 11, 2011 4:34 PM

Doesn't prop 13 allow certain sellers to transfer their tax basis to a new property under certain conditions?

Posted by: eddy at October 11, 2011 4:44 PM

"gonna walk with 1.5M cash tax-free"

No - they'll owe capital gains (likely, lots of possible exceptions).

Posted by: A.T. at October 11, 2011 4:45 PM

That part of Laurel Village has never supported 2M+ sale prices. So the prospect of a costly gutjob + remodel, and a 1.6M purchase price seem to look like a pass. Then again sometimes people do every single thing wrong and come out smelling like roses. Maybe next spring/summer Facebook will bail out whoever takes this bait.

Posted by: [anon.ed] at October 11, 2011 5:14 PM

"If I chose not to buy, what would the city get? Nada."

Not true. You have to live somewhere. Property tax essentially gets passed through to renters, although we can debate about elasticity.

"Doesn't prop 13 allow certain sellers to transfer their tax basis to a new property under certain conditions? "

Under Prop 60, if you are over 55 and moving within the same county, you can do this as a one-time thing. You must buy a house of equal or lesser value within the same county within 2 years of the prior sale.

Under Prop 90, you can do this between counties under similar conditions, but it requires counties to opt-in to Prop 90, I believe.

This was meant to encourage retirees to move down into smaller housing, but I don't think it has really worked very well.

Posted by: sfrenegade at October 11, 2011 5:21 PM

@kg: "I think my original point was that they have it easy *now*, but they didn't when the taxes were first imposed. That's the incentive for buyers to shell out some serious cash."

Talk about Prop 13-derived incentives is clearly inapplicable here, to the extent you're trying to tie it to the incentives of these particular subsidized long-term owners. Prop 13 had been neither proposed nor enacted at the time they made the decision to buy.

Posted by: shza at October 11, 2011 5:31 PM

Sorry Anon.ed - 18 Manzanita sold for more than $2.5MM.

I would also add that very little else on those blocks have ever been remodel, so there aren't many comps for a post remodel job. In fact the house right next door looks like it in mid remodel. But do the math. If this house is redone tastefully with great finishes, why can't it fetch close to $800 per square foot for the wide lot, extra parking, etc. ?
I like the neighborhood, and I bet it would be attractive to a family.This house is four doors from a big playground, tennis courts, and baseball field. It's half a block to groceries , coffee , a few destaurants, and other conveniences. And the presidio trials are five blocks away.

Posted by: Been there at October 11, 2011 5:48 PM

@sfrenegade, "Not true. You have to live somewhere. Property tax essentially gets passed through to renters, although we can debate about elasticity."

I Disagree. If I think it's a crappy investment, why would anyone else think differently? Who is going to want to own a property so they can rent it for less than it costs to own? How will property appreciate when slumlords neglect their neighborhood?

@shza, I'll ask you the same question I've asked others without any response. How are they being subsidized?

Posted by: kg at October 11, 2011 5:48 PM

kg, at this point you're just trolling (and have been for some time -- perhaps the entire thread).

The subsidization question has been asked and answered multiple times now, as you know. The public services received by long-term Prop-13 beneficiaries (and their heirs) are possible only by virtue of newer owners paying proportionally much higher taxes.

In this case, you can't even argue that these folks paid a disproportionately high amount of taxes during the early years, since that was pre-Prop 13 and the pricing distortion it brought with it (i.e., there was less incentive to keep properties tied up and therefore higher supply).

Posted by: shza at October 11, 2011 5:55 PM

^^^^
And no longer-term owners of comparable properties contributing proportionately less to the public fisc.

Posted by: shza at October 11, 2011 5:57 PM

"I Disagree. If I think it's a crappy investment, why would anyone else think differently? Who is going to want to own a property so they can rent it for less than it costs to own? How will property appreciate when slumlords neglect their neighborhood?"

That's really non-responsive to what I said. I'm not even sure what you're arguing.

"I'll ask you the same question I've asked others without any response. How are they being subsidized?"

Prop 13 is an extremely obvious subsidy. It is a transfer of money from people who bought property recently (often younger people and newcomers to the area) to people who bought property less recently (often older people and longer-time residents).

