Comment by Johnny555
6 hours ago
In the last three years, a number of states have substantially reformed their property tax systems, providing huge tax benefits to owner-occupied homes and shifting the burden of paying for services like schools and police to commercial property owners (including rental apartment buildings)
That sounds like shifting the property tax burden from homeowners to renters - homeowners are generally wealthier than renters, so it's placing more of the property tax burden on those less able to afford it.
The second order effect will be that rental properties are driven from places where this applies.
That has some not-fun generational aspects.
(1) If schools have lower taxes, their ability to attract good educators for children is reduced. That in turn leads to lower home values since the school quality factor is reduced.
(2) If munis are unable to collect a sufficient tax base, they must reduce services. There will be hemming and hawing about things like cutting the pensions promised decades ago to attract competent service workers, but those are harder to reduce rather than not fixing the fire trucks, the water pipes, and other hidden taxes citizens pay for by reduced services. So your property values will also be reduced in the long term. Small towns are prime examples of this happening, when towns fail.
Trying to build a community out of one socioeconomic class works about as well as trying to redline. It leads to a less vibrant community, less adaptable community, and people are poorer in life and in their finances for it.
> If schools have lower taxes, their ability to attract good educators for children is reduced.
"Good schools" are mostly about avoiding bad kids and bad parents. Expensive homes (without Section 8 or equivalent in the neighbourhood) is a feature, as it keeps most of them away. It's not a good way of doing it -- it excludes lots of perfectly good kids and parents and it is really expensive. It's just the best way available to most people in the West.
While it may be common, it certainly isn't universal. I've worked in schools in poor communities that have pushed for good educators. In one of those schools, the push for better teachers was by the students themselves. There are plenty of good kids and good parents in many poor communities.
I'm not sure the opposite is true either, i.e. that expensive homes are a proxy for good schools. I've also worked in schools where the families were affluent, but the environment was toxic due to the behaviour of students and parents.
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No, good schools are also a function of $ spend per pupil, which is correlated with school quality and opportunities for students. A really interesting place to study this is San Antonio v Rodriguez (1973) where in my opinion they laid the groundwork for such inequality in the US. The argument being made in that case (which the Supreme Court ruled against 5 4) is that funding schools via property taxes leads to this prolonged entrenched inequality.
The actual case is about whether the poor school system was allowed to have higher prop taxes than Texas allowed. In the details are the inequality argument (hence 4th amendment being at issue).
In my opinion state INCOME TAXES are the way to fund schools - lower prop taxes and make schools more equal - now everyone is happy (except those who want their 3M home to be in an exclusive school district).
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Even "bad" schools use this strategy to move some of the "good" kids into special programs, etc. to raise their average scores. Which makes the remaining classes even worse. It's an eternal struggle between raising the floor vs raising the ceiling
It's also a feedback loop, once you're known for "good schools" then the homes become more expensive. If you don't care about moving then it's often cheaper to buy a home to send your kid to a good public school vs. sending them to private school.
Imagine a town with a number of wealthy homeowners, most of them old enough that their kids have grown up. Their municipality is already flush with cash. They already only need few schools for their kids and grandkids. They just want to pressure the less wealthy undesirables away, and use tax (dis)incentives to do that.
Are pensions still an effective way to attract workers? I feel like there’ve been enough cases where workers get screwed out of them, that this isn’t much of an incentive. Similar to offering engineers equity in a startup.
Anything past the paycheck is a gamble.
They were for a substantial portion of time, such that today's pension obligations remain relevant.
In California, most cities are behind on funding pensions. There is a de facto assumption/delusion that there will be some large scale bailout at some point.
>The second order effect will be that rental properties are driven from places where this applies.
This is likely very intentional in some of these places.
Growing up in suburban TX decades ago, people FREAKED out at talk of potential apartment building development nearby. The duplexes a mile away were 'bad enough.'
Why did they freak out? What was their threat model, so to say? (I can imagine several lines of reasoning, but as a hardcore urbanite, can miss the mark entirely.)
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That really depends on the state. Some states have different public school district funding mechanisms that don't depend as much on local property tax collections.
Fire trucks are far more expensive to acquire and maintain than necessary due to monopolistic actions by manufacturers, plus local governments buying fancier apparatus than they really need. There's a lot of room to trim those particular expenses.
https://www.iaff.org/news/fire-apparatus-crisis-sparks-inves...
