Tuesday, April 19, 2005

No Wonder They Are Leaving LA

Will Los Angeles' budget woes drive away potential home buyers? With their schools in decline and an over reliance on property taxes, why would anyone pay so much to live there? "The county's property tax revenues are expected to grow 9 percent in the year."

"'I'm getting a little nervous about the property taxes,' Chief Administrative Officer David Janssen said. 'Nine percent is pretty high. And we're waiting to see if there is a market bubble. It's certainly starting to slow down a little bit.'"

"I'm not going to say our strategy is to spend every dime and then hope somebody comes in and bails us out because they are not going to. The federal government is cutting Medicaid. The state is broke. We don't have a lot of options. Either we find new money, or we reduce services.'"

42 Comments:

At 10:57 AM, Anonymous Anonymous said...

Hot zip codes:

http://money.cnn.com/2005/04/15/real_estate/behind_hot_zips/index.htm

 
At 11:02 AM, Anonymous Anonymous said...

Since income tax revenue has declined since 2000, the money had to come from somewhere. Naturally, another bubble had to be created to generate revenue for the state. The housing market was targeted for this purpose.

 
At 11:10 AM, Anonymous Anonymous said...

25 years ago California had once of finest public school systems in the country. Today it is one of the worst. This all stems from prop 13. The state tax burden in California ranks around 15th in the nation. It should be either first or second with New York state. From my prospective as a New Yorker, California property taxes are way too low. In order to be successful the Govenator has to increase taxes as well as cut services. Anything less simply won't work. This is exactly what Warren Buffett was trying to tell Arnold. Of course Arnold choose not to listen. Probably because Arnold knows if he choose the correct course of action the fizz sound he would hear around him would be the air flowing out of the California property bubble.

 
At 11:37 AM, Anonymous e- said...

It may indeed be worthy of the appraisal.
How can I know,
Mr. Greenspans lies just seem to grow.

 
At 11:38 AM, Anonymous Anonymous said...

from another board(WSJ by Bubble News)
http://www.sacbee.com/content/home/real_estate/story/12751466p-13603105c.html

"Anybody who can add or subtract will tell you we can't continue to have 25 percent appreciation in a marketplace forever," said Jeff Culbertson, who oversees Coldwell Banker operations in the capital region and Silicon Valley. "The question is what type of return to normalcy we'll have."

Most economists and analysts expect a smooth to bumpy landing that would not entail deep price declines. Many see an overall flattening of values and possibly modest declines in some areas. (The timing of this landing has long defied experts' forecasts.)

 
At 12:19 PM, Anonymous Anonymous said...

California's school problems are not from a lack of money. Prop 98 requires the state to spend 40% of the general fund on K-12. The reason California schools are going downhill is that Whites are less than 50% of California's population, and of the school-age population, Whites are even fewer. California lost a White majority around 1998.

Gov. Arnold is working to reverse Prop 98 by a new initiative measure.

 
At 12:24 PM, Anonymous Anonymous said...

"From my prospective as a New Yorker, California property taxes are way too low. In order to be successful the Govenator has to increase taxes as well as cut services. Anything less simply won't work. This is exactly what Warren Buffett was trying to tell Arnold."

That's silly... throwing money at a problem never works... all it does is add to payrolls... if you are a new yorker, you should know this...

 
At 12:33 PM, Anonymous Anonymous said...

"Most economists and analysts expect a smooth to bumpy landing that would not entail deep price declines. Many see an overall flattening of values and possibly modest declines in some areas. (The timing of this landing has long defied experts' forecasts.)"

I wonder if these are the same analysts that called for a smooth landing to the Nasdaq bubble? It's unprecedented to have a period of exteme appreciation revert to a moderate growth rate without some kind of a correction. That's just not how these things work.

 
At 12:38 PM, Blogger mspenelope said...

4/19/05
To Anon # 3.
Now there's a FANTASTIC idea. Raise our property taxes even higher...that way the politicians have more to squander. GOOD ONE!!!!!!!!!!!!!!!!!!!!!
Since you don't live here you must not know that we've been voting in all kinds of property tax increases, bond measures...thrown in some pretty heavy duty fundraisers.....etc. Here in California we vote just about everything in.....as long as the property owners are footing the bill of course. Somewhere along the route from tax payer to school system the money gets "stuck/lost."
NO PROBLEM. We know where to get more money. Next election....we vote in some more property tax increases! Do you have any idea where we might find all this lost money ANON 3?
And please don't say it gets stuck in the politicians pockets.... never, ever, ever, ever, ever to be seen again....we all know they are much too honest!
And what about the good old California lottery system....bringing in millions and millions each year?
Yes....increasing our property taxes would be a brilliant idea. I'm sure it would work this time around!
HOWEVER....I'd rather send all the gazillion illegal immigrant/students to New York, raise YOUR property taxes and have you foot the bill. ;o )

 
At 12:43 PM, Anonymous BoyInTheBubble said...

