Comment by mikhailfranco
19 hours ago
If insurance and property taxes are proportional to property price, and property prices grow faster than incomes, then cost of ownership will eventually become unaffordable to existing residents.
A similar argument works if insurance is just based on reconstruction cost, but construction costs inflate faster than incomes.
If properties become unaffordable, then to restore equilibrium, property prices must fall, incomes must rise, or lower-income residents will sell to higher-income purchasers. If there are few higher-income purchasers, property prices will fall.
Property taxes could be cut, or decoupled from property values (e.g. poll tax), but that never happens.
If the risk really is high, there is no practical insurance available, and all purchasers are rational, then the price may go to zero.
An example of an irrational purchaser would be one who assigned high status to a beach house, even in the face of threats from coastal erosion, hurricane floods or tsunamis.
Possibly one of the most inane phrases ever uttered about modern governments is Oliver Wendell Holmes’s oft-quoted phrase stating that “taxes are what we pay for civilized society.” This reflected the naïve view, often pushed in the eighteenth and nineteenth century, of the so-called “social contract.”
According to this idea, we pay taxes, and in return the state provides order, protection, and all the blessings of civilization.
Presumably included among all those taxpayer-funded civilizational “services” provided by governments one can find “fire suppression.”
But, you wouldn’t know it from watching tens of thousands of residents flee their homes in southern California and Los Angeles County as fires rage. As of Wednesday at midday, five different fires in southern California are still zero-percent contained. Nor is this some hard-to-reach rural area with few roads and little infrastructure. These fires are right in the middle of suburban cities and towns. Yet, it is all apparently too much for lavishly-funded government agencies to handle.
Indeed, government authorities in Los Angeles County and California had neglected infrastructure to the point that it became useless in many areas in terms of battling the blazes.
I don't disagree, but...
> Property taxes could be cut, or decoupled from property values (e.g. poll tax), but that never happens.
Couldn't the total property tax take be set to be proportional to incomes, shared between households in proportion to property price?
> If the risk really is high, there is no practical insurance available, and all purchasers are rational, then the price may go to zero.
Rational purchasers might reason that:
1) they need a home
2) unless they own a home they'll have to rent
3) even an uninsurable home could be expected to be habitable for a while
4) if rent for the duration of expected habitability exceeds transaction costs and property taxes for some uninsurable home, it could be worth a nonzero amount