Prop 13 is not passed on to renters

California’s Prop 13 is often advertised to renters as a way to keep rents low. The pitch has always been that landlords are nice and, when given tax cuts, will pass their savings on to their tenants. This promise was even made explicitly during the initial campaign in the 70s:

That was pretty obviously a lie. And of course shortly after Prop 13 passed rents didn’t go down and tenants lashed out with aggressive rent control laws in response. But despite all that people today still believe that Prop 13 is keeping rents lower than they would be without it.

Here is some data which suggests otherwise.

To investigate the relationship between property tax assessments and rent prices I collected data from rental ads on Padmapper and Craigslist, which included advertised rent, square footage, and property tax assessment for each address. I focused on single-family homes, as tax assessments for apartment buildings do not resolve to individual units.

Padmapper rental ads contain exact addressed which, with some help from a geocoding service, can be resolved to precise Assessor IDs (AIN). Given an AIN highly detailed property tax information is publicly available from the LA County Assessor Portal.

Joining all this together gets a dataset that has the advertised rent, square footage, and property tax assessment for each address. The LA County Assessor Portal also provides the “base year” which is the year the property last changed ownership.

The below plot shows rent per sqft against tax assessment per sqft:

And here’s the same study but using Craigslist rental ads:

Howard Jarvis promised that if assessment_per_sqft decreases then rent_per_sqft would also decrease. But it doesn’t.

Contrary to the claims of Proposition 13 supporters, there is no clear correlation between lower tax assessments and lower rent prices. The data showed that while higher assessed properties may command higher rents, this is only true for recent purchases (blue dots). Long-held homes (red dots) with low tax assessments still charge comparable rents to newly-purchased homes with higher tax assessments.

To put it another way: Prop 13 is not incident on renters – a statement in line with mountains of data.

A map to look at data points individually:

And a concrete example.

Here is a long-held 837 sqft house in Silverlake. Rent is $3500 per month. The owner pays $484 per year in property taxes on a $29,511 assessment. From the tax assessor’s point of view, if you rent this house in January you will have paid off more than it’s complete value before Halloween.

Now, just 3.5 miles away, is a more recently purchased house of the same size with the same number of bedrooms. It’s currently up for rent at $2,995 and the tax assessment is $579,693 (more than 10x the previous home). The rent, however, is about the same at roughly $4/sqft.

And take a look at what’s going on over time (hint: rent goes up):

As rent and home prices soar, landlords enjoy a decline in their effective tax rates and a widening of their profit margins. Meanwhile, tenants are burdened with the necessity of spending more to maintain their residences, while also facing the need to save up for the ever-more-distant day when they might buy a home of their own. And if they do, they will be confronted with an onerous tax burden, often as much as ten times greater than that which the previous owner paid.

There is simply no reason to continue on this way. Rent is set by what the market will bear, not what profits landlords thinks they deserve. It does matter whether a landlord is new to the scene or an entrenched member of the establishment. Both will charge as much as they can, regardless of their tax rate.

The notion that landlords would somehow be compelled to pass on their tax savings to their tenants is utter nonsense. The only thing preventing landlords from charging exorbitant rents is the simple fact that tenants do not have unlimited financial resources.