I Would Like the Value of My Home to Rise, While My Property Taxes Fall(conversableeconomist.com) |
I Would Like the Value of My Home to Rise, While My Property Taxes Fall(conversableeconomist.com) |
I actually don't mind the cost of living in my neighborhood going up. The $2500/yr HOA fee is a feature for me. I picked this location precisely because of it. I've lived in many places with virtually no maintenance overhead or economic friction. You may eventually learn that there are two sides to this coin. Neighbors who can afford and are willing to participate in ridiculously scaled housing markets also tend to take better care of their properties and local communities.
I pay my city for sewer, water, and trash. I pay an ISP for fiber to the home, a power company for electricity. If you get all those things for $2500/year from your HOA, congratulations.
all of those services are ones that should be realized by the city, from taxes paid to the city. If they are not, the problem is that people vote for wrong people
One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.
This is essentially what has happened in coastal California over the last 60 years.
My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home, which would offset some of the costs we currently pay in ad valorem property taxes.
The local real estate community had a meltdown and poured hundreds of thousands of dollars into defeating it, which my neighbors obliged and did.
>My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home,
First comment suggests taxing the gain (income tax), while second comment suggests a tax on sale price (gross receipts tax). Two very different things.
In the UK, 'stamp duty' is something that buyers pay (as opposed to sellers), but sellers also have to buy, so everyone pays to move and everyone stays put to avoid paying.
(And of course no one builds, which is the biggest issue).
I'd say it's OK to defer your property taxes until you sell (or die), but it shouldn't be the default, only something you apply for if you're in a vulnerable position.
I think it's a great idea to let land taxes create the incentives to build efficiently.
It's basically excuse to get rid of poor that made a mistake of buying a house in area that turned more expensive 2 decades after.
Tax anything after first house, sure, but taxing house by value is terrible idea that never actually worked in a way proponents are saying it would
Reverse mortgage
This is how it works for sales in Sweden, via the so called "reavinstskatt", or profit realisation tax. Funnily enough, it is mostly applied to individuals in practice. To avoid the taxation, companies package properties in subsidiaries, which can then be sold and traded like any other stock. The tax is then postponed until the de jure sale of the property, which never occurs. Individuals are not eligible because the loophole is closed if the legal owner also occupies the property they own.
Stamp duty in the UK, horrendous tax. It's better than nothing at offsetting the unearned increase in house (land) value, but far worse than a regular tax.
If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move. This encourages people to live in less suitable houses for longer.
As to your worry about land values increasing -- the owner is deriving benefit. The higher the land value is, the more benefit the owner gets from the land.
This sounds like a problem with the way the particular tax is written, not with the idea of taxing housing gains at the time of sale.
> The higher the land value is, the more benefit the owner gets from the land.
What benefit does a homeowner derive from increased land value before selling?
1) the tax entity sets their budget (usually an increase)
2) the valuation group values all properties
3) the tax entity sets a tax rate to raise their budgeted amount. budgeted amount = tax rate * total value
Most people think if their value doubles, their tax doubles. This mostly isnt the case. If everyone's value doubles, the rate decreases so they raise the budgeted amount. Mostly property tax increases are due to ever increasing budgets not rising values.
1) If everyone's value stayed the same, and the budget increased, your tax would increase by the amount of the budget increase
2) if everyone's value doubled, but the budget stayed the same, your tax would not increase
3) if your value doubled, everyone else's stayed the same, and the budget stayed the same, your tax would double.
The worst part is that for all these taxes, the level of service has dropped since that home was bought.
There’s a way to do this. Buy in a VHCOL area like San Francisco, wait for 3-10 years, then move to Texas, Florida, South Carolina, etc. Real estate is highly localized so you do not need to stay in the same area all the time.
The homelab guy at CloudFlare did this because the prices of real estate in Austin are actually falling.
How does this work? VHCOL does not mean that prices will appreciate or even sustain.
On the other hand, property taxes seem to be a pretty flawed system that still result in inequalities. Individual homeowners hate them and will do anything to lower their burden. More wealthy and mobile people will move to different jurisdictions specifically to save on tax burden. There are extreme examples like The Villages in Florida where the heavy demographics skew toward older residents means that minimal funding reaches services that benefit younger families who work there as service industry workers. My understanding is that this is a particularly extreme arrangement in the villages: if you lose your employment within the jurisdiction you have to pull your kids out of the local schools immediately.
Then you have issues where you get poor jurisdictions and wealthy ones based on property values. Some states help mitigate this by pooling property taxes across the state for school funding.