It's unprecedented to have a period of exteme appreciation revert to a moderate growth rate without some kind of a correction. That's just not how these things work.

People forget the flight-to-quality effect. Once house prices stop going up, 90-day T-bills with returns that approximate inflation and ZERO risk start looking a lot more attractive.

BTW, if the CPI comes out on target tomorrow, annualized inflation over the last six months will come in at around 4.5%. It *is* starting to creep into the statistics.

 
At 12:43 PM, Anonymous John Vosilla said...

"I wonder if these are the same analysts that called for a smooth landing to the Nasdaq bubble? It's unprecedented to have a period of exteme appreciation revert to a moderate growth rate without some kind of a correction. That's just not how these things work."


I would expect at least one half to two thrids of the gains made the past 4-6 years gone in a similiar period of time as the best case scenario. Now the new oversupply in ultra expensive second homes, condo/hotels and high rise urban condos could crash and burn the fastest and the furthest of all making a real comparison to NASDAQ quite possible.

 
At 1:07 PM, Anonymous Anonymous said...

Housing groups don't want Fannie Mae limits !

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BADC6D3C9%2DAC91%2D4DA5%2DA847%2D3C9714162D19%7D

 
At 1:18 PM, Blogger goleta said...

"I would expect at least one half to two thirds of the gains made the past 4-6 years gone in a similar period of time as the best case scenario. "

I agree with you and believe the drops will even exceed the gains RE got in the past 6 years in areas the bubbles were pumped up by international hot money from China and Europe. Once they realize there is no money to be made in the real estate markets, most money will be completely out of the US as no other investment is a sure thing in the US, at least not until the US economy recovers. Holding any US assets is a losing game as the US currency depreciation still has long way to go.

 
At 1:59 PM, Anonymous Anonymous said...

DotComer turns real estate "tycoon"

http://money.cnn.com/2005/04/15/real_estate/investment_prop/goldoff/index.htm

$225K + $70K = $450K (asking)

 
At 2:10 PM, Anonymous Anonymous said...

45% of respondents (12,038) think that the drop in home building is a worrisome sign for the housing market.

http://money.cnn.com/POLLSERVER/results/17178.html

Only 24% think it isn't worrisome.

 
At 2:24 PM, Anonymous Anonymous said...

http://globaleconomicanalysis.blogspot.com/2005/04/would-floating-renminbi-solve-anything.html

Floating Rembis and housing and consumers.

 
At 2:28 PM, Anonymous Anonymous said...

California's school problems are not from a lack of money. Prop 98 requires the state to spend 40% of the general fund on K-12."

As someone who grew up in NY and a product of its school system, I was shocked after moving to CA. Trying to hire secondary school graduates here - their lack of academic skills is embarrasing!

Prop 13 gutted the education system; the after effects of this action will become increasingly apparent as products of the post-Prop 13 era come of age and enter the workforce in even larger numbers. I find it very difficult to find kids with the proper learning skills - much harder than it ever was in NY.

Here's a great article from Standford: http://www.stanford.edu/dept/news/pr/92/921103Arc2056.html

ALSO, 40% of the state budget does not end up in the education system. By reclassifying other state expenses as "education" related, the state has slowly shrunk the 40%.

 
At 2:29 PM, Anonymous Anonymous said...

"At this point there is simply no good solution. We really NEED a recession to wipe out the mal-investments in production capacity and to cut US consumer spending."

 
At 2:42 PM, Blogger John Law said...

it's really easy to see that in the US taxes are too low. we run deficits. so two things need to happen, spend less so you can keep taxes where they are. increase taxes so we stop running deficits. it's pretty easy.

thanks to Reagan, it's always cut taxes. we've seen where that's gotten us.

 
At 3:15 PM, Anonymous Anonymous said...

Property taxes are the very best form of taxation. There is no way to cheat, they discourage consumption without discouraging income-generating business activity, they don't encourage the wealthy to flee, they are somewhat progressive. By contrast, income taxes are the exact opposite. By fixing property taxes and raising income taxes, California sends a very strong message to the rich. Namely, move your state of residency to Nevada or Texas, while keeping your California mansion as a second-home.

Support for proposition 13 will eventually diminish, as people who bought houses recently come to resent the people who bought long ago, and as the proportion of the former group rises relative to the second group. It will probably take a decade or so, but Prop 13 days are numbered.

 
At 3:22 PM, Anonymous Anonymous said...

