• In general, Americans feel that their property tax liabilities are reasonable, but also tend to favor limits on property tax increases.
• A wide range of property tax limits and exemptions saved Californians roughly $30 billion in property taxes in 2018.
• Los Angeles and Santa Clara counties were the counties with the largest aggregate benefits from property tax limits and exemptions.

A complex series of tax exemptions and caps likely saved California taxpayers around $30 billion in property taxes this year compared to what they would have paid had those limits not been in place, according to an analysis of local tax assessments by Zillow and CALmatters.[1]

Many states have limits on property taxes that prevent a home’s tax-assessed value from moving in line with overall market trends. The policies enjoy widespread popularity: 64 percent of Americans recently surveyed by Zillow[2] said they agreed there should be limits on how much property taxes can change after a homeowner moves in, a sentiment that transcends party lines. But it is California that has long been at the forefront of debate around limits to property taxes – and their implications for the housing market and overall health of the state economy.

In 1978, California voters enacted Proposition 13, which set legislative limits to how much property taxes could increase in a given year, absent a sale (after a home sells, the property tax base resets at current market values). As a result, the tax-assessed value of a given home in California is often far below its market value, keeping property taxes low for homeowners but at the expense of municipal coffers. Additionally, policies that restrict tax assessment from growing in line with market value until a home is sold can encourage homeowners to wait longer before selling and buying a new home. Finally, some homeowners may work to keep a tax-advantaged home in their family rather than listing it for sale, often restricting inventory and pushing up prices on those homes that are available.

However, it is important to keep in mind that Proposition 13 is not the only reason why assessed values may be below market values in California. Like many other states, it also has property tax exemptions for groups including veterans and low-income senior citizens.

Working with reporters at CALmatters – a nonpartisan and nonprofit journalism venture based in Sacramento – Zillow estimated the current gap between what Californians pay in property taxes and what they would owe if property taxes were based on current market values.

In total, we estimate that property tax exemption policies saved California taxpayers around $30 billion in 2018. For reference, California’s 2018-19 budget included about $201 billion of total spending. Some of these tax savings are attributable to Proposition 13, but others are the result of property tax exemptions for veterans, the disabled and senior citizens.

Los Angeles County taxpayers saved $7.4 billion this year, the largest total among the 40 California counties for which we were able to secure sufficient data for our analysis. L.A. was followed by Santa Clara County ($3.4 billion), Orange County ($2.5 billion), Alameda County ($2.4 billion), and San Diego County ($2.2 billion). Per household, taxpayers in San Francisco ($838,500), San Mateo ($758,400), Santa Clara ($700,200), and Marin ($651,600) counties had the largest savings. These estimates are likely a lower bound, given several filters applied in our calculations.

How we estimated California’s property tax gap

To estimate California’s property tax gap – the gap between assessed values and market values, assuming a standard 1 percent property tax rate applied to each – we combined county assessor data with Zillow estimates of current home values and Census Bureau estimates of the housing stock at the Census Tract level.

We used 2018 assessor data for most counties, though it was necessary to rely on 2017 data for a small number. We were not able to estimate the property tax gap for 18 largely rural counties. Data analyzed over 40 counties accounted for 98 percent of the state’s housing stock.

If data indicated a given property qualified for a California Homeowner’s Exemption, the standard exemption allowed for owner-occupied properties, we subtracted $7,000 from both the assessed and market values. We then averaged assessed values and market values by Census Tract, taking a 10 percent trimmed mean to limit the influence of outliers.

We then merged on housing stock counts from the U.S. Census Bureau’s 2012-2016 American Community Survey. To avoid counting commercial multifamily properties (commercial properties are taxed differently than residential properties), we accounted only for owner-occupied units and renter-occupied units in buildings with four units or less.  Multiplying the average assessed and market values by the housing stock in each Census Tract yielded an estimate of the total assessed and market values. We then applied a standard 1 percent property tax rate to the total market and assessed values.

As a final precaution to limit the bias of outliers, we dropped the top and bottom 2 percentiles of Census Tracts based on average assessed values and average market values – 152 Census Tracts in total. While this final filter eliminated the “most expensive” and “least expensive” Census Tracts in the state, the statewide and county-wide aggregates still produce reasonable and conservative estimates of the property tax gap.

[1] The statewide and county aggregates presented here differ slightly from aggregates reported in the CalMatters analysis since they are computed at the county level rather than summed up from Census Tracts.

[2] Zillow Housing Aspirations Report, Q3 2017