I’ve heard that many condo buildings in my area have a standing arrangement with a law firm to submit appraisal appeals every single year and the law firm is paid on a percentage based on the savings they achieve.
This system can’t be efficient for anyone involved. When you really think about it this is like a siphon of money that could be going into public services into a private law firm.
The thing about property taxes especially those that have owner-occupier exceptions is that they sort of work okay because they’re a good approximation for wealth. They’re still regressive but you can pretty safely assume that someone who owns a second home is wealthy enough to pay a high tax rate.
On the other hand, that arrangement passes more costs on to the lower income renter. Their property owner landlord has higher property taxes than owner-occupiers and theoretically passes those costs on to the renter.
I think someone could devise a better system and do away with property taxes as they function today entirely. We need a system that makes all the stakeholders in our society feel like every dollar they invest is a positive investment with returns.
But they got rid of that tax while at the same time removing the ability to deduct mortgage interest. So now it makes most sense to pay off your loans.
Mortgages are different here - they are interest-only loans for usually 1 to 5 years. And when the loan expires you have the opportunity to pay off as much as possible and then renew the loan for the remainder.
However, where I live local government is wildly inefficient. So in that case property taxes should go down while property taxes go up via the expedient of competent governance. Alas.
There's some reason. City workers may need to live in the area. If housing becomes more expensive, the city may need to pay higher wages.
I understand how this would be infuriating to other locals. But it shows the power of community organization. They don’t win because America is systemically pro Hasidic, they simply turned out the vote (after years of non-participation.). This is an encouragement to be active in your own community. If you don’t, someone else may do it for you.
Also did your six neurons figured out that it would also cause rent to decrease yet ?
It’s a consumer good most people want and will pay for and it retains its use for a very long time. So naturally there are fairly liquid markets and loans for it.
This is absurd. There's absolutely no benefit to you if the value of your house increases if you have no intention of selling it. That's exactly the point of treating owner-occupied homes differently from commercially owned property. The author should be embarrassed that he, as a an economist, doesn't know that in economic theory, households do not optimize for profit on some balance sheet, but for personal (subjective) utility. That's econ 101.
But even if you were right for the majority of home owners: feel free to tax collateralized homes as commercial property based on the volume of the mortgage. Case solved.
I can take a loan against or collateralized my home value.
I can have greater operational flexibility if I know I have a deep financial backup.
There is something to it, even if overstated
I've seen people completely change their attitudes about things once they own a home. I know a self-proclaimed liberal who claims to care about people suddenly go all NIMBY because they are buying a $2M house and now they don't want duplexes in their neighborhood and don't like the idea of more housing being built ("we're full"). They feel entitled to a high (and increasing) property value in a desirable area.
I hate it so much
If all of the sudden the neighborhood behind you gets rezoned to industrial and you get a datacenter nearby, everybody understands you're up in arms.
If at the same time the neighborhood behind you gets converted from 200 single-family homes to 200 8-plexes, complaining is NIMBY. Even though it has the same dramatic impact on the quality of life you bought into. Way more noise, way more street parking, cars racing late at night etc.
So absent of that, I think your personal incentives also lead you to your current housing policy preferences. Don’t you?
I'm a multi-homeowner and I'd love it if house prices fell, or at least stopped rising.
"America, where you can spend your entire life paying off mortgage and then still be one missed tax payment from losing it all."
Is that true and how is this not perpetual serfdom if you can't ever really own a home?
https://phillipslytle.com/a-review-of-new-yorks-response-to-...
Until 2023, some (many?) would sell off your house and pocket the difference, even if it exceeded the tax liability!
Miss on two points: there are exemptions for retired that freeze prop tax and equity is wealth that’s rare to access before death
> The proposition adjusted the property tax rate, pegging it at 1% of the purchase price of the property.
That sent me down a rabbit hole of trying to understand why property taxes go down while home values go up, and why raising property taxes is so damn hard in so many states (it’s largely because of caps etched into law by Boomers in the 70s and 80s). It’s also why I have the strong opinions on the issue I hold today.
Tax displacement is a very real issue, but one that theoretically should be solved by a liquid property market where you can sell your home at FMV and downsize to another one you can afford. Americans, special creatures that we are, instead demanded we get the McMansions without the property tax valuations, while also deciding what housing gets built regardless of demand, while also keeping the distorted value of the home should we sell it for a retirement nest egg.