(correction) income taxes are the exact opposte of property taxes in every respect except for also being progressive.

 
At 3:27 PM, Blogger mspenelope said...

4/19/05
Prop 13 locks in your tax rate base from the moment you purchase your home. 10 years from now, why would the people buying today want to undo that?
I wonder why you didn't compare prop taxes to sales tax or car reg.
fees.....pretty hard to cheat most of those taxes either...and certainly FAR MORE fair than taxing ONLY people who own homes.

"By fixing property taxes and raising income taxes, California sends a very strong message to the rich."

Most people that own a home are NOT rich. Can't you get that already!!!!

 
At 3:27 PM, Blogger dwr said...

"25 years ago California had once of finest public school systems in the country. Today it is one of the worst. This all stems from prop 13."

I think california spends almost double what many other states spend per student, including states like Connecticut. Incompetent teachers, irresponsible parents, and students who can's speak English are the real problems.

 
At 3:28 PM, Blogger dwr said...

"I wonder why you didn't compare prop taxes to sales tax or car reg.
fees.....pretty hard to cheat most of those taxes either...and certainly FAR MORE fair than taxing ONLY people who own homes."

Excellent point.

 
At 3:59 PM, Anonymous Anonymous said...

It is possible to cheat on sales tax, and quite common to cheat once the tax gets over 10%. Sales taxes are also regressive and discourages business activity to some extent. There is no state in the United States which has a tax system with only a sales tax--an indication that this is not a feasible alternative.

Car registration fees are a form of property tax, assuming the fee is based on car value. Personal property taxes have some of the same advantage as real property taxes, except there is still the incentive for rich people to avoid them by fleeing to a low-tax locale. Many rich people establish residency in Texas but then live in Florida, because Florida taxes stocks and bonds while Texas does not.

If you are not rich, then your house shouldn't be worth much, and a fair property tax should be comparable to what you are currently paying in income taxes. If you really hate taxes, then just live in a very small house. If you live in a large and expensive house, then you are over-consuming and under-saving. I see nothing wrong with the government discouraging such behavior using the tax code.

As for the person who wrote that people who buy today will have property taxes locked in for 10 years and therefore will support prop 13, isn't this blog about the housing bubble? What makes you think housing prices will be going up in the next 10 years in California?

 
At 4:01 PM, Anonymous Anonymous said...

BTW, property taxes affect renters, since the landlord is taxed. The only people who aren't affected by property taxes are the homeless.

 
At 4:10 PM, Anonymous Anonymous said...

I'm the anon who brought up Prop 98.

While I still will say (as a native Californian) that the schools have too much money, I will also say that I think much of Prop 13 is going to disappear.

We have already eliminated one part of it: School bonds pass with only 55% approval, rather than 66%. This has changed the balance from 'most-fail' to 'all-pass.' I wish this hadn't happened.

I think Prop 13's protection from property tax increases should go away. There is no reason anyone should be protected from property tax increases; in fact, by protecting the 'oldsters,' we've taken the most vocal voters out of the picture. Now, our stupid state government can get away with much worse because the biggest group of complainers isn't bothered.

Just imagine how much better the housing bubble would be if existing residents were forced to sell due to tax increases. It would become pretty apparent there was no shortage of housing.

 
At 4:31 PM, Blogger Ben Jones said...

(property taxes affect renters, since the landlord is taxed. The only people who aren't affected by property taxes are the homeless)

My rent doesn't cover the property tax on the home. That's how out-of-wack the rent/own thing is. If property taxes did go up, I won't pay more because there is a glut of rent houses here. And this is one of the most expensive areas in Arizona.

(if existing residents were forced to sell due to tax increases. It would become pretty apparent there was no shortage of housing)

Right, and all these "investors" may be in that situation soon. The horror.

 
At 4:39 PM, Anonymous Anonymous said...

"it's really easy to see that in the US taxes are too low. we run deficits. so two things need to happen, spend less so you can keep taxes where they are. increase taxes so we stop running deficits. it's pretty easy.

thanks to Reagan, it's always cut taxes. we've seen where that's gotten us."

No, we need to cut spending. Almost 60-80% of the programs in the Fed Gvt. could be eliminated. Txes could then be reduced or eliminated.

 
At 4:42 PM, Blogger John Law said...

( Almost 60-80% of the programs in the Fed Gvt. could be eliminated.)

like? show me some numbers.

 
At 5:07 PM, Blogger mspenelope said...

4/19/05
"As for the person who wrote that people who buy today will have property taxes locked in for 10 years and therefore will support prop 13, isn't this blog about the housing bubble? What makes you think housing prices will be going up in the next 10 years in California? "

What makes you think I think prices are going to continue going up?
No matter which way prices go....they'll still be protected under prop 13 ....NO?
I didn't say the prop taxes would be locked in. I said the BASE would be.
Who ...10 years into this would want to change it? I hope I've made my point THIS time.