It also requires residential owners to subsidize commercial owners as what is likely an intended side effect (the proponents bamboozled the voters into this by claiming grandmas were getting thrown out of their house and that Prop 13 would fix that problem, whereas it did a lot of other stuff too).

In addition, localities generally raise sales taxes in order to compensate for the loss of property tax revenue, which results in certain subsidies as well.

There are other effects of Prop 13 too, such as loss of local control, that are also particularly insidious, but that aren't necessarily subsidies. This is what happens when lobbyists literally write legislation and it's not even able to be debated properly or evaluated properly or go through any real vetting process in our broken ballot proposition system.

Posted by: sfrenegade at October 11, 2011 6:00 PM

@shza, and why is that not fair? New owners paying higher taxes today will still have their day in the sun. I'm okay with it. Long term benefit. It's just how it is.

Why do you say I'm trolling? I've made every attempt to articulate my point of view.

Posted by: kg at October 11, 2011 6:02 PM

Anyone hazard a guess as to what the original purchase price was? $10k or so? That would be an 8.6% annual compounded rate of return. Of course this does include any of the cost of ownership.

with virtually no hope of similar property appreciation in the future,

Why do you say that? I fully expect the long term return on investment in San Francisco real estate to be somewhere about that going forward. If you hold on for 50 years, you too can pay low property taxes and have a hefty capital gain to pass to your heirs.

Posted by: NoeValleyJim at October 11, 2011 6:03 PM

"Why do you say I'm trolling? I've made every attempt to articulate my point of view."

That post is a prime example. You switched topics entirely (from "how is that a subsidy" to "why is that not fair") in an attempt to milk a thread/provoke further disagreement.

Your performance throughout the thread is textbook trolling.

"It's just how it is" is also a non sequitur when the question is "policy-wise, what would be best."

Ok, no more feeding the troll from me. Promise this time.

Posted by: shza at October 11, 2011 6:06 PM

@sfrenegate, "That's really non-responsive to what I said."

Yes it is. You're assuming property tax will just pass on to some owner. My argument is recursive. If I wouldn't want to own, why would anyone else?

Your take on subsidies asserts that there is long term value for new owners, which I've said all along.

Posted by: kg at October 11, 2011 6:11 PM

@ Been there,

You're right, that one did sell for 2.5M+ inside that little micro-area. But it was April 2008 and those were different times. You say close to 800 a foot. That still only puts it at ~2.2M, and that wouldn't work.

Posted by: [anon.ed] at October 11, 2011 6:12 PM

@shza, I'm agreeing with your comment on subsidies. Now I'm asking for your opinion on why it isn't fair. IMHO, it's fair.

Posted by: kg at October 11, 2011 6:14 PM

sfrenegade wrote:

> Prop 13 is an extremely obvious subsidy.

Prop 13 is not "fair", but is is not a "subsidy" (try Google define: subsidy for a quick example of a subsidy).

It is not "fair" that old people pay less than me to see a movie or buy a lift ticket at most ski resorts, but it is not a "subsidy".

P.S. I think that kg is just "confused" not "trolling"...

Posted by: FormerAptBroker at October 11, 2011 6:28 PM

wow, these comments are really getting vitriolic.

verbally violent real estate nerds have been unleashed tonight.

Posted by: wrath at October 11, 2011 6:40 PM

What Does Subsidy Mean?
A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.

Read more: http://www.investopedia.com/terms/s/subsidy.asp#ixzz1aWnB0VNb

Posted by: fred at October 11, 2011 6:46 PM

@sfrenegade, Just using your own nomenclature so you can understand it. Since you've failed to make a coherent argument it's understandable that you'd attack my character instead.

Posted by: kg at October 11, 2011 7:00 PM

The owners of 53 Manzanita never got a "cash payment" or a "tax reduction". The property taxes actually "increased" over the past 60 years.

If I get a great deal on a used M3 from a private party that needs to sell and pay $60K I'll pay less sales tax than my friend who buys a used M3 from the dealer at $80K.

It is not "fair" that my friend pays almost $2K in sales tax more than me, but I didn't get any lond of "subsidy"...