> Fire trucks are far more expensive to acquire and maintain than necessary due to monopolistic actions by manufacturers, plus local governments buying fancier apparatus than they really need. There's a lot of room to trim those particular expenses.
The real problem with fire equipment is that it will sit there in an emergency unless you have the staff on hand to operate it. Small, remote, or cheap towns get to burn while they wait for volunteer #2 to make it to the station.
I appreciate this knowledge tidbit. Firetrucks aren't the only relevant example, and perhaps it is less fit to purpose than I assessed originally.
theres also (3) those single family home neighborhoods require much more government maintained infrastructure for water and roads
I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible. In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people. It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
Someone I know is trying to plan such a thing right now. She has a decent paying job and a degenerative, disability-inflicting illness. She'd like to see the possibility of a secure future in the city where she's lived for the past 10 years, but property taxes and HOA fees alone in her city can be multiple thousands of dollars per month in neighborhoods that from the outside you wouldn't think seem particularly new or posh or luxurious. It seems that if she's forced into early retirement by disability, she'll have no choice but to relocate. So instead she feels trapped in a job she hates because she got it before she became disabled because she's reasonably afraid that employment discrimination, which is terrible at her job that nominally espouses inclusive values, will be even worse most other places. And while she's already disabled, her disability will only continue to get more profound for the rest of her life. And property taxes for sole and lived-in-by-the-owner homes is one of the reason that owning a condo or apartment is so much more expensive than renting one for her.
> property taxes and HOA fees alone
I feel like HOA fees have to be doing most of the damage there. AFAIK the highest property taxes in the US still top out around 2%, so for a "multiple thousands per month" property tax bill it has to be a house worth more than $1.2 million. I'm not sure what the line is for what level of housing expense is reasonable for society to subsidize housing security for, but I'm pretty sure $1.2 million is well past it.
True but imagine you're in the same home for 30 years. That home with somewhat affordable property taxes could double in value and now you owe double the tax. With no real increase in useable income unless you sell
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>I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible.
You can also do this with combinations of renter protections + owner-occupier protections.
Currently the latter (whether the recent trend of red states lower property taxes, or Prop 13 in CA) is much more broadly-popular in the US than the former.
Property owners generally show pretty little empathy for anyone else wanting that security.
I go the other way: nobody should be forced out of their home because other people who have more money than them decide to increase the paper-value of their home. Something has to give between "I have a lot of money, I want this place" and "I was already here, I want to stay" and I think incumbency and stability is a better tiebreaker than "money wins."
The way they ought to do is is by having the government set not the mill rate but the amount of government revenue to be collected per capita, and then have the mill rate calculated from (revenue per capita x total number of residents) / (total value of all property in the jurisdiction) every year.
The premise being that if property values change city-wide, property taxes don't, because property tax revenue only changes if the city's population does -- and if population increases then it's usually associated with new construction, so as long as the newly constructed units have a similar value per-bedroom to the existing ones, the amount you pay in property taxes doesn't change then either.
"Forced out" meaning they choose to sell rather than spend their unearned windfall.
They could always borrow against their massively appreciated property, after all.
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I'm not sure where your friend lives, but my county (perhaps state level, but county for sure) exempts property tax for those with a permanent disability. I read the requirements and it was really reasonable to prove eligobility.
I understand that this doesn't fully solve the issue in that your friend, if to take advantage of this has to move, but it might be worth seeing if there are similar options around where she lives.
What if I'm not disabled. And healthy in part because I bought a property with hard earned already taxed money, and retired early?
The taxman says not enough. I should borrow money I don't have or sell for a cheaper place just to cover for the state's inability to do with sales tax
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> In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people.
Nah, the market is supply constrained, if taxes go down the price of the real estate just goes up to fill the gap. People make purchase decisions based on income & total expenses, not on anything else, "can I afford this house?". The price stops rising when the answer switches from "yes" to "no". If your friend can't afford a house right now they don't have enough buying power to compete in the market with other house buyers. Reducing taxes won't give them any advantage in the market that other buyers don't get.
Should we expect that people who become disabled continue to live by the same means they had before?
If yes, then that means replacing their entire income once they’re no longer able to work.
If no, then something must diminish. That may include needing to relocate to a less expensive living situation. If we accept that disability means reduced means, then I don’t see why housing should be exempt from that as long as they’re not on the streets.