And to the other posters who complained that other taxing methods can be cheated....NOTHING is perfect. People will cheat however and whenever they get the chance. It's a trait of human nature that is never going to go away. So when I pay my taxes I know the politicians and all their relatives and friends are going to try and "cheat" and get to as many of those tax dollars as they can.
Increasing taxes has not and will never be the solution. Even though some of us still want to believe it. To try and think of another way to solve our problems takes way too much energy and time. So.....let's keep voting in the same people over and over and voting for more taxes over and over....and we'll end up with what we always have ....over and over. Funny thing how they tell us that history always repeats itself.
I wonder why?

 
At 5:10 PM, Blogger PunKtilious said...

I can't sit idly by without at least pointing this out:

Government needs to start being run much like a regular business (please don't picture Ross Perot in front of a board...). The reason government tends to overspend is this is the only way they can justify getting an equal amount of the "budget" for the following year. They are encouraged to spend spend spend to justify the monies received. Whereas with businesses you are encouraged to keep expenses low and add to the bottom line (income).
We need to cut taxes and audit all government organizations, and privatize where possible if necessary.

 
At 5:40 PM, Anonymous Anonymous said...

Tax cuts, anyone?

Is America Going Broke?
http://www.guerrillanews.com/headlines/2222/Is_America_Going_Broke

Record deficits, colossal debt and no clear plan for digging itself out. If the U.S. sinks, it will take Canada down with it.

 
At 6:05 PM, Anonymous Paul said...

"We need to cut taxes and audit all government organizations, and privatize where possible if necessary."

Instead of "privatize", I think you mean "profiteer". Outsourcing of government programs invariably results in corruption.

It's an incestuous circle. The contractor contributes money to the politician, who awards the job to the contractor. The contractor now takes those taxpayer funds and shunts a portion back to the politician. Repeat until the contractor is filthy rich, the politician is undefeatable, and the taxpayers are completely ripped off.

 
At 6:13 PM, Blogger Dan said...

This comment has been removed by a blog administrator.

 
At 6:13 PM, Anonymous Paul said...

Anonymous said: "While I still will say (as a native Californian) that the schools have too much money"

Yeah! Those schools should be torn down, so we can have more malls. [/sarcasm]

 
At 6:14 PM, Blogger Dan said...

"If the U.S. sinks, it will take Canada down with it"

I disagree. Canada has a huge untapped oil reserve.

Dan

 
At 7:09 PM, Anonymous Anonymous said...

(No matter which way prices go....they'll still be protected under prop 13 ....NO? I didn't say the prop taxes would be locked in. I said the BASE would be. Who ...10 years into this would want to change it? I hope I've made my point THIS time.)

No, you still haven't thought things through carefully. People who buy today will eventually come to resent the fact that their property tax bill is so much larger than the tax bill of people who bought long ago, and they will demand an equalization. Prop 13 stands in the way of this right now. Support for prop 13 will decline as the number of new owners goes up and the number of old owners goes down. It's very simple.

 
At 11:34 PM, Anonymous Anonymous said...

Where is this 'Canada' place again? I think I've heard of it before...

 
At 4:30 AM, Anonymous Anonymous said...

Isn't David Janssen the "Fugitive" ?

 
At 5:34 AM, Anonymous Anonymous said...

mspenelope,

i completely agree with you... raising property taxes is completely idiotic... it never fixes anything... with all of the revaluations that have happened here in new jersey, each local city government should be good to go... but guess what... they're not! Each year, they raise property taxes on both the education and muni side... our taxes have gone up 30% in the past 2 years... and they're not going to stop... and that other poster, anon, that you've been responding to has no idea what he or she is talking about... these high taxes are not helping the school systems at least in nj... they're just squeezing the middle-class and the senior citizens... just a couple of towns over from, taxes are ridiculously high... i know people who are paying $15,000-$20,000 per year in just property taxes... that's another mortgage!

 
At 9:07 AM, Anonymous Robert said...

If the U.S. goes down, will it take Canada with it? I believe we will see a further increase in the value of the C$, but eventually Canada will hurt from the loss of its biggest trading partner. It might be able to replace the U.S. with other trading partners, but not if everyone else is in recession. So, yes, I believe the U.S. will eventually pull down Canada. The experts I read seem to think the Euro may boom, then bust at some point if the dollar has lost its position as reserve currency. The safest currency could be the Swiss Franc. Whether it's the housing crash or something else that tips the scales . . .the future is bleak for the U.S. dollar and our economy.

 

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