Posted by: FormerAptBroker at October 11, 2011 7:03 PM

@sfrenegade, sorry for the mixup. FormerAptBroker was quoting you. I take back my previous statement.

@FormerAptBroker, how am I confused?

Posted by: kg at October 11, 2011 7:16 PM

"It drives me insane when realtors say "updated kitchen" when that update occurred 40+ years ago. I would bet that the original cabinets are still intact as are most of the appliances. That isn't "updated" in my book. There oughta be a law ..."

Realtors can say whatever they want. There is no penalty to outright lying and there never will be if the NAR has any say in it. And this particular lie about an updated kitchen is so minor in the scheme of realtor/industry lies it doesn't even make anyone blink. The industry is "self-regulated" but I don't know too many people who haven't been blatantly lied to by a realtor. There are some very good honest, ethical realtors out there but they are a tiny minority. Personally it took me three tries-- all of whom were recommendations from friends.

Posted by: NARLuv at October 11, 2011 7:35 PM

there is really no way to calculate, using the existing tax basis, how much the owner paid in property tax over the past 60 years.
The owners probably paid less than 10k for this property in 1950 so they must have had some improvements tacked on to get to a 151,805 assessed value.
supposedly, prop13 set assessed values at 1978 market value but I'm not sure that actually happened. My uncle paid 15k for his Vic in Noe Valley in 1960 but his tax basis is half that of this property.
Also, the 2% annual increase was not always applied to every property every year, like it is now.

This property needs a lot of work. and although it's in a great location it seems to be overpriced at 1.6M.
I also agree that the use of the term "updated kitchen" here is laughable. Yeah, updated in 1970.

@eddy - I think you can also take your tax basis to san mateo county.

Posted by: EsEfGerard at October 11, 2011 8:51 PM

Price is strong and prop 13 did keep a lot of grandmas in their homes; it also means the tax bill for HP's campus is about 7.7% of what it should be.

Posted by: GetOffTheIvy at October 11, 2011 9:52 PM

We bought my wife's grandmothers home from her trust after her death. Therefore, we inherited her tax base. The house is worth about $550K right now, but we only pay around $500 per year total. I agree, it sounds unfair. But, to those of us who get this deal, it feels pretty good to be paying one tenth of what your neighbors pay.

Posted by: bayviewheightsguy at October 11, 2011 9:53 PM

@NVJim talking about the capital gains heirs will pay is hilarious.

Every time I see something like this, it's obvious that not one penny of capital gains taxes will be paid. They rarely are.

And so it is here. Property shark lists the original owner. Colorful guy. 7 years ago, this story:

"(owners name) a Jewish immigrant who escaped Nazi Germany and settled in San Francisco, where he grew a Kearny Street camera shop into the internationally known Brooks Camera, has died. He was 94."

Whoa, 7 years ago. Hmmm, now what could have happened 7 years later that caused them to sell. Not exactly rocket science material to figure this one out. Let's look at the end of his obituary and see if there might be any clues...

"(owner's name) is survived by his wife of 64 years, Sue"

Hmm, a quick check for that name lists, this obituary: from a month ago:

Sue (same last name as the registered owner) Born in Worms, Germany on April 21, 1921. Died in San Francisco on August 28, 2011 at age 90. Beloved wife of the late (owner's name) for 63 years.

Sad story, probably a happy life, with some lucky twists, but in the end not one dime of state or federal taxes capital gains will be paid. Not one dime. When the owner dies, the cost basis of property is stepped up to the current value for the purpose of paying capital gains. Therefore, there will be zero capital gains and therefore no tax.

I trust he avoided the estate tax in every way possible.

As a once beloved poster on this site used to say: Well played.

And in case you are wondering how the other 1% of the population lives, the guy owned Brooks Camera (sold it to Ritz Camera in the 1980s) and lived in what A.T. accurately described as looking like a double wide trailer. I've seen this sort of thing a lot. People just get used to whatever their living situation is.

Posted by: tipster at October 11, 2011 10:11 PM

kg wrote:

> @FormerAptBroker, how am I confused?

You seemed to be confused as to how Prop. 13 and california property taxes in general work, your post at 12:36 pm said " they've likely paid $101,992" when they have probably paid less than half that over the past 61 years.

