Proposition 13 Makes California Housing Less Affordable

Favoring the status quo discourages housing construction which reduces housing supply, which makes housing less affordable.

California faces a shortage of housing according to politicians, activists, and residents. In his paper, I leverage differential exposure to the Proposition 13 tax laws to understand the impact of this policy on the production of housing in Southern California. Proposition 13 restricts property tax growth as long as the owner doesn’t sell or redevelop the property, which allows me to exploit differences in market conditions at the time of prior purchase to identify the effect of these property tax limits on property redevelopment. I find that Proposition 13 discourages redevelopment and sales. In a dynamic discrete choice model of land use, I find that adopting a land value tax that replaces Proposition 13 based property taxes would increase housing production by 35% generating a similar or greater amount of new housing as other policies under consideration in California.

Full paper here.