“What were they thinking in 1978?” 

That was one of the questions USC School of Policy, Planning, and Development Professor Dowell Myers answered during a presentation about the future implications for California as a result of the recent 40 percent decline in home values.

Myers discussed how the history and future of Proposition 13 are not headed in the same direction as a part of  USC’s ongoing Critical Issues in Public Policy series

Dramatic raises in house prices in the 1970’s fueled shocking increases in property taxes, and the innovations of Prop. 13 provided much needed solutions.  Myers told the audience at the California Chamber of Commerce in Sacramento about the need to look at how the demographics of the state have changed in the 31 years since the proposition was passed, as well as the outlook going forward.

Ever rising house prices is the fundamental assumption underlying Prop. 13.  As new buyers and property tax payers continued to enter the market amid escalating house values, the system worked as expected.  The statewide crash of 2008, however, demonstrated that the system cannot remain solvent.  Some of the flaws with the proposition identified by Myers include the cap of a 2 percent assessment increase regardless of the increase in the annual rate of inflation and the assumption of continued surges in property values.

“Looking forward, it seems doubtful that prices and tax assessments will recover to their former level in the next decade or beyond.  Until they do, it seems more likely that recent home buyers, state and local governments, and public service users will be left in a depressed state.”  According to Myers, his research suggests that while future price trends are unknowable, there are three reasonable scenarios that suggest prices could rise by 2020 to a level that is higher than 2009 by 37 percent to 54 percent.  Nonetheless, this growth is not sufficient to recover the steep losses since 2007. 

Richard Callahan, Associate Dean at USC’s State Capital Center, noted that “these programs advance our understanding of complex California policy challenges, framing the issues through research that allows traction in the policy dialog.”

Myers, a specialist in demographic trends and their relation to all areas of policy and planning, believes that the dependency on ever rising house prices is no longer a good basis for fiscal policy and that alternative designs must be explored.  He advocates that public policy needs to be more future regarding and not simply maximizing benefits for current voters at future expense.  “We can’t make today’s decisions based on 31 year old assumptions.”

Clearly, a new script needs to be written for those involved in charting the path for California’s new future.

The Demographics of Proposition 13: Large Disparities Between the Generations and the Unsustainable Effects of House Prices was prepared while conducting a broader study of California’s changing political demography, with support from the John Randolph and Dora Haynes Foundation.  The entire report may be found here.

Dr. Myers’ recent research applications have focused on the upward mobility of immigrants to the US and California, trajectories into homeownership, changing transportation behavior, education and labor force trends, and projections for the future of the California population.  He also received the best article award for 2008 for “Aging Baby Boomers and the Generational Housing Bubble” that appeared in the Journal of the American Planning Association.

Scott Steele
USC Master’s Degrees