Posted by: FormerAptBroker at October 11, 2011 10:12 PM

@FormerAptBroker -- be sure to read the entire thread :)

Posted by: kg at October 11, 2011 10:43 PM

@BVHG - Informative post on your inheritance from your grandmother. I assume your assessed value is in the $40-50k range.

I hope you are also taking advantage of the homeowners exemption which would reduce your tax basis by an additional $7,000. it would make a real difference at your assessed value.

Posted by: EsEfGerard at October 11, 2011 10:57 PM

kg - the entire thread where you've been proven wrong as to virtually every factual assertion and assumption "supporting" your position? i'd say it more than amply demonstrates your confusion.

Posted by: dch at October 12, 2011 9:01 AM

@tipster, just chiming in to say that was one of your better posts. Well played. :)

"Mad Men"; a fitting title to this thread. :)

Posted by: ed at October 12, 2011 9:11 AM

dch, kg has made some valid, well positioned points since admitting to an initial misinterpretation.

Posted by: amag at October 12, 2011 10:27 AM

The owners of 53 Manzanita never got a "cash payment" or a "tax reduction". The property taxes actually "increased" over the past 60 years.

FAB, that's looking at form, not substance. The owners of 53 Manzanita have received a much lower tax base on which their tax is calculated. If that's not a tax reduction, I'm not sure what is.

If I get a great deal on a used M3 from a private party that needs to sell and pay $60K I'll pay less sales tax than my friend who buys a used M3 from the dealer at $80K.

That's not a great example. In your example, your M3 is worth $60K as a private party sale and $80K as a dealer sale. In my case, a $1.7M house is worth $1.7M whether bought in 1950 or 2011 -- it's just that our government gives you a lower tax base on which to pay taxes if you bought in 1950.

Posted by: sfrenegade at October 12, 2011 11:18 AM

sfrenegade wrote:

> That's not a great example. In your example,
> your M3 is worth $60K as a private party sale
> and $80K as a dealer sale. In my case, a
> $1.7M house is worth $1.7M whether bought
> in 1950 or 2011

California does not have a "Property Tax" on cars it has a Vehicle License Fee (established by the Legislature in 1935 in lieu of a property tax on vehicles). If I own a 1955 300sl Gullwing I bouight new in 1955 I would not be paying any VLF (it goes away after 11 years). If a friend next door buys a similar '55 Gillwing today he will pay a VLF of about $1,600 next year. Are we giving a "subsidy" to everyone in California that owns a car or truck that has gone up in value (pretty much every car and truck built before 1970 that still runs)?

Posted by: FormerAptBroker at October 12, 2011 11:53 AM

California does not have a "Property Tax" on cars it has a Vehicle License Fee (established by the Legislature in 1935 in lieu of a property tax on vehicles). If I own a 1955 300sl Gullwing I bouight new in 1955 I would not be paying any VLF (it goes away after 11 years). If a friend next door buys a similar '55 Gillwing today he will pay a VLF of about $1,600 next year. Are we giving a "subsidy" to everyone in California that owns a car or truck that has gone up in value (pretty much every car and truck built before 1970 that still runs)?

For collector's cars, effectively we are subsidizing because we don't reassess those vehicles. Generally speaking, the VLF's formula works mostly okay because 99.99% of cars depreciate in the fashion of the formula.

Anyway, this doesn't negate the fact that Prop 13 is a subsidy in multiple ways.

Posted by: sfrenegade at October 12, 2011 12:35 PM

Prop. 13 was challenged at the Supreme Court and upheld based on the theory that there was rational basis for it. The claimed basis was to encourage long term ownership and stable neighborhoods. It certainly has done the former at least. The tax laws are policies to encourage behavior and are not always fair, and sometimes exceedingly so. At this point in our state we have to move forward with the tax policy we have. Maybe the younger generation will be able to straighten things out.

Posted by: fred at October 12, 2011 1:08 PM

I know a guy who only pays a 15% federal income tax rate because his income is almost all long-term capital gains. My income is about the same but my marginal rate is 35%.

And I know a guy who gets a big tax deduction for the mortgage interest paid on his house, but I know another guy who rents a similar place and gets no deduction. Subsidy! Unfair!

