Does State Tax Policy Discourage Housing Production?

Policy Brief

California’s housing crisis is due in part to a failure to build enough new housing. Many California cities view housing as less fiscally beneficial to build than other types of development. This is in part because Proposition 13, which passed in 1978, caps property tax rates and limits property tax increases. Additionally, a complex statutory system distributes the property tax revenue to cities and other public agencies within each county. This system limits how much local jurisdictions can rely on property taxes to fund services.

SPUR and California Forward explore whether cities that receive a low share of the state property tax would have an incentive to produce more housing if their share of the property tax was increased. We then provide some policy options for reducing the fiscal incentives for jurisdictions to avoid zoning for new housing.