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.
"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.
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.
I went to school in a poor district. Pretty much all the students at my elementary school were poverty adjacent. Most of them were good kids, but that didnt really matter because the 10% who werent often ruined it for everyone else. This is a one bad apple spoils the bunch scenario, so the incentive is to make it as hard as possible for even 1 bad apple to be in the school. Of course there are plenty of bad apples among rich kids too, but as you can imagine the politics is different there.
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).
Private schools, even ones that receive less tuition per student than public schools of the same district prove this point because they can set a higher bar and more readily kick out disruptive students.
Nationally, per student cost at Catholic parochial schools is roughly 1/2 of public schools. (Couldn't find California specific numbers, but it tracks what I've seen.) That's cost/spending; tuition is even less. Special education programs eat up 1/4-1/3 of public school budgets, so there's still a gap after accounting for that.
1973 was over 50 years ago. Even the poorest, most "backward" states have long ago largely remediated spending inequities. What you hear today to support claims of inequity are cherry-picked esoteric cases to drive outrage, just like every other topic today. In reality there's clearly much more going on than what advocates for this or that would ever admit.
In any event, "picking your customers" is exactly the point of the previous poster(s). Money doesn't really explain what we're seeing. Once upon a time there was a very strong correlation, and people presumed causation, but now it's quite clear that the causation wasn't there. Certainly not directly, which is why throwing more money at the schools isn't helping.
Public schools have to take children that do not want to be there and make it everyone's problem, and their classmates suffer for it. Maybe this public school policy is the issue that should concern you.
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.
Those extra water pipes and electric utilities, superfluous roads, excess lighting, and extra patrol units aren't going to maintain themselves in a lightening tax base. Same with the now-older schools built for their now-grown little kids when they moved in.
Long term, properties decrease as it is no longer a desirable area.
Anything past the paycheck is a gamble.
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.'
The threat model is "been indoctrinated by years of propaganda to be fearful of a vague nebulous threat of being around people who don't look and act like me"
It was not great to watch, but it was great to let my parents know who exactly they should stop associating with.
They do. But it's not a law of nature; it's a conscious decision, by people who should know better, to start lowballing real estate and salaries when they notice "too many" lower-income or black (of any income level, including high) people around.
You don't want to call it a concerted effort, but then you look up, say, the distribution of Whole Foods stores in the National Capital Region, and start to wonder.
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...
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.
No, no, you don't have to get up, I'll just flag myself.
*who get very angry when you point out that their voting behavior over the past half-century is at the root of almost every issue America faces.
"But that'll just put landlords out of busine--" no it won't. Margins have width. Commercial property ownership is an incredibly high-margin business if you want it to be. If you don't shrink your margins by expanding, you can make a shitload of money; this isn't like a goods-and-services business in which failure to grow is penalized. The cost of the services you do provide is either low (property management/leasing) or quickly amortized (development). And almost all of your business assets not only don't depreciate, but appreciate at incredible rates.
"But they'll find other ways to pass the costs on to tenan--" no they won't. Regulation prevents all sorts of income increases in all sorts of industries whose participants have accepted that they'll stay within the lines, money to be made or not. There's no reason that a combination of increased taxes from landlords and controlled rent can't extract money from commercial property owners while shielding tenants from harms. Sure, implementing that is complex and fallible (e.g. you likely want to permit different kinds of rate flexibility for commercial renters like small businesses than for luxury apartment residents or low-income family residents), but so is everything.
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.
I don't think anyone I know will own a business that is not profitable.
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.
If you need thst money back at some point it makes much more sense to tax the sale or purchase of the property because nobody living there is affected until that sale actually happens.
And make the house unsellable? That's the absolute opposite of what society should want, which is land repeatedly being repurposed for the best and highest use.
The answer is that land should be publicly owned and people should pay land rents. If you can't pay the land rents, there should be a publicly subsidized (temporary, until end of natural life at most) reverse mortgage that allows the owner of the house to pay the land rents with their house equity.
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.
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.
I'm not taking a position here other than to say I don't believe there is a universally acceptable tax. Every tax I've ever read about or experienced personally, someone has made a valid argument for why it leads to a bad outcome or is otherwise unfair. You have to decide what gets priority, pick the system that matches that, and then be honest about where you're making tradeoffs and why.
The property was purchased with "after tax" money. So at purchase date the value was already taxed.
If one sells, and make a profit, we tax that profit. Why ask for a tax on the value of the property, each year.
There should be local taxes, and there are. To fund services and whatnot of course. But taxing a percent of the current value of a property is unfair as the owner may live in there with no intention to sell and potentially no revenue whatsoever.
Everything is unfair. The housing crisis is unfair. Young families struggling to afford a family home is unfair. Having to pay into a pension system you'll never get to use is unfair. Land and housing is different from personal property. There's only so much to go around and we'll have to share. A property tax is one tool to incentivize efficient allocation, and to drive prices down.