And this renter pays NO property taxes. Subsidy! Unfair!

Like asiagoSF said, hate the game, not the player. The tax codes are full of inequities. No point in fixating on this one since it ain't going anywhere.

Posted by: A.T. at October 12, 2011 1:25 PM

Prop 13 has been good to myself and many of my property owner neighbors here in Noe. It has, in fact, encouraged long term ownership and created a stable neighborhood.

Many of us have now owned right on our block for 20-25 years. Seems like a good thing to me.

Posted by: Modernqueen at October 12, 2011 1:27 PM

MQ, subsidies are always "good" for their recipients, at others' expense. Typically selfish/self-righteous.

Weigh "long term ownership" against decreased funding for public services and less affordable housing for newcomers. I don't see how the "public good" balance possibly tips in favor of Prop 13.

That's without even getting into the fact that much of that long term ownership is inefficient (the now-childless 3/4/5 bedroom family homes).

The rest of the country hasn't gone to shit without Prop 13. There are fine, stable, thriving neighborhoods outside of CA and crappy neighborhoods within CA.

Posted by: shza at October 12, 2011 1:55 PM

"At this point in our state we have to move forward with the tax policy we have. Maybe the younger generation will be able to straighten things out."

Not kicking people out of their paid off homes due to increases in market value seems like a worthy goal to me. It's not clear to me why an increase in market value causes the city to provide proportionally more services to people.

I don't see any sense behind the 2% cap on inflation adjustments though. While it seems reasonable for people's real property tax burden not to increase, raising the tax less then the amount of inflation (when inflation is over 2%) reduces the real tax burden.

One other proposal I've heard floating around would be to allow owners after a certain age to pay some minimum amount of tax with the unpaid balance being added as a lien to the property in the name of the state. The state could take no action on the lien until the owner and spouse's passed on. No one gets kicked out of their home and the deferred taxes get paid from the sale of the home.

Posted by: tc_sf at October 12, 2011 1:56 PM

It's not clear to me why an increase in market value causes the city to provide proportionally more services to people.

Note that this is not an argument favoring Prop 13 so much as an argument that would favor transfer of the tax base to purchasers in all instances (not just to heirs, etc.).

In instances where properties are expanded to house more people (users of public services), then obviously we're in a different scenario.

I definitely agree on the 2% cap point.

Posted by: shza at October 12, 2011 2:21 PM

"One other proposal I've heard floating around would be to allow owners after a certain age to pay some minimum amount of tax with the unpaid balance being added as a lien to the property in the name of the state. The state could take no action on the lien until the owner and spouse's passed on. No one gets kicked out of their home and the deferred taxes get paid from the sale of the home."

This idea would be far better than Prop 13 and is used in other states. Prop 13 has a number of structural problems. Many naive people believe it's just about keeping grandma in her house, but there are far better and more efficient ways to do that aren't nearly as destructive as Prop 13.

I've detailed these problems a few times -- loss of local control of government, increased sales taxes, crappier schools, a direct subsidy of commercial properties by residential property owners, higher house prices and less liquid property markets, inefficient use of housing, and the list goes on. There are far better ways than Prop 13 to keep grandma in her house (if that's even a worthy goal -- it seems like a better goal would be for grandma to move to a condo, and a family gets her big house) and better ways to constrain government if that's your goal.

Posted by: sfrenegade at October 12, 2011 2:44 PM

The property tax discrepancies between recent and long-ago buyers under Prop 13 is wrong, but a someone noted, 50-year holds of a personal residence are not all that common. The real give-away is to corporations who keep their low assessment forever.

Nevertheless, we would be in for a world of hurt in SF were it not for prop 13. Look at the 7-8% rates someone Florida residents have to pay:
http://articles.orlandosentinel.com/2011-10-11/news/os-lk-lake-cities-tax-rates-20111011_1_tax-rates-property-values-rate-ranks

Does anyone really think the SF supes would not impose similar rates on SF property owners if they could to pay for all their social-engineering causes? Prop 13 created a lot of headaches and inequities, but on balance I'm all for it as a necessary check to keep the supes from imposing confiscatory rates. California has a pretty sensible, progressive income tax system (which should be more progressive) to offset this. When things got out of hand with property taxes, the people rose up and put a stop to it with Prop 13. That's democracy (better than war, another option that has been used when taxes got out of hand).

