alt Hacker NewsI Would Like the Value of My Home to Rise, While My Property Taxes Fall
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I don't like taxes but I also like having roads, sewage treatment, 100+ psi water pressure, multi-gigabit internet access, and a reasonably constant flow of electricity. The cost of public education and the management of that system is the only serious concern I have with my local taxes.
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.
In most jurisdictions (not califoria) property tax increases are somewhat unlinked from your actual property value
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.
I don't know how economics escaped basic elementary/middle school curriculum. There is so much confusion in people's lives around money, and so much destruction that results from it, yet we still don't teach the basics of what is going on in school. It's totally perplexing to me.
I can see how, conceptually, shifting tax burden to companies rather than individuals puts public services at risks. Companies don’t really have a lot of incentive to want things like quality schools, parks, and other non-profit public services.
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.
> I would like the price of my home to rise, because it increases my wealth, but I would also like the prices of all other homes to fall, so that I could sell my house and buy an even nicer house.
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.
No property tax where I live, which is true for about half of the Swiss Kantons. There used to be a system where they would calculate how much you would be paid if you rented out your property and then charged you tax on that value. So basically a property tax.
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.
I think it's a great idea to let land taxes create incentives for efficient building.
Interestingly enough, it’s the opposite in NH. Our taxes just increase 1,000 each year to pay for horrible public schools while also giving state school budget funds to everyone that wants to homeschool or sent their kids to one of the many alternative schools we have. I would love to know how much of the US this actually reads as true for, because my friends in various other states also feel very similarly about their taxes going up and the housing prices not so much.
If you view homes as consumer goods rather than financial assets, the tension disappears.
There’s no reason the local government budget should increase at the same rate as the property values in the taxed area. Property taxes should generally increase at the rate of inflation not because property values increase.
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.
> Thus, older voters who tend to have higher accumulated wealth, partly in the form of home equity, but also lower current income, are a politically powerful and sympathetic group in the push to reduce or eliminate property taxes.
Miss on two points: there are exemptions for retired that freeze prop tax and equity is wealth that’s rare to access before death
> One might think that homeowners would be happy that their largest asset has appreciated substantially in value, as homes did,...
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.
I swear so many societal problems have their roots in the attitude of "I've got mine, screw everybody else"
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
I think most normal people, including me, don't like it when housing costs are so out of step with everything else. The "value" in your primary residence isn't very useful, unless you sell and move to a more depressed area.
I'm a multi-homeowner and I'd love it if house prices fell, or at least stopped rising.
I saw a post on YouTube about how someone's dad was struggling to pay their property taxes. One of the comments went like this:
"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?
I would like to work less hard, make more money, and date prettier girls than I currently do.
Well good news! Because taxes are there to pay for services, there's absolutely no reason why they should increase just because the value of your property... Oh that's not how local governments see it?
Well at least your property value will go up endlessly. No bubble there. Totally not based on speculation.
This has been a sticking point for me for the better part of my adult life (~20 years now), and it all started with wondering who that dude in the taxi in “Airplane!” was: Howard Jarvis, one of the major proponents of California’s Proposition 13. From Wikipedia:
> 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.
Having sat on a county assessment appeal board, this is basically every hearing. People want the comps high when they sell and low when the notice arrives.
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A major problem with property taxes on owner-occupied housing is that the value the owner derives from the house is not dependent on the resale value of the house. An owner occupied house is not primarily a financial investment in most cases. Any increase in housing value (and thus property taxes) is mostly an increase in the cost of living. Any gain in value cannot easily be realized since it’s not a liquid asset. This leads to a fear of being driven out just because the value of the surrounding neighborhood rises doesn’t mean that the owner’s income rises in lockstep.
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”.