Just how much can a California homeowner expect to pay on top of their mortgage payment each month? A lot more than homeowners in other states, it turns out.

The average U.S. homeowner spends $9,400 on their home each year on top of mortgage payments. The majority of these additional payments come in the form of property taxes, homeowners’ insurance and utilities. The rest — about $3,000 on average — is spent on property maintenance, according to Zillow.

In California, these average additional homeownership costs are much higher, at:

These soaring homeownership costs are due mostly to the high home values in the state, as high home values translate directly to higher property tax amounts. In fact, the two largest variables in additional homeownership costs are property taxes and homeowners’ insurance, both of which are directly related to home value. Maintenance and utility costs are fairly steady across most metros, varying by hundreds of dollars per years rather than thousands.

But these additional homeownership costs are not as high as they could be, as California’s property tax rate is lower than many states. Zillow’s analysis notes Proposition (Prop) 13 holds down property tax increases from year to year, limiting taxes to 1% of the property’s assessed value at the time of purchase, increasing up to 2% each year.

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Prop 13, explained

Proponents of Prop 13 claim these low property taxes incentivize and increase homeownership, as it keeps these additional homeownership costs down.

Prop 13 is not the answer

It’s true, Prop 13 does keep property taxes and homeownership costs lower than they might be. But, as evidenced by the high homeownership costs in metros across the state, Prop 13 isn’t the homeownership savior it’s made out to be. Homeownership costs are still quite high, especially in comparison with incomes.

High home prices and the associated high costs of owning are part of the reason for California’s low homeownership rate and flat home sales volume, both of which are detrimental to real estate professionals.

While Prop 13 keeps property taxes from rising with home values, allowing more predictable housing costs for long-term homeowners such as the retired and elderly, it does nothing to keep homeowners’ insurance or mortgage payments down. Further, the lure of low property taxes for long-term residents keeps homeowners in place, removing the incentive for moving. For retired and elderly people — who Prop 13 was originally designed to help — that makes it difficult if not impossible to justify selling their home for more suitable, retirement-friendly property when doing so means abandoning their old tax rate. Prop 13 indirectly traps seniors in oversized and difficult-to-maintain homes and simultaneously keeps useful inventory off the market.

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The better solution that will keep homeownership costs of all types from exceeding income increases is simple — more housing.

This will be accomplished by higher construction numbers. In 2018, more construction is occurring in California, but the pace of increase is far below what is needed to keep up with demand from the state’s ever-growing population. Worse, most of the new construction actually happening is occurring in the high tier, which is no help to the majority of the state’s population.

The good news — California’s construction shortage is no secret, and legislators have been working towards a plan to increase new construction. New affordable housing laws aim to increase construction of low- and mid-tier housing for sale and rent, and the state is slowly meeting these goals.

Real estate professionals: get involved in your own community and encourage new building. Attend local city council meetings and make your voice heard.

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