For decades, California’s landmark Proposition 13 has shielded homeowners across the San Francisco Bay Area from steep property tax increases, often delivering tens of thousands of dollars in annual savings. However, a recent analysis reveals that in several parts of the region, the financial advantage provided by the longstanding law has narrowed in recent years as the gap between taxable values and open-market home values has steadily compressed.
According to an examination of real estate data from Redfin conducted by the San Francisco Chronicle, the average homeowner in San Francisco saved roughly $9,000 on their property tax bill in 2025. While this represents a significant discount, the overall margin of relief has notably diminished when compared to previous market cycles over the past decade.
In 2025, the average market price of a San Francisco residential property stood at nearly $1.6 million, whereas the average assessed value utilized by county officials to compute tax liabilities hovered at just over $1 million. Consequently, market valuations exceeded official assessed values by approximately 52%.
While substantial, that disparity is markedly smaller than it was in 2017, which is the earliest year for which reliable Redfin figures are available. During that period, prevailing open-market valuations in San Francisco were more than double the corresponding average assessed values on the local property tax roll.
This compression of tax savings is not unique to San Francisco. Across six of the nine counties comprising the wider Bay Area, the spread between what homes were estimated to be worth on the open market and their official taxable values shrank between 2017 and 2025.
Statewide trends reflect a similar trajectory. In nearly every California county with available Redfin metrics, taxable assessed values climbed at a faster pace than overall market values between 2017 and 2025. This dynamic means that a higher percentage of the average residential property’s true market value was subject to local property taxation by the end of that eight-year timeframe.
First approved by state voters in 1978, Proposition 13 limits base property tax rates to 1% of a home’s assessed value at the time of purchase, alongside any additional voter-approved local tax measures. Under the law, annual increases to that assessed base value are strictly capped at 2% per year for inflation, creating substantial compounding tax discounts for long-term owners whose home values appreciate dramatically over time.
Because Proposition 13 mandates that a residential property be reassessed to its full fair-market value only when it is sold or transferred, high transaction volumes tend to elevate regional assessment rolls by resetting tax baselines to contemporary market rates.
According to Michael Lane, the state policy director at the Bay Area urban policy think tank SPUR, the movement between assessed and market values functions much like an accordion, expanding and contracting alongside real estate cycles. Property prices surged rapidly following the Great Recession and accelerated further during the initial stages of the pandemic, fueled by remote work flexibility and historic lows in mortgage interest rates.
These conditions triggered a notable surge in property transactions across California. As houses changed ownership in large numbers, local assessors reset the taxable baselines of those properties to their updated selling prices, ultimately narrowing the divergence between market prices and taxable assessments.
This broader dynamic was visible across several major markets, including Santa Clara County. In 2017, the county’s average assessed value was approximately $640,000, representing 46% of its $1.4 million estimated market value. By 2025, the average assessed value climbed to nearly $1.1 million, which constituted 57% of the county's average market value of $1.9 million.
Despite the prevailing regional trend, certain high-value enclaves managed to buck the pattern. In the Santa Clara County city of Cupertino, for instance, the gap between market and assessed values expanded from $1.2 million in 2017 to $1.5 million in 2025, enabling local homeowners to save an average of more than $29,000 on their tax bills that year.
Following the transaction boom of the early pandemic era, market conditions experienced a major shift in 2022 when mortgage interest rates surged. As financing costs increased, housing sales slowed drastically, curtailing the rapid pace of property reassessments that had previously driven assessed totals upward.
While Proposition 13 maintains widespread political popularity among California voters, housing policy analysts frequently point to its unintended market distortions. Critics argue that the substantial tax penalty associated with moving discourages older residents from downsizing out of larger homes, thereby suppressing listing inventory and intensifying competition among prospective buyers. A reform approved in 2021 attempted to address this lock-in effect by allowing certain eligible homeowners to transfer their existing tax baseline when relocating.
Sarah Karlinsky, director of research and policy at the UC Berkeley Terner Center for Housing Innovation, noted that the structure introduces fundamental inequities into local public finance. Karlinsky explained that artificially restricting property tax valuations for long-tenured owners places a heavier fiscal burden on newer households, who must shoulder higher tax rates to compensate for local revenue shortfalls.
Although complete tax roll data for 2026 was not yet finalized in the study, recent price surges across the San Francisco market suggest the tax gap may soon expand again. If market appreciation continues to significantly outstrip the statutory 2% annual cap on existing assessments, the disparity between market valuations and taxable rolls will likely widen once more.
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