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Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13

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  • Nada Wasi
  • Michelle J. White

Abstract

Proposition 13, adopted by California voters in 1978, mandates a property tax rate of one percent, requires that properties be assessed at market value at the time of sale, and allows assessments to rise by no more than 2% per year until the next sale. In this paper, we examine how Prop 13 has affected the average tenure length of owners and renters in California versus in other states. We find that from 1970 to 2000, the average tenure length of owners and renters in California increased by 1.04 years and .79 years, respectively, relative to the comparison states. We also find substantial variation in the response to Prop 13, with African-American households responding more than households of other races and migrants responding more than native-born households. Among owner-occupiers, the response to Prop 13 increases sharply as the size of the subsidy rises. Homeowners living in inland California cities such as Bakersfield receive Prop 13 subsidies averaging only $110/year and their average tenure length increased by only .11 years in 2000, but owners living in coastal California cities receive Prop 13 subsidies averaging in the thousands of dollars and their average tenure length increased by 2 to 3 years.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11108.

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Date of creation: Feb 2005
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Handle: RePEc:nbr:nberwo:11108

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  1. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, Elsevier, vol. 94(9-10), pages 661-673, October.
  2. Caroline M. Hoxby & Ilyana Kuziemko, 2004. "Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan," NBER Working Papers 10722, National Bureau of Economic Research, Inc.
  3. David M. Cutler & Douglas W. Elmendorf & Richard J. Zeckhauser, 1997. "Restraining the Leviathan: Property Tax Limitation in Massachusetts," NBER Working Papers 6196, National Bureau of Economic Research, Inc.
  4. O'Sullivan Arthur & Sexton Terri A. & Sheffrin Steven M., 1995. "Property Taxes, Mobility, and Home Ownership," Journal of Urban Economics, Elsevier, vol. 37(1), pages 107-129, January.
  5. Mark Hoven Stohs & Paul Childs & Simon Stevenson, 2001. "Tax Policies and Residential Mobility," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 4(1), pages 95-117.
  6. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 622-41, June.
  7. Lang, Kevin & Jian, Tianlun, 2004. "Property taxes and property values: evidence from Proposition," Journal of Urban Economics, Elsevier, vol. 55(3), pages 439-457, May.
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Cited by:
  1. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2011. "Housing busts and household mobility: an update," Staff Reports, Federal Reserve Bank of New York 526, Federal Reserve Bank of New York.
  2. Patrick Kline & Enrico Moretti, 2014. "People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 6(1), pages 629-662, 08.
  3. Ihlanfeldt, Keith R., 2011. "Do Caps On Increases In Assessed Values Create A Lock-In Effect? Evidence From Florida’S Amendment One," National Tax Journal, National Tax Association, vol. 64(1), pages 8-25, March.
  4. Springer, Job D. & Lusby, Aaron K. & Leatherman, John C. & Featherstone, Allen M., 2007. "Property Tax Lids and the Effect on Kansas," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama, Southern Agricultural Economics Association 34887, Southern Agricultural Economics Association.
  5. Shan, Hui, 2010. "Property taxes and elderly mobility," Journal of Urban Economics, Elsevier, vol. 67(2), pages 194-205, March.
  6. Chris Cunningham & Robert R. Reed, 2012. "Housing wealth and wage bargaining," Working Paper, Federal Reserve Bank of Atlanta 2012-20, Federal Reserve Bank of Atlanta.
  7. Mark Hoven Stohs & Yun W. Park, 2007. "Residential Stability or Rational Bubble: Proposition 13 in Southern California," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 10(1), pages 26-47.
  8. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, Elsevier, vol. 94(9-10), pages 661-673, October.
  9. Cheung, Ron & Cunningham, Chris, 2011. "Who supports portable assessment caps: The role of lock-in, mobility and tax share," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 41(3), pages 173-186, May.
  10. Wayne Archer & David Ling & Brent C Smith, 2010. "Ownership Duration in the Residential Housing Market: The Influence of Structure, Tenure, Household and Neighborhood Factors," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 40(1), pages 41-61, January.
  11. John Deskins & William Fox, 2008. "Measuring Behavioral Responses to the Property Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0816, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  12. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.

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