The concept of taxing what's already taxed has some perverse effects.
I concede though that property tax in the U.S is just a way for local authorities to be able to fund schools, and other municipal infrastructure. It remains odd though that most countries do have local taxes, but summing to a fraction of what a ~1% tax every year may represent. As it's a small percentage but on the most valuable and critical asset one may have sacrificed during his life, to own a roof as primary residence.
And one value of property taxes (one that is dysfunctional on empty lots) is that it encourages "maximum" use of high value property (lots of bad particulars here, but the overall direction is about right). While we may dislike an elderly person being effectively forced out of the home they have lived in for decades, it is usually for more "productive" uses (for the market definition of productive).
As an example my in-laws have three properties in Hungary that are empty, and have been for quite a few years. Cumulatively they get something like ten weeks of use in a year. But since Hungary does not have property taxes there is almost no incentive to make better use of these properties (yes, they could rent them out for an advantage, but there is no disadvantage pushing them to sell).
It is a problem though, I doubt a property tax is a solution, the proof is, it doesn't solve it.
I wouldn't be against taxing owners on their income, including dividends. To fund municipalities.
My argument isn't that taxes are bad. Public services need funding. Rather, that certain taxes are absurd.
If anything, this particular tax serves one thing that the working class on rental denounces: prime real estate neighborhoods typically are better policed, have better schools, and better infrastructure than what we call "poorer" area.
Edit: I don't imply it is due solely to this tax, but the concept of taxing properties imo makes redistributions naturally or cynically more localized to areas where more gets collected.
Sure this doesn't prevent issues if someone is stuck on savings/Social Security, etc., but it prevent surprises, such as a boom in your area causing sudden explosion of equity and taxes due.
The cap required it be your residency, i.e. you aren't renting it out and you are a citizen.
So even with the cap, it's more than likely the property tax costs a typical owner more than double what it did 30y ago.
Not a big deal if you bought at age 20 (unlikely) and still receive some work income. But if you are retired, it stings harder each year.
but you also have a much improved quality of life as a result of that property value going up, because theres more desirable stuff around
Why should I get to have that sort of externality on others just because I have more money than them?
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 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.
They could always borrow against their massively appreciated property, after all.
And why is being a Google Programmer "earning" that money, but a construction worker who spent 30 years paying off their house is an "unearned" windfall?
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.
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
So no self induced problem, which doesn't even exist for me.
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.
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.
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.
"Don't turn this into Manhattan" is such a common refrain yet turning it into Manhattan would wildly increase their land value.
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?
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.
Nothing in this gives any good reason for one to expect homes to appreciate in value, other than that some buyers want it to, and I haven't heard any good reason why those buyers shouldn't just be told, "no". If these people then decide not to get mortgages, due to it not being an investment, then all the better for everyone else, who want a home to live in.
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.
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.
Is that true, or do they actually come with large tax liabilities?
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.
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.
If you see that as inflated due to payback, then it's already inflated due to the yearly tax currently in place. Plus interest.
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.
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.
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.
Farmers, for example, are often multimillionaires "on paper," but don't have a pot to piss in.
Owner-occupiers can and do refinance to turn their wealth into cash. It's routine.
So do you. I assume that you like to eat? Farmers are how that happens.
> refinance
Are you familiar with the downsides of refinancing?
Same thing for farmers.
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.
You can be wealthy and still have poor cashflow, especially as a leveraged property owner
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.
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
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.
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.
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.
The problem with this form of taxation is that it slows down consumption and impacts poor and middle class people more.
They can’t raise rents higher because they are in competition with other rental properties. In equilibrium, if all commercial properties have taxes raised on them, (a) the majority of the market will raise rents to cover the cost of the tax and (b) those rental units that are no longer financially sustainable at the higher rate will exit the market (e.g. sell the homes to an owner occupant or redevelop the property if allowed to by zoning). Some fraction of property owners might take a haircut on their capital returns in the short run (the housing market is fairly illiquid) but the market will return to equilibrium in time.
The reason is that rents compete on net profitability to the renter, not revenue. If rents go up, tenant profit goes down, and they move to lower value land further out where the lower revenue minus lower costs gives them their original profit. Buildings are affected uniformly by property tax and cannot be escaped in this way.
Therefore, your prediction would be most accurate in cases where building prices dominate the optimal land usage. Non-optimal uses would get redeveloped, as you point out, and building tax can be pushed to tenant, but the land tax component must be eaten by the landlord. The exception is for properties in a market where the owner occupier distortion allows them to sell at a higher price (can sell to a renter now or could redevelop for owner occupier in the future).
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.
oh shoot why didnt anyone think of this. genius.
In this case, landlord is neither happy nor sad since it the tax is irrelevant to them.