Proposition 13’s Ripple Effects: How a 1978 Tax Revolt Still Shapes California’s Housing Crisis
Setting the Scene
In June 1978, Californians voted two-to-one for Proposition 13, slashing the statewide property-tax rate to 1 percent of a home’s purchase price and freezing year-over-year assessment hikes at 2 percent. Overnight, local revenues collapsed by roughly 60 percent¹ Legislative Analyst's Office—and the state has been living with the side effects ever since.
Forty-seven years later, California sports the nation’s highest home prices, lowest building-permit rate among large states, and some of the steepest developer fees. How much of that can we trace back to Prop 13? Let’s follow the money.
How the Tax Cap Works
Acquisition value: Buy a house for $750 k today and your tax base is locked there.
Assessment freeze: That base can only rise 2 percent per year, no matter the market.
Two-thirds rule: Local voters must approve most new taxes by a super-majority.
The design rewards owners who stay put—and punishes newcomers who trigger a tax “pop” when they buy.
What It Did to City Budgets
Counties eventually recovered nominal revenue, but the lost growth never returned. In fiscal 2024, property-tax receipts totaled $95.3 billion² California State Board of Equalization—healthy on paper, yet spread unevenly and still below what an un-capped system would deliver. To fill the gap, cities shifted to sales taxes and, crucially, impact fees that now average nearly three times the national norm³ CalMatters. In the Bay Area, those fees top $29 k per unit⁴ San Francisco Chronicle, pushing builders toward luxury product and throttling supply.
Lock-In and the Inventory Squeeze
Tenure: The typical California homeowner now keeps a house nearly 20 years, versus 11.8 years nationwide⁵ Scotsman Guide.
Turnover penalty: A Lincoln Institute study found that new San Diego buyers pay 37 percent more in annual property tax than neighbors in identical homes⁶ Voice of San Diego.
Production: California issued just 2.9 building permits per 1,000 residents in 2023, compared with 4.5 nationally⁷ Legislative Analyst's Office.
Fewer owners move, fewer homes hit the market, and fewer units get built. Prices rise, rents follow, and first-time buyers remain tenants longer.
Counterpoints from Prop 13 Defenders
ClaimReality Check“It protects seniors from being taxed out of their homes.”True, but it also traps empty-nesters in three-bedroom houses they might otherwise sell, freezing family-sized inventory.“It stabilizes revenue during recessions.”Property taxes are indeed less volatile than sales taxes, yet overall yield lags service costs, forcing cities to invent new fees.“Cities chase malls because of Prop 13.”Evidence for a wholesale “fiscalization of land use” is mixed; zoning politics, CEQA, and local opposition play bigger roles.
Reform Efforts—and Roadblocks
Prop 19 (2020): Lets older owners carry their tax base to a new home—early data suggest only a modest uptick in moves.
Split-roll (Prop 15, 2020): Failed 48–52; would have reassessed large commercial parcels.
2025 chatter: Lawmakers float a surtax on second homes over $5 million—technically outside Prop 13’s assessment cap but polling at a shaky 50–50.
Politically, any big change still needs either a two-thirds legislative vote (unlikely) or another ballot fight funded by well-heeled homeowners’ groups.
Erica’s Take
“As a multifamily broker, I see Prop 13’s upside: predictable operating costs for long-term holders. But the same rule locks the next generation out of ownership and forces investors to chase ever-scarcer deals. Until tax policy and housing supply get on the same page, we’ll keep lurching between affordability crises and patchwork fixes.”
Sources
¹ Legislative Analyst’s Office, Common Claims About Proposition 13, Sept 19 2016. Legislative Analyst's Office
² California Board of Equalization press release, Apr 16 2025. California State Board of Equalization
³ Ben Christopher & Manuela Tobias, “Why Your Housing Costs Are So High,” CalMatters, Oct 15 2024. CalMatters
⁴ J.K. Dineen, “It Costs Three Times More to Build in the Bay Area Than Texas,” SF Chronicle, May 5 2025. San Francisco Chronicle
⁵ Redfin analysis cited in Scotsman Guide, Mar 12 2025. Scotsman Guide
⁶ Jesse Marx & Catherine Allen, “New Homeowners Pay 37 Percent More in Taxes,” Voice of San Diego, Aug 18 2022. Voice of San Diego
⁷ Legislative Analyst’s Office, CalFacts 2024, Dec 2 2024. Legislative Analyst's Office
