Bay Area cities where homeowners have saved up to $30000 on property taxes in the real estate boom

Approved overwhelmingly by voters during a housing bubble in 1978 when assessments were skyrocketing, Prop. 13 caps property taxes to 1% of a home’s assessed value at the time of purchase, and limits annual increases to 2%. Properties are reassessed for tax purposes only when they change hands.

Prop. 13 continues to enjoy support among California voters. A 2018 Public Policy Institute of California survey found that 40 years after its approval, 57% of Californians felt the initiative was mostly a good thing for the state, with support particularly strong among older residents (66% age 55-plus), Republicans (71%) and homeowners (65%). A sweeping 2020 measure that would have removed its tax protection for commercial property, Prop. 15, was defeated at the polls.

While acknowledging he’s not an expert in tax policy, Levin said the recent red-hot housing market clearly illustrates the uneven effects of Prop. 13: “Every time housing prices go up, it further benefits people who own homes, and further hurts people who don’t own homes,” he said. “I have a lot of friends trying to start families who are priced out of the housing market. If they were to buy a house now, they would be paying much higher tax rates than everyone.”

So just how have the differences in Prop. 13 tax savings played out across different parts of the Bay Area?

Cities in six Bay Area counties are covered by Levin’s website: Alameda, Contra Costa, Marin, San Mateo, San Francisco and Santa Clara. Using county tax records from 2019 and 2020 and estimated average home values from popular real estate listings websites from November 2020, Levin calculated average Prop. 13 tax disparity, or what he calls “subsidy,” by taking the difference between homes’ current market value and their assessed value and applying the local tax rate to that savings. The “subsidy” is the additional amount the average homeowner would have paid if the tax were based on the home’s current value.

The data shows disparities are greater in wealthier areas where the average market value of homes and median household incomes are higher. Looking at the top 25 largest cities by population in the Bay Area, the highest average disparities are in Silicon Valley locales in the Peninsula and South Bay: Mountain View with $13,900, Sunnyvale at $13,520, Redwood City with $10,422 and Santa Clara at $10,074. San Francisco follows in fifth place with an average subsidy of $9,984.

At the bottom of the list with the lowest disparities are three cities in Contra Costa County in the East Bay: Pittsburg, with an average subsidy of $2,184 per year, Antioch at $2,597 and Richmond at $2,605.

The correlation between home values and Prop. 13 tax savings is particularly clear when looking at the Bay Area cities with the highest disparities. Atherton, which has consistently been ranked the most expensive ZIP code for housing in the country, has the highest average “subsidy” per year of a little over $35,000. Los Altos Hills has the second highest at about $29,000, and Palo Alto comes in third with almost $25,000.

On the other end of the spectrum are three places in eastern Contra Costa County: Discovery Bay has the lowest annual “subsidy” at about $1,380, followed by Oakley with nearly $1,670 and Brentwood at $1,740.

The data illustrates the discrepancy noted by Carolina Reid, a professor of affordable housing and urban policy at UC Berkeley and faculty research adviser for the Terner Center for Housing Innovation: Prop. 13 disproportionately benefits wealthier, older, non-Hispanic white homeowners and people who have owned their homes longer, she said.

“Overall, it’s regressive and contributes to the racial wealth gap, and can make it harder for new households to enter homeownership,” she wrote in an email.

On the flip side, Reid added that Prop. 13 “protects older homeowners from big increases in property taxes,” especially if housing prices increase.

“For seniors, and especially low-income seniors on fixed incomes, pegging increases in property taxes to house values without some kind of cap or other relief program could impact their ability to stay in their homes,” she said.

However, Susan Shelley, a spokesperson for the Howard Jarvis Taxpayers Association – which is named for the mastermind of Prop. 13 and works to protect it – argues that the data from the Tax Fairness Project can be made to “look anyway you want.”

Increasing property taxes hurts every homeowner, she said.

“If you raise property taxes on people to the point where they are forced to sell their property, we think that’s wrong,” she said, adding that it would particularly affect homeowners in lower income communities.

“(Prop. 13) inherently benefits all homeowners: the longer you own a home, the more you benefit,” she said. “It favors stability in neighborhoods, and not gentrification.”

Shelley pointed to a calculator created by her nonprofit lobbying and policy organization that shows what the average property tax would be without Prop. 13. Using Discovery Bay as an example, she said under Prop. 13 the property tax bill for an average home there is $6,030, but without it, it would more than triple to $19,000.

Another primary argument brought up while discussing Prop. 13 is funding public school education. Before Prop. 13 was approved, property taxes were a major source of income for public schools. Now, income taxes are the main source of revenue for California schools, with property taxes accounting for 28%.

Prop. 13 has also had ripple effects compounding California’s housing crunch, Reid said — for example, creating a significant shortfall in local city budgets for things like infrastructure investments.

“To make up for budgetary shortfalls, cities impose development fees on new construction,” Reid said. “These fees drive up the costs of new housing, exacerbating the affordability crisis.”

In addition, cities have given commercial development preference over housing, because they add more revenue than housing through sales taxes, she said.