Mastering the metropolis through research and thought leadership.
Working Papers

You Can Take It with You: Proposition 13 Tax Benefits, Residential Mobility, and Willingness to Pay for Housing Amenities

Working paper #526
Fernando Vendramel Ferreira

In 1978, Californians approved Proposition 13, which fixed property tax rates at 1% of housing prices at the time of purchase. Beyond its fiscal consequences, Proposition 13 created a lock-in effect on housing choice because of the implicit tax break enjoyed by homeowners living in the same house for a long time. In this paper, I provide estimates of this lock-in effect, using a natural experiment created by two subsequent amendments to Proposition 13 – Propositions 60 and 90. These amendments allow households headed by an individual over the age of 55 to transfer the implicit tax benefit to a new home. I show that mobility rates of 55-year old homeowners are approximately 25% higher than those of 54 year olds. The second contribution of this paper is the incorporation of transaction costs, due to Proposition 13, into a household location decision model. The key insight of this model is that because of the property tax laws, different potential buyers have different user costs for the same house. The exogenous property tax component of this user cost then works as an instrument to solve the main identification problem of revealed preference models – the correlation between price and unobserved quality of the product. I find that marginal willingness to pay estimates for housing characteristics are approximately 100% upward biased when the model estimates do not account for the price endogeneity.

Download full paper · 1MB PDF

In This Section
Explore Topics

1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Supply Chains Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home