[quote=SK in CV]
Prop 13 property tax rules apply to all real property in CA, including commercial and multi-unit residential. I suspect it has little or no effect on market rents. Outside of SFRs, rents follow a pretty standard supply and demand model. Values follow income, not the other way around.[/quote]
Agree with you, but think rents on SFRs are equally affected by supply and demand (not sure if I’m understanding you correctly on that one).
The reason I think Prop 13 would cause housing prices to fall (just going to stay with residential here) *during a bubble* is because the property taxes on a rental would rise along with prices. While landlords would certainly try to pass the extra costs onto the renters, there is a ceiling for rents as tenants need to cover rent with real income (as opposed to “toxic” mortgages). Renters might effectively “mortgage their payments” by putting more of their other expenses on a credit card, but there is a limit to that as well. At some point, they will simply move to a more affordable rental.
My guess is that as prices rise and carrying costs rise along with them, more landlords would be inclined to sell their rental units during housing booms which would help minimize the drastic swings in prices. It would keep more “investors” out of the market during runups as they wouldn’t be getting Prop 13 protection nor would they be getting the MID. I’d also favor requiring no less than 30% down payments on investment properties or second homes.
