Nolan Gray advocates for split roll taxation in the YIMBY movement.

Tom Steyer officially withdrew from the race for California governor on June 9, after a week marked by intense vote counting and substantial campaign expenditures of 5 million. His campaign underscored a critical issue that many Californians face: the pressing need for a split roll property tax system in the state.

Californians may find the notion of implementing new taxes and fees to be unconventional, especially amid a significant tax burden that already weighs heavily on residents. California possesses some of the highest income and capital gains taxes in the nation, with a tax structure that often punishes hard work and prudent investment. Additionally, the state’s sales and gas taxes disproportionately affect working families, creating a challenging economic landscape.

The cost of living in California, primarily driven by exorbitant housing prices, adds another layer of complexity to this issue. The development of a single-family home can incur as much as 7,000 in fees classified as “impact fees,” raising concerns about the overall affordability of housing in the state. These fees, which are often mischaracterized as necessary to offset development costs, instead serve to generate revenue for local jurisdictions. A recent example highlighted the exorbitant and seemingly arbitrary nature of these fees, where a developer was charged over ,000 for street upgrades as part of building a modest home.

The challenges facing California’s tax structure can be traced back to Proposition 13, enacted in 1978, which limited property tax increases to one percent of the assessed value and capped annual increases at two percent, unless the property changes ownership or is redeveloped. This mechanism has created significant disparities, resulting in similar properties paying markedly different tax amounts based solely on when they were last sold. This system has fostered a disincentive for property owners to sell or improve their properties, ultimately stalling economic development.

While the rationale behind Proposition 13 was to protect long-term residents from soaring property taxes, its unintended consequences have disproportionately affected commercial properties. Many commercial spaces remain underdeveloped, and the lack of market-rate assessments allows these properties to benefit from an estimated annual subsidy of .5 billion to .5 billion.

The ongoing housing crisis in California, where estimates suggest the need for approximately 1.8 million new homes, can be exacerbated by the current tax approach. Implementing a split roll system could ensure that commercial properties are taxed at their market value, resulting in essential revenue for public infrastructure upgrades, thus mitigating the high fees currently imposed on new developments.

Such a system could potentially stimulate the construction of up to 460,000 homes annually, significantly addressing the housing shortage while producing positive economic ripple effects, including increased property values, enhanced public services, and improved living conditions for residents.

Californians are understandably frustrated with rising costs and inadequate housing options. The call for a split roll tax system presents a promising avenue to not only reform taxation but also to facilitate a more equitable and sustainable approach to housing development in the state. Addressing the issues of tax efficiency could pave the way for a more favorable living environment, essential for revitalizing California’s economy and ensuring the wellbeing of its residents.

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