Posted by: A.T. at October 12, 2011 2:59 PM

You missed the point of prop 13. In the 70s, kids from poor school districts were bused into the rich ones, and the supreme court ruled that spending lesser amounts on schools in poorer neighborhoods wasn't allowed.

Until that time, property tax increases were accepted by the public because a lot of the money went right back to the neighborhood kids in the form of money to the neighborhood schools.

Seeing the decline in funding for the richer schools, and the kids from the hood being bused in, support for property taxes evaporated at the very same time property taxes were climbing through the roof due to increased valuations brought on by inflation, which was itself brought on largely by women entering the work force in large numbers, which then fed on itself and required women to enter the workforce to afford the higher prices. All that money allowed more and more people to bail out of the public education system and head to private schools. But then they no longer were willing to pay for public schools.

With the populace no longer inclined to allow the politicians to spend their money on poorer kids than their own, and having ceded the public schools to people who couldn't afford private schools, people just wanted the politicians to throttle in the spending. They didn't want a lien on their homes, they wanted the politicians to stop spending as much of their money if it meant it wasn't going back to their own neighborhoods.

The keep granny in her home was a valid idea, but wasn't the primary one, because the lien solution would have solved that. The public wanted the politicians to stop giving their money away to poor kids. That's why we have prop 13. It throttles the level of overall spending. It takes away what the supreme court giveth. The people got mad as hell and weren't going to take it any more. The fact that it screwed everyone who wasn't a homeowner at the time was an added bonus that made sure it passed.

No one said anything about what I'm talking about in the same way we just saw a bunch of people suddenly interested in how much the transitional housing in the Marina was going to cost, and almost nothing on how the thing would impact property values and the neighborhood, and how they just didn't want "those people" living nearby.

For every action there is a reaction. Left leaning people laughed when every decision in the 70s went their way. But the people have a way of fighting back, and they will. It's how Greece got into their mess: taxes are sky high and so no one pays them. People do fight back. Force people to give tax money to poor kids in what is seen as an unfair amount and those people will vote to reduce taxes.

Healthcare will ultimately follow the same pattern. You'll get a public option where you are given two aspirin if you have cancer, and a rich people's private option that gives you radiation and chemotherapy, for a higher price. It's how the world works.

Left leaning people never "get" this. They think the rich will just suck it up and take it. Never happens.

Posted by: tipster at October 12, 2011 3:20 PM

Democracy also permits removing the supes if the population disagrees with decisions they might make on rates, obviously.

More "democratic" than a statewide constitutional amendment that can't be so easily dismantled through the voting booth.

And as I've said before, it makes little sense to me, policy-wise, to "make up" for property tax shortcomings (i.e., taxes on largely unproductive activity - credit what you will to MQ's overblown points about neighborhood stability/people trimming their shrubs) by raising taxes on income (productive activity).

Posted by: shza at October 12, 2011 3:23 PM

^^^ This was in response to AT's post.

Posted by: shza at October 12, 2011 3:27 PM

But, shza, the SF supes would not be voted out because the majority of SF voters are renters and do not (directly) pay property taxes - they would LOVE 8% property taxes to fund more city giveaways. I guess it goes to tipster's point - in order to get this done, the voters went state-wide and trumped the local governments, taking advantage of one of the democratic tools available.

Posted by: A.T. at October 12, 2011 4:07 PM

Nevertheless, we would be in for a world of hurt in SF were it not for prop 13. Look at the 7-8% rates someone Florida residents have to pay:
http://articles.orlandosentinel.com/2011-10-11/news/os-lk-lake-cities-tax-rates-20111011_1_tax-rates-property-values-rate-ranks

Check your math, brah. Those rates are all below 1%. They are out of $1000. That means their rates are below Prop 13's statutory rate! However, it's possible that there is an overlapping county property tax rate that applies too.