In other words: homeowners keep all the money, while paying decreasing to no taxes on it. This has been a significant contributor to the housing crisis of today, with shitbox properties in major cities selling for upwards of a million dollars but families pulling in not even a tenth of that in yearly income. The typical soundbite responses of “we need more housing” and “we need to reform or loosen regulations”, while technically correct, ignore the root incentive structure crafted back in the 70s with these sorts of inverse taxation schemes, and therefore leave the problem intact. We’d have to build so much housing, so quickly, that property values halve nationally for there to be any long-term fix to this problem, and nobody seems inclined to do this given the ponzi scheme we’ve discovered suburbia to be (just look at new developments in CA with dirt roads as an example of homeowners having to foot the bill and realizing it ain’t worth it given the thin density of suburbs).
And thus we arrive back at the beginning: we need to raise taxes on homes to reflect their high assessment values, which would displace existing homeowners who couldn’t afford said bill, which is leading to the same demographics as before demanding the same solutions as they enacted in the 70s and 80s: caps, limits, or shifting costs onto less-advantaged demographics (like renters via commercial real estate). As perverse as it sounds to most Americans, the actual solution is to finally let property taxes “float” with valuations in their entirety, no caps or cuts, and let the market sort it out. Will that lead to some folks becoming homeless? Yeah, and that’s a whole other ball of wax we’ve ignored dealing with precisely because we catered to homeowners as a political group, but that’s infinitely more solvable than trying to build our way out of a housing crisis engineered by lower taxes and controls on builds.
We gotta eat the pain up front to find a better collective tomorrow for everyone.
Well at least your property value will go up endlessly. No bubble there. Totally not based on speculation.
Actually that often is how local governments see it in many places.
Local bond issues, which are paid for by property taxes, are often not a fixed rate. They are often a fixed amount (e.g., $2 million/year for 5 years) or a fixed initial amount with some growth allowed (e.g., $2 million/year for 5 years with inflation adjustments, often capped at some maximum adjustment).
With these each year the rate changes to keep the amount collected on target. If aggregate property values go up the rate goes down and if aggregate property values go down the rate goes up. If everyone's property values went up or down by the same percentage the amount of tax each person paid would stay the same.
Your share of the tax is proportional to your share of the aggregate property value, so our individual taxes can change regardless of any changes in aggregate value. For example if aggregate value goes up 5%, but your assessed value us up 10% and mine is up 3% your tax for a fixed amount bond will go up and mine will go down.
The government should face a punishment for targeting constant inflation.
But I agree that pinning all hopes of class mobility or comfortable retirement on perpetually increasing housing costs cannot work for very much longer.
Also, economies can grow rather than just inflate
This isn't something special with taxes.
That's why socialization is so important. You can't get voters to understand the difference between billions and trillions or put anything in context when the numbers get that big. All you can do is socialize them from an early age to have directionally correct gut feelings like, "there's no such thing as a free lunch" or "saving is good."
Schools are really expensive to operate. Most districts and schools make it easy to graduate to maximize their graduation rates. Standardized testing is suppose to catch local lowering of standards but state departments of education are also under pressure to maximize test pass rate. So resources flow into pulling the bottom quintile of students up to a minimum standard. This means teaching to the test on math and English, and de-prioritizing other subjects or dropping them entirely.
We could expand the breadth of educational basic standards. This would require a cultural shift in valuing formal education more, increasing teacher training/recruiting resources, making schools year round, more centralization of education budgets at the state or even Federal level.
Generally speaking public schools tend to be better in states like Massachusetts than Kansas.
"One man gathers what another man spills."
Government is not a borg. We elected the dumbest motherfucker in the country, he consolidated power, and we got incredibly inflationary (among other things...) policies. Local government is just along for the ride.
The cult leaders tell them how to vote and then bus them to the polling station. They also largely are unemployed or work for others in the cult, so there is no obstacle there.
It's a scientology level cult, not a "community", and while certainly impressive knowledge and coordination to hijack tax payer money, it's still nakedly fraudulent.
I think it's far more ambiguous and less measured of a net negative, than it is a clear, measured net positive for the "powers that be" if we define them as the wealthy.
You can take a very clear, measured look at wealth distribution over the past 50 years.
On the other hand, you have a massive contingent of people who are constantly scoring own goals because their economic insight is purely an emotional surface level intuition.
A mainstream bank takes a longer term view. They offer financial literacy info for customers who are interested. If a customer overdrafts less frequently and is able to leave significant amounts of money deposited the interest spread is more profitable than collecting overdraft fees.
Don't confuse the existence of people who profit on inefficiencies as being a sign that the system works best with those inefficiencies, or that those inefficieces are even particularly profitable.