Comment by bunderbunder
6 hours ago
Consider my neighborhood in Chicago. It has gentrified rapidly over the past couple decades. But it wasn't always so wealthy. My retireee neighbor probably bought her house for no more than about $100,000, but now the market rate for a house like hers is more like $500,000. With that comes about $20,000 per year in property taxes.
That might be reasonable for the wealthier families who are moving into the neighborhood and driving up the land values. But it's pushing her into poverty.
> But it's pushing her into poverty.
No, its pushing her into a cash flow problem. Its not poverty; she has substantial wealth, but its all in the house.
There are mechanisms, of course, to access that wealth without moving, including ones specifically geared toward income-limited house-rich retirees.
Now, those end up creating a debt that must be resolved before transferring the house, including via estate, so living on the value of the home reduces its utility as a vehicle for generational wealth, but...unless you want to reproduce California’s system which makes it much harder for people to become homeowners while rewarding those who already have, eapecially the wealthiest, making the rich richer and what would be the comfirtable middle class anywhere else in the country poor, that’s the way it works (and your exact scenario was the major sales pitch that was used to sell the California system; its maybe understadable how people without 50 years of California’s example fell for it then, but...)
There are ways other than California's for addressing this. Washington's system works quite well: a disposable income based property tax exemption for people over 61.
It exempts you from "excess levies" (basically levies that are voted on) and some statewide levies and freezes your taxable assessed value. If your disposable income is low enough it also starts excluding part of your assessed value from taxation.
So your solution is to take the house away via a second mortgage?
Why are we trying to take houses away from homeowners? Many who have lived in their homes for twenty years or more. What services that the city has could be so important to push residents out of the homes they've lived in all their lives? Most of it is inefficient pork on admin and roles the people living there didn't choose to hire for.
Build more. Encourage building multifamily. Pay to buy these homeowners out of their single family and convert the land to multifamily. If you can't pay, don't try to make it up with tax increases. That forces people out.
Deregulate and build.
Maybe a city failing to stretch services will send new residents seeking other cities, which would be healthier anyway.
Or maybe property taxes should be based on the services rendered. If they increased from $1,000/year to $20,000/year and you subtract away the inflation here is the city government delivering more value or less?
In my city and others our city council delivers large grants to non-profits and other entities under various auspices. “Defending gay rights” is one, or maybe helping the homeless or something. Of course I support both causes in general, but if the city gives a million dollars away maybe we just have to have some people kicked out of their homes to pay for these programs?
You can say well we will just raise taxes on the wealthy. Sure yea, whatever but that isn’t a viable long term strategy for places outside of California or New York which have an ability to capture wealth better due to intrisinic location value. There are only so many “rich” people. Could I afford another $10,000 in city taxes? Yea. I won’t be able to go out to eat or shop at local business as much though. So then what happens? Do those businesses go under? Raise prices? What about their property tax? Maybe instead I sell and take a loss on the house and the market value goes down so now that home pays less in taxes (depending on how this stuff is measured in a given jurisdiction).
> Maybe a city failing to stretch services will send new residents seeking other cities, which would be healthier anyway.
Yea. Tell Google and Meta and whoever to stop putting more jobs in the “cool” cities and come to Ohio where I live instead of these data centers.
This stuff is rather complicated, unfortunately. Even the case of a city let’s say “building affordable housing” is arguably a benefit to the local homeowners, but if you do that yea sorry Granny McPension has to pay for it too - she has a house, she’s wealthy!
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> Pay to buy these homeowners out of their single family and convert the land to multifamily.
But that's what the market is already doing? In your example from above, you can take a $400,000 windfall and move somewhere else, or take out a mortgage against that $400,000 of new equity to pay your taxes and still come out waaaaay ahead. I don't understand your characterization of a second mortgage as "taking the house away" at all.
What poverty--she owns a house worth $500k. I think deferral schemes where certain individuals can pay taxes upon sale of the home (with fair interest) should be fine to avoid forcing anyone into a reverse mortgage.
Well she doesn't have the 500k. This is akin to saying we should force people out if market conditions make their house more expensive. That seems like a really strange consequence to all this, idk
It isn't because the comment had a second sentence suggesting tax deferrals were fair.
Either housing is an economic asset subject to market forces, or it's not.
If it's not, then I would also like to live in a nice neighborhood for $100k and zero property tax, please.
On the other hand, if it is, then this person has a substantial economic asset that she could reverse mortgage, rent out, or sell.
So people that keep buying low (because that's what they can afford) are constantly being forced to move.
Houses are not the same thing as cash or other fungible assets.
Especially not when you're getting older, have limited ability to manage a move for yourself, built a life and raised your kids in the building, and would have to consider unloading a lifetime's worth of objects and/or moving infeasibly far away from your friends and community to get into a living situation that's more financially tenable.
> Houses are not the same thing as cash or other fungible assets.
> Especially not when you're getting older
Houses are wealth. And the wealth in them can be accessed while retaining use of the house. Especially when you are getting older.
Why are we replaying the dishonest “think of the retirees” now? It was bullshit in California in 1978 to sell Prop 13, and its even bigger (and more transparent) bullshit now when, especially when it is used to sell the same basic idea.
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To actually realize this value she would have to sell it.
So your solution is to force her to sell her home and move? Move where? I've seen this in so many areas of the country where property taxes on your property are tied to market value rather than purchase price. It drives retired and lower income people out of neighborhoods that they have lived in for decades, forcing them to move down the scale of home ownership.
Perhaps the retired person is living on a fixed income of $40k/year. Over time their proterty taxes on the home that they have lived in for decades can now be more than half of their total income? How is this fair at any level?
Reverse mortgage.
> How is this fair at any level?
How is it fair that working people have to pay 10x for housing than she did when she was young? How is it fair that the money goes to her inheritance while she made her working neighbors pay her share of taxes?
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Why should this person take up a family home in a desirable area? It is inefficient. The pressure she is feeling to leave is the system working as intended.
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$20k on $500k is 4% annually, which is really high. I'm not seeing any Chicago neighborhoods that are this high (looks like a max of maybe 2%) but perhaps I'm missing something about how Chicago works?
Why can’t she pay from her retirement accounts? 20K/yr isn’t all that much considering today’s cost of living. The stock market has skyrocketed in the last decade and change.
I also don’t buy 20K of property tax on a 500K home, that’s a 4% tax which seems unlikely in Chicago.
Something isn’t right. Poor financial planning maybe?