White California households get bigger tax breaks than black and Latino homeowners under Proposition 13, study finds

By Jeanne Kuang, CalMatters

While homeownership remains a challenge for people of color in California, a new report says the state’s landmark law limiting property tax increases prevents those who achieve it from also reaping the benefits. profits.

According to proposition 13, a report released today said, white homeowners get annual tax breaks that are more than 80% higher on average than black homeowners and more than double the tax breaks that Latino homeowners get.

It’s another way the iconic law is contributing to unequal wealth creation in a state with the nation’s second-lowest homeownership rate, according to researchers at the Opportunity Institute and Pivot Learning.

The Opportunity Institute is a Berkeley-based nonprofit organization that promotes social mobility and equity through education. Pivot Learning, in Oakland, is a nonprofit educational consulting organization.

Over the past four decades, Prop. 13 was thoroughly studied for its effects on government revenues, the housing market and on generations of homeowners.

More recently, proponents of reform are focusing on the ways in which it expands racial disparities.

another report published earlier this year focused on Oakland and found that wealthier, whiter neighborhoods benefited more from Prop tax breaks. 13 than poorer and ethnically diverse neighborhoods.

The new findings are part of a larger report claiming Proposition 13 has led to racial inequities across California in wealth creation and school funding.

Researchers from the two education nonprofits used census responses from the American Community Survey to calculate the average property tax burdens of various homeowner demographic groups across the state.

Unequal burden

They found lower tax burdens for higher value homes in municipalities across the state. They also found lower tax burdens for white homeowners, on average, than for black or Latino homeowners.

The study found that the average white California homeowner pays $3,507 less per year in property taxes than they would on the actual value of their home due to Prop. 13. That’s above the average savings of $2,800 a year statewide, said senior policy director Carrie Hahnel. and strategy at The Opportunity Institute and author of the report.

In contrast, black homeowners received an average tax break of $1,900 per year. Latino homeowners saved an average of $1,560 per year.

The study based its racial findings on statewide 2019 census data and survey responses in which individual homeowners reported the value of their home and the amounts they paid. in property tax.

Black and Latino homeowners hold disproportionately small shares of real estate wealth.

Between 1980 and 2019, the share of state real estate wealth held by Latinos doubled from 8% to 16%, according to researchers in the new report. But their share of the population has increased by 20 percentage points during this period. Black homeowners’ share of home values ​​fell slightly during this period, like the black population.

In some communities, such as the metropolitan area encompassing San Bernardino and Riverside, the majority of new homebuyers are black, Latino or Asian, Hahnel said, although the majority of longest-serving homeowners continue to be white.

Color Owners

State officials have declared a goal to boost homeownership among black households. Lawmakers recently passed a budget measure with a new program to help first-time buyers pay down payments.

“People of color…these 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 was not involved 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 race-neutral politics that have negative impacts on race.”

Prop. 13 also limited how local governments assess property values ​​before taxing them.

Passed in 1978 by voters fearful of tax hikes as home values ​​rose, it has since frozen taxable property values ​​for long-term homeowners. Appraised values ​​cannot increase more than 2% per year, which is well below the rate at which California homes often appreciate.

For the most part, properties are not reassessed to their true value until they are sold, giving new owners a higher tax burden than their more established neighbors.

Growing disparities

Proponents say Proposition 13 has helped some disadvantaged communities. Keeping taxable values ​​artificially low is the best way to keep low-income homeowners and homeowners of color from having their homes priced out, said Jon Coupal of the Howard Jarvis Taxpayers Association, the leading organization working to preservation of Proposition 13.

“Support. 13 is one of the strongest forces to deter gentrification and preserve minority neighborhoods,” Coupal said.

In general, as long as homes appreciate, all homeowners get tax breaks through Prop. 13.

The most pronounced disparities remain the higher tax burdens borne by younger, newer home buyers compared to older, more established buyers.

Hahnel said generational disparities may belie racial disparities because not all buyers have had equal access to the housing market.

The longer a person keeps a home and the higher its value, the greater the tax benefits. Homeowners who benefit the most are disproportionately white, non-Hispanic residents, the report said.

Black and Latino homeowners, on the other hand, are more likely to have become homeowners more recently and to own lower-value homes than white homeowners, the study found, resulting in higher tax burdens.

“It’s really about structural inequalities that allowed Proposition 13 to exacerbate inequalities in wealth accumulation,” Hahnel said.

Dowell Myers, a professor at the Sol Price School of Public Policy at the University of Southern California, found similar results in a study he published in 2009.

“Support. 13 is timeless,” he said. “It will be exactly the same, but perhaps with growing disparities.”

Growth of Asian Owners

One difference between Myers’ study and more recent findings is the increase in real estate wealth among Asian Californians.

Asians’ share of the state’s real estate wealth has risen from 4% to 19% in four decades, according to the new report’s researchers, outpacing their share of population growth. Researchers have suggested that this is due to higher-income East Asian and South Asian immigrants.

While Asians received below-average tax breaks in the 2009 study, in the new report, the demographic group now receives above-average tax breaks, although slightly less than the white homeowner. typical.

Now, like in the late 1970s when Proposition 13 was passed, home values ​​in California are skyrocketing.

Any changes to Proposition 13 would have to be approved by voters, but it remains popular with most. A poll last month by the Public Policy Institute of California showed that 64% of likely voters in California think Proposition 13 has turned out to be mostly a “good thing.”

An effort to partially reform it, a measure to reassess commercial property values ​​only, was defeated at the polls with 52% of the vote in 2020.

Myers said if advocates want to reform Proposition 13, they need to appeal to older white homeowners — and he suspects focusing on generational disparities would be effective.

But most proponents say there are ways to peg appraisals to market values ​​without triggering huge tax hikes for homeowners.

The report suggests increasing taxes only on “very high value properties” or second homes, or increasing taxes gradually over time.

State and local governments could also defer a tax hike until a homeowner sells their property.

“We have to be careful,” Briones said, “but my view is that it’s not that hard to design policy revisions that take into account the needs of low-income homeowners. This is all very doable.

This article is part of the California Division project, a collaboration between newsrooms examining income inequality and economic survival in California.

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