> I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible. In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people. It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
It seems to be equally straightforward an answer to just not expect homes to function as an investment.
I do not now nor have I ever understood why people expect homes to rise in value. If you live in an area for 20 years, and you enjoy that area, and it serves you well, and educates your kids, and the crime is low, and all that good stuff: why are you then owed money? Why is that a fair expectation? Like I could see it if you made the house bigger, or otherwise improved it? Maybe you put in a new shed, or a nice brick backyard area with a kitchen, sure. House being worth more makes complete sense. But if you just buy a house, and live in it, and maintain it over the years, and then go to sell it: why is it reasonable for you to expect money back out of that?
You've already received what you paid for: a place to live.
Like I just don't see how people go like "My house needs to sell for more than I bought it for years from now" and then complain about the housing market being out of control and houses being expensive. Of course they are. Each time a house changes hands by this logic, it must necessarily be worth more than it was before. So every subsequent buyer of that home is effectively required to tithe to the previous owner for... some fucking reason, that nobody has ever adequately explained to me.
>why are you then owed money? Why is that a fair expectation?
Essentially everybody in the US is continually trying to make their fortune by picking a winner instead of adding productivity and value.
Have your house appreciate.
Pick the right stocks.
Invest in the right company.
Become a landlord in the right neighborhoods.
Everyone wants to be a genius speculator instead of doing work.
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Not only do they want the value of the house to go up, but they don't want anything around them to change. No new 5-story condo complex on that one corner. My neighbor shouldn't add a second floor and block my view.
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> Why are you then owed money? Why is that a fair expectation?
Because getting the mortgage to buy the house involves parting with a large sum of money, after which some part of the mortgage payment goes towards something called principal. If it just goes towards interest, it may as well be rent.
Not to mention that when you try to sell the thing, there's some expectation by one or more third parties of some percentage of it.
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I’d expect property values to go up (or have gone up) as population rises; less space per person. I bet we could also put together some geometric argument about proximity to things like cities. But it’s the weekend, so let’s just halfheartedly gesture at the potential for rigor.
Anyway, nowadays population is barely increasing so I guess property values… maybe they’ll keep pace with inflation (for whatever reason)?
Another possibility is that property values tend to go up and down as some areas become more fashionable. Maybe, for whatever reason, there’s a selection bias where we tend to associate ourselves the trajectory of people who lived in those fashionable areas instead of the unfashionable ones?
My theory is that the "house" consists of two things: the land and the building.
The land goes up in value when other people spend money. More retail is constructed nearby, transportation is improved, schools improve, jobs are created, etc. My land captures some of that value even though I paid nothing. That to me explains some of the fairness of property tax: the owner should contribute to the government services, such as schools and police, that help make the land appreciate in the first place.
Then there's the building. It's a wood box that sits out in the rain and rots. Water soaks in from the outside and pipes burst on the inside. Termites eat it and insects and vermin invade. Carpet and walls slowly degrade. HVAC systems wear out. Appliances break. Concrete breaks apart. Even on the land portion, plants die and need maintenance. (Trees are the only thing on a property that get better with time.) This building needs constant maintenance and I'm always spending money and time on it.
So I figure the land might go up slowly in value over time. I figure I'm lucky if the building appreciates at all after I consider the money I sink into it.
On paper my house is worth a lot more than when I bought it. But I don't know how much of that is nominal price change due to inflation.
Is “inflation” not a valid answer? Or at least component of an answer?
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> that nobody has ever adequately explained to me.
Jesus it’s not rocket surgery. People want to live in a nice area, as more people show up and want to live in a nice area prices rise with rising demand accordingly. For the counter example, there are very large houses basically for free in Detroit. No one wants them.
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>>It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
One idea here is deferral - if it's your primary residence the taxes are deferred until the property is sold to someone else. This way you won't get evicted but the locality/state can get the payment at some point. This is better than just charging a tax on sale as many countries do because it doesn't discourage transactions.
I would certainly be discouraged from purchasing a property if the price was inflated by having to pay back taxes.
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Not exactly.
The little town I live in is growing about 22,000 people per year. That's 64-67 people per day or about 16 new households populated with new residents every single day. The rental population is growing dramatically faster than the owner population.