Prop 13 created a lot of headaches and inequities, but on balance I'm all for it as a necessary check to keep the supes from imposing confiscatory rates. California has a pretty sensible, progressive income tax system (which should be more progressive) to offset this. When things got out of hand with property taxes, the people rose up and put a stop to it with Prop 13.

There are other ways to do that without all the negative consequences of Prop 13.

The public wanted the politicians to stop giving their money away to poor kids. That's why we have prop 13. It throttles the level of overall spending.

But it does so stupidly. Yes, Prop 13 must be seen in the context of Serrano v. Priest. But you must also look at the legislature's response. What happened is that money was being shuttled from wealthy school districts to poor school districts. If instead, the state legislature had been required to supplement poor school districts (instead of redistributing property taxes), there wouldn't have been as much of an issue.

Ironically, what Prop 13 allowed the state legislature to do, in addition to the Serrano v. Priest after-effects, was to consolidate power within itself and usurp that power away from local governments which are more accountable to the people. This is probably the opposite of what Prop 13 advocates wanted.

Prop 13 must also be seen in the context of the 70s. Inflation was rampant, so asset prices were flying high too and housing prices were rising quickly. California state government was then quite bloated, although it has since trimmed down to either having the least public employees per population or among the bottom three. There was also a history of corrupt assessors lowering valuations for favored people that was remedied by the state assessor, which resulted in some people's property taxes going up because their properties were valued more fairly afterward.

taking advantage of one of the democratic tools available.

Except that our ballot proposition process is highly flawed and ends up being undemocratic quite frequently. The Swiss system is far better, and although California tried to emulate it to some extent, California's system is an inferior bastardization of the Swiss system and is far more vulnerable to legislative capture. Many would argue that requiring a 2/3 vote for certain matters is undemocratic.

In addition, it's hard to overturn most propositions, and that causes many of our fiscal problems.

Posted by: sfrenegade at October 12, 2011 4:28 PM

What bs.

Show me a statement (or two) that says an existing homeowner would gladly pay more in property taxes than defined by Prop 13, to get cleaner streets and better schools:

And I'll show you:

A Republican in drag.

Posted by: Modernqueen at October 12, 2011 4:33 PM

MQ, I'm sure many (most?) homeowners would prefer to pay zero property taxes and would welcome a direct payment from the state fisc for owning their homes. But that has nothing to do with whether Prop 13 is good policy.

What exactly is your point? That you're unabashedly self-interested? (We already got that.) A Republican in drag indeed.

Posted by: shza at October 12, 2011 4:54 PM

sfrenegade, I stand corrected on my faulty math!

Regardless, the point is the same - in the late 70s and today, local governments see property taxes as an easy way to keep taking in more and more, and they know there's little anyone can do about it (everyone can't just sell and move away). I agree prop 13 is flawed. But I'll take those flaws as a trade-off for a firm cap on the taxing power. NY just imposed a 2% cap on increases, I believe.

Clean up the flaws? Sure, I'm all for it. But the sledgehammer is better than no check at all.

Posted by: A.T. at October 12, 2011 4:59 PM

Clean up the flaws? Sure, I'm all for it. But the sledgehammer is better than no check at all.

AT, there are already market and political checks built in.

Say the SF supes raise rates to 10%. Several things would/could happen, in the nature of correction:

1. They get voted out.

2. If, as you say, such a rate increase is actually democratically popular with the majority of (renter) voters, then there's not really a problem. People who, it turns out, don't like the city they live in (which is urban and full of renters) can move to Marin or some other less urban environment with less renters and less social spending.

3. If folks move away, or even if they don't, prices will fall (all other things being equal), since the tax increase means higher monthly payments. This will result in a market cap on rates at some point, obviously, since 100% of 0 is 0. And 10% of 100 is the same as 1% of 1000. Etc.

Moreover, as sfrenegade has pointed out several times in this thread, one result of Prop 13 is that the govt. simply looks to other tax streams, like sales tax (which is regressive) and income tax (which is counterproductive). So it's not really working as the great throttle you suppose - it's more of a roadblock/diverter.

Posted by: shza at October 12, 2011 5:14 PM

@shza: everyone's got some self-interest. even you,perhaps?

If not, they're lying.

