Residents in cities that have experienced greater home value appreciation over the past 15 years have lower effective tax rates. In fact, when comparing city-level data on the three factors mentioned above, we find strong correlations with median effective property tax rates across California cities. The strongest correlation is between effective tax rates and home value appreciation between 2000 – 2015 (coefficient of -0.53 and significant). The share of long-term residents in a city as well as the rate of new housing growth are significantly correlated with tax rates, but at slightly lower magnitude of -0.47 and 0.38, respectively, meaning that cities with more long-term residents and little new growth have lower effective tax rates.

What does this all mean for property taxation and policy in the Golden State? From a taxation perspective, it means that new homeowners in California are taxed disproportionately higher than existing residents. It also shows there is geographic disparity in who benefits from Prop 13 – residents in expensive coastal cities pay noticeably lower tax rates than residents in cheaper inland cities, although some of the disparity is likely due to differences in where long-time Californians live compared to new arrivals. Last, we unfortunately don’t think these findings matter much for policy. Homeowners won’t likely increase what is arguably their second largest tax bill through referendum and, as a result, politicians would also be unlikely to touch the property tax third rail through legislation.

This post has been corrected to reflect accurate values representing the “Share of Residents Living in City Since At Least 1979” in the table labeled “California Cities with Highest Effective Property Tax Rates”. An earlier version of this post had the incorrect values in the aforementioned table.