That growth trend has very little to do with wealth and is almost exclusively a factor of availability. Most single family households in this growth area are rental properties, because the most urgent buyers are rental corporations who buy many of these houses the earliest moment they hit the market. Sometimes they are buying the houses before they hit the market by working directly with the home builders. Home renters tend to pay more to access the property than home owners even before taxes are considered.
So, its not just about houses versus apartments.
Also, the school systems and local municipalities attempt to sell their multi-billion bond proposals by taxing future residents at the benefit of current residents. That also disproportionately hurts renters compared to owners. The moment I see a bond proposal that will be paid for almost exclusively by residents who aren't living here yet I vote for it... because why not. We need a lot of shit to accommodate this growth and somebody has to pay for it. We need new high schools every couple of years. We need new roads. We need more plumbing, sewage, and electricity before the data centers eat it all up. Somebody has to pay for all this.
Landlords charge what the market will bear and generally have little if any price elasticity of supply, so they bear nearly 100% of the economic incidence of the tax. This is especially true where housing supply is constrained by zoning policy rather than the price of expanding supply.
It'll make it so new construction tends to be condos rather than apartments, since the first is heavily preferred by tax policy. This reduction in supply will mean higher rents.
New construction is like 1-2% of total housing stock annually. It'll take a relatively long period of time for these sorts of changes to hit prices because again, low price elasticity of supply.
edit: on slightly further thought, you'd also need this effect to either increase overall vacancy or reduce total construction, since any supply shift from occupied rental units to owner-occupied condos also implies a demand shift from renting to owning.
> That sounds like shifting the property tax burden from homeowners to renters...
This is all obviously very specific to the locality where you live, but at least where I live, property values were recently reassessed to account for the large post-pandemic increases. Individual homeowners were generally stuck with these reassessments, while commercial properties, especially those managed by large property management groups, were organized and successfully petitioned to reduce those assessments in disproportionate numbers. So the balance of power was not equal to start with.
And, commercial activity tends see revenue follow inflation. And, a business offset expenses.
An individual, could go bankrupt just because the property tax follows its' property value which itself changes nothing with regards to that owner's income.
Around here, many renters are pretty well-off. It's really difficult to own a home in the city.
Brooklyn, for example, has seen an explosion of high-rent apartment buildings, occupied by nerds like us.
If you are lucky enough to own a home/apartment in the city, you are either crazy rich, or, more likely, brought the home before it exploded in value, making you "paper rich."
Many of the apartment-dwellers in the city make a lot more than homeowners.
All that to say you agree with the GP: homeowners, as a class, are wealthier than renters. How owner occupiers choose to spend their wealth has nothing to do with the fact they have it.
Well, "paper rich" is dicey. It means that you may have the burdens of money, but few of the advantages (like actually being able to spend it).
Farmers, for example, are often multimillionaires "on paper," but don't have a pot to piss in.
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A lot of states have rent control laws though which would entirely shift the burden on the owner of the building.
Usually what they have is rent stabilization rather than control. It is tricky business to really estimate what is reasonable or not under that. For example, rents in my city are allegedly "decreasing," yet if you live in a rent stabilized unit, your landlord is probably incentivized to increase your rent to the limits of the ordinance, it could be 4 or 5% so not unsubstantial especially it being compounded by the year.
And what is more, when a tenant leaves and the landlord puts the unit up for rent again, there is no price limit for what they can ask for new rent. They are free to ask above market rent if they want.
So really I would not say the burden is shifted entirely on the owner of the building when they still possess two levers for ameliorating overhead increases: increasing to the limit of the RSO even when the market doesn't support any increase, and increasing rent on the next tenant. In high demand cities the market rate is not so much a wall, and landlord generally enjoys good success pricing above market rate and still leasing the unit out in a reasonable timeframe for them.
Wealth is not income.
You can be wealthy and still have poor cashflow, especially as a leveraged property owner
Wealth is easily converted to income. People can sell their properties and move to cheaper ones. If we’re gonna run our entire society on the whims of retirees who are taking up houses big enough to raise families, while also preventing all new construction, while also opposing paying their taxes, while also opposing moving to smaller houses, we are just fucked.
For multi-unit housing a cash-poor leveraged property owner sounds like a likely slumlord, so I'd be happy to discourage that situation. More, less-leveraged, property owners instead sounds good.