Posted by: Modernqueen at October 12, 2011 5:24 PM

But Prop 13 also included the 2/3 requirement for other taxes. So it is more of a throttle than a diverter.

Posted by: A.T. at October 12, 2011 5:25 PM

Show me a statement (or two) that says an existing homeowner would gladly pay more in property taxes than defined by Prop 13, to get cleaner streets and better schools

I would, for one. Does that make me some kind of Republican?

Posted by: NoeValleyJim at October 13, 2011 9:51 AM

There should be no tax preference for longevity of owning a home. It makes no sense, and the feeble reasons given (e.g. grandma) can be better addressed in other ways, many of which are described above.

If your worry is that higher taxes lead to government waste, then fine, abolish the property tax. Or set the rate at a very small percentage of FMV for all homes. Then your tax bill will be low, but you won't be better off than your new neighbor.

But to make your neighbor pay 10x what you pay just becuaes they moevd in more recently is unfair to the point of being bad policy.

Posted by: NJ at October 13, 2011 3:26 PM

After 45 days on the market, the listing for 53 Manzanita has been withdrawn from the MLS without a reported sale.

Posted by: SocketSite at November 18, 2011 1:20 PM

of course there has to be tax preference for longevity in a home. I don't like it either but it's even less fair otherwise.

when you buy a home you make a judgement at that moment whether you can afford it, which includes the taxes. you can't expect to have to live under a property tax system tied to the whims of the real estate market. then in the next bubble everyone's property tax goes up 50%? that's fair?

granny buys her home in 1950 for $10k and gets taxed on that basis plus yearly standard increases. in 2007 it's worth $2M+ and granny should be paying $30k a year in tax? where's she getting that money? her social security isn't going to quite cover that.

under that system she would be penalized for living in a rising real estate market and for making a good investment (sure it was probably lucky). she'd likely lose her home to a tax lien.

yes the system is really imperfect but I fail to see how any alternate system could work in practice.

Posted by: fancy rental at November 30, 2011 2:16 AM

btw the property in question just went back on the market at $1,445,000.

Posted by: fancy rental at November 30, 2011 2:17 AM

yes the system is really imperfect but I fail to see how any alternate system could work in practice.

Perhaps you should look to every other U.S. state, where there's no Prop 13 or similar subsidy to long-term owners.

And granny living in a large $2M home by herself is an incredibly inefficient outcome that should be actively discouraged, not the opposite. Let her sell, make an enormous profit, and move into a 1 BR condo so that a family can actually use those bedrooms. And if she really just needs to have 5 unused bedrooms and a bunch of staircases, let her take out a reverse mortgage with the nearly $2M in equity she's sitting on. Hardly seems "unfair."

Posted by: shza at November 30, 2011 9:38 AM

well ok, now you're changing my mind a little. but with the law being in place for 30 years, changing over would be pretty difficult.

a lot of thoughts I'm having on this -- it's maybe too complex an issue to solve right here in this thread.

but you know maybe property taxes in general are just an inherently bad way of taxing us the people.

Posted by: fancy rental at December 1, 2011 2:15 AM

If you want even minimal public services, you have to tax something. Taxing non- or minimally-productive activity such as passively owning property seems to me a far better thing to do than tax (and therefore disincentivize to some extent) productive activity like working a job.

Posted by: Shza at December 1, 2011 8:45 AM

Yes, I think we agree on the starting point, which is that tax revenues are needed. From there, all decisions about what and whom to tax simply represent social choices. All options have pros and cons, and winners and losers. E.g. (note that each of the "pros" could also be a "con" and vice-versa depending on one's point of view):

Sales taxes - pro: taxes consumption and encourages saving, predictable; con: regressive, discourages spending

Income taxes - pro: progressive, transparent, consistent; con: discourages work, unpredictable

Property taxes - pro: encourages most productive use of land; very predictable; con - penalizes certain uses and passive increases in value

Capital gains taxes - pro: progressive, taxes windfalls; con - discourages investment and job-creation.

And on and on. This is why the tax codes are so complicated as legislators try to balance all the social pluses and minuses (and the infinite special interests). Most people tend to favor a tax scheme that results in others paying more taxes and "me" paying less.

Posted by: A.T. at December 1, 2011 8:58 AM

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