Zhanna Kuang | CalMatters
While home ownership remains a challenge for Californians of color, a new report argues that a landmark state law limiting property tax increases prevents those who achieve it from reaping the benefits equally.
A report released today says that under Proposition 13, white homeowners receive annual property tax credits that are, on average, more than 80% higher than black homeowners and more than double the tax credits received by Hispanic homeowners.
It’s another way the cult law promotes unequal wealth accumulation in the state with the second-highest homeownership rate in the nation, Opportunity Institute and Pivot Learning researchers say.
The Opportunity Institute is a non-profit organization based in Berkeley that promotes social mobility and equity through education. Pivot Learning in Auckland is a non-profit educational consulting company.
Proposition 13 has been scrutinized over the past four decades for its impact on government revenues, the housing market, and generations of homeowners.
More recently, reform advocates have been focusing on how they widen racial disparities.
Another report released earlier this year focused on Oakland and found that wealthier, whiter neighborhoods benefited more from Proposition 13 tax breaks than poorer, ethnically diverse neighborhoods.
The new findings are part of a broader report that claims that Proposition 13 has led to racial disparity across California in wealth generation and school funding.
Researchers at two educational nonprofits used census data from the American Community Survey to calculate the average real estate tax burden for various homeowner demographics across the state.
They found a lower tax burden on more expensive homes in municipalities across the state. They also found a lower tax burden for white homeowners on average than black or Hispanic homeowners.
The study found that the average white homeowner in California pays $3,507 less in property taxes per year than they would pay on the real value of their homes due to Proposition 13. That’s above the statewide average savings of $2,800 per year, Carrie said. Hanel, Senior Policy Director. and strategies at The Opportunity Institute and the author of the report.
In contrast, black homeowners had an average property tax credit of $1,900 per year. Hispanic homeowners saved $1,560 a year on average.
The study based its racial findings on 2019 statewide census data and survey responses in which individual owners reported the value of their homes and the amounts they paid in property taxes.
Black and Hispanic homeowners own a disproportionate share of the housing wealth.
Between 1980 and 2019, the share of Hispanics in the state’s housing wealth doubled from 8% to 16%, according to a new report by researchers. But their share in the population increased by 20 percentage points during this time. The share of black homeowners in home value declined slightly during this time, as did the black population.
Hanel said that in some communities, such as the metropolitan area that includes San Bernardino and Riverside, the majority of new home buyers are black, Hispanic, or Asian, although the majority of longest tenure homeowners are still white.
Homeowners of color
Government officials set a goal to increase home ownership among black households. Legislators recently passed a budgetary measure with a new program to help new buyers afford upfront payments.
“People of color…they are new homeowners and tend to have lower incomes,” said Adam Briones, CEO of California Community Builders, which advocates for wealth creation in communities of color. He did not participate in the new report.
“They faced redlining and other forms of discrimination,” he said. “To the extent that the tax system extends this discrimination, it extends a racially neutral policy that has negative consequences for race.”
Proposition 13 also limited how local governments value property before taxing it.
Passed in 1978 by voters wary of higher taxes due to soaring home values, it has since effectively froze longtime homeowners’ taxable property values. The appraised value cannot increase by more than 2% per year, which is far below the rate at which California homes often go up in value.
For the most part, properties are not revalued at their true value until they are sold, giving new owners a higher tax burden than their more established neighbors.
Proponents say Proposition 13 has helped some disadvantaged communities. Keeping the taxable value artificially low is the best way to keep low-income homeowners and homeowners of color from lowering the price of their homes, said John Kupal of the Howard Jarvis Taxpayers Association, the main organization working to keep Proposition 13 alive.
“Prop. 13 is one of the most powerful forces in curbing gentrification and preserving minority areas,” Kupal said.
In general, while houses rise in price, all homeowners receive tax credits under Proposition 13.
The most pronounced difference remains the higher tax burden borne by young new home buyers compared to older and more established buyers.
Hanel said generational differences may be at odds with racial differences because not all buyers have the same access to the housing market.
The longer someone holds a home, and the higher its value rises, the more tax credits increase. The report states that those homeowners who benefit the most are disproportionately non-Hispanic white residents.
On the other hand, black and Hispanic homeowners are more likely to become more recent homeowners and own lower value homes than white homeowners, the study says, resulting in a higher tax burden.
“It’s really about structural inequalities that allowed Proposition 13 to exacerbate inequalities in wealth accumulation,” Hanel said.
Dowell Myers, a professor at USC’s Saul Price School of Public Policy, found similar results in a study he published in 2009.
“Prop. 13 is out of time,” he said. “Things will be exactly the same, but perhaps with a growing disparity.”
Rising number of Asian homeowners
One difference between the Myers study and more recent results is the wealth gains of Asian Californians.
Researchers in a new report find that Asians’ share of the state’s housing wealth has risen from 4% to 19% in four decades, surpassing their share of population growth. The researchers suggested that this was due to immigrants from East Asia and South Asia with higher incomes.
While Asians received below average tax credits in the 2009 study, in the new report, the demographic now receives above average tax credits, albeit slightly less than the typical white homeowner.
Now, as in the late 1970s, when Bill 13 was passed, the cost of housing in California is skyrocketing.
Any change to Proposition 13 must be approved by voters, but it remains popular with the majority. A poll last month by the California Public Policy Institute found that 64% of likely California voters thought Proposition 13 was mostly “good.”
One attempt to partially reform it, a measure to revalue only commercial real estate, was voted down with 52% of the vote in 2020.
Myers said if proponents want to reform Proposition 13, they should look to older white homeowners — and he suspects focusing on intergenerational disparities would be effective.
But most proponents say there are ways to tie valuations to market value without triggering a huge tax hike for homeowners.
The report suggests raising taxes only on “extremely expensive properties” or second homes, or raising taxes in stages over time.
State and local governments can also delay tax increases until the owner sells their property.
“We have to be careful,” Briones said, “but I think it’s not that hard to make policy changes that cater to the needs of low-income homeowners. It’s all very doable.”