For owner-occupied, it sounds like someone who made a risky financial decision because of perverse incentives. Which also seems good to revisit.
Also in these cases cash-poor is not low-income. It's likely to be high-income+high-obligations the way you describe it. Hard to get all that leverage otherwise.
It's not just slumlords though.
Rental yields are so low in the UK compared to the cost of finance, tax and maintenance that being a landlord has become completely unprofitable, which means the rental sector is falling apart.
Pretty much no landlords in the south east of England are cashflow positive on a monthly basis, and if they are they are yielding less than government bonds
That is what I think will happen at the end.
Yeah, it’s nasty politics.
What’s happening is income inequality manifesting on the market. The middle and upper middle of the market is seeing accelerated appreciation as incomes rise for the upper quartile. Some places see >10% annualized appreciation over the last 20 years.
The lower part of the market is very different, and are basically depreciating away. Property taxes are the most fair tax for the most part — you basically pay a prorated share of the levy based on the market value of your home. So if the poorer property is getting less valuable proportionally, your share of the tax pie increases. Some states share Medicaid expenses at the county level so there’s demand pressure for more tax levy.
The problem is old people generally cannot afford their homes, and are usually profoundly ignorant about everything except tax avoidance, even when tax avoidance hurts them. The tax knob is one that can be turned, which makes the problems worse. Senior exemptions, veterans exemptions, all increase the overall share for everyone else.
The new Republican platform is accelerating that — pushing property taxes to non-homestead property and driving up sales tax. In other words, it just a consumption tax, which pushes the tax burden to families and inflates retail costs, so grandma can sit in her big house and her kids get to inherit the place at the stepped up cost basis.
There's all sorts of factors at play. Uncle is a financial planner and advised grandma to sell her house to Grandma's House LLC for $1 and pass ownership of that LLC to the offspring, avoiding prop 13/prop 19 reassessment in california.
Part of it is honestly just people wanting a safe harbor preserving generational wealth. I think people who are generational wealthy understand what a damn advantage that is and obviously push hard to guarantee that for their family as much as they can. The alternatives are a bit terrifying given the direction of the economy, world, and climate. The only social safety net afterall in this country really beyond an abject poverty level of subsistence is reliance on well off family.
Maybe you can call it a sort of restart of feudalism, but there are no serfs in the mix really. Its not a productive estate in most cases (in some cases sure e.g. family business), but really often just a little lot with a house on it. People don't like the idea of the state coming in and carving that up and carting it off.
And really I think there are far more real things to set the tax burden upon. I mean grandmas home once again produces nothing, it is a box to sleep in; it's value is based on pure speculation. It is now worth 'more' because people say it is worth more and believe in that, not because it now actually does anything it didn't do thirty years ago. It is in far poorer shape than 30 years ago, even. Like, this is not where you find money flowing in this country. Tax where the flows actually are not the stagnant ponds, slowly being filled by the leaks off those profoundly vast flows of money and the speculative abilities those flows grant the flow controllers.
> Uncle is a financial planner and advised grandma to sell her house to Grandma's House LLC for $1 and pass ownership of that LLC to the offspring, avoiding prop 13/prop 19 reassessment in california.
Pretty unbelievable, really. They get a free house and tax bills from decades ago. The whole thing is made to screw over future generations, and act like it’s all hunky dory.
Wouldn't a European like VAT system help this ? Along with properly taxing the property of corporate and business owned properties.
How VAT could help? Unless you mean to dramatically increase sales tax to European VAT level? Like 23%
VAT requires invoicing, while the people railing against property taxes in the United States primarily want to avoid taxation for themselves.
The problem with this form of taxation is that it slows down consumption and impacts poor and middle class people more.
It would also place a higher burden on investment home owners so it's not all bad.
how would put burden if costs are simply passed down to renters
Lower demand for the product globally. If their asset has a higher vacancy rate, raising rent all the time can't solve the problem.
However, tax rates give perverse incentives. What you'll probably get is a lot of commercial slumlords as repairs are seen to increase the value, thus the tax.
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If they could raise rents by the amount they would've been taxed, they would have. I'm happy to see more incentives against buying up houses for literal rent seeking.
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Is the implication the only path is to design the economy around keeping landlords as happy as possible? Its similar to the fear of a wealth tax driving the rich to move, you can just say out loud who our true masters are.
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