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.
This works in other areas of life. A courtesy charge creates a better environment by giving participants skin in the game and filtering out actors who wouldn’t mind abusing you but wont pay to do so.
all of those services are ones that should be realized by the city, from taxes paid to the city. If they are not, the problem is that people vote for wrong people
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”.
> 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”.
My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home, which would offset some of the costs we currently pay in ad valorem property taxes.
The local real estate community had a meltdown and poured hundreds of thousands of dollars into defeating it, which my neighbors obliged and did.
>> 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”.
>My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home,
First comment suggests taxing the gain (income tax), while second comment suggests a tax on sale price (gross receipts tax). Two very different things.
I think many people would have a hard time believing that a new tax in one area would be offset by lowering taxes in another. Even if they did reduce property taxes shortly after passage, many people would assume they will raise them again later on.
If it wasn’t combined in the same bill, the people will just have two taxes going forward. Effectively every “temporary” tax becomes a permanent tax. During the last local election, our city council was asking people to vote to replace an expiring tax with one at a lower rate and trying to sell it as voting for this reduces your tax.
A major problem with decoupling property taxes on owner-occupied housing from market prices is that it removes the biggest incentive for a homeowner to vote for policies that keep the local real estate market in check. An owner occupied house in a desirable area where there is no disincentive to politically engineering a supply shortage becomes a financial investment. Any increase in housing value becomes profit for the owner (or their descendants). This leads to supply restrictions and escalating prices and an increasingly unhealthy society as the young and the poorer are pushed out of the city, county, or even state.
This is essentially what has happened in coastal California over the last 60 years.
The issue with that is the disincentive to sell (or buy), which leads a lot of people to stay put in their oversized home during retirement, for example.
In the UK, 'stamp duty' is something that buyers pay (as opposed to sellers), but sellers also have to buy, so everyone pays to move and everyone stays put to avoid paying.
(And of course no one builds, which is the biggest issue).
I'd say it's OK to defer your property taxes until you sell (or die), but it shouldn't be the default, only something you apply for if you're in a vulnerable position.
I think it's a great idea to let land taxes create the incentives to build efficiently.
Exactly. Surely the finance industry can come up with a product that automates this so you automatically sell them a tiny slice of your home to make up the property taxes without it affecting your cash flows.
It’s really hard to loosen supply side restrictions on “this somehow became a hip neighborhood.” You can in general make more housing available, but not prevent rising prices in specific neighborhoods.
You absolutely can prevent a "hip neighborhood" from becoming the equivalent of a short squeeze. Prices are not only signals of current scarcity, but also future scarcity. Once you've established that any increase in property value will lead to an influx of capital, followed by a swift increase of supply, every increase will partially suffocate itself.
That's basic Econ101: households optimize for (subjective) utility, not for profit on some balance sheet. Taxing households for non-realized gains doesn't take into account liquidity nor the (subjective) negative utility and opportunity cost of selling your home and moving away.
> One way out could be to tax the value gain at the time of sale
This is how it works for sales in Sweden, via the so called "reavinstskatt", or profit realisation tax. Funnily enough, it is mostly applied to individuals in practice. To avoid the taxation, companies package properties in subsidiaries, which can then be sold and traded like any other stock. The tax is then postponed until the de jure sale of the property, which never occurs. Individuals are not eligible because the loophole is closed if the legal owner also occupies the property they own.
> One way out could be to tax the value gain at the time of sale
Stamp duty in the UK, horrendous tax. It's better than nothing at offsetting the unearned increase in house (land) value, but far worse than a regular tax.
If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move. This encourages people to live in less suitable houses for longer.
As to your worry about land values increasing -- the owner is deriving benefit. The higher the land value is, the more benefit the owner gets from the land.
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.
Most people aren't capable of understanding numbers: https://politifact.com/factchecks/2020/mar/06/msnbc/bad-math.... You can't educate them to do it, any more than you can educate your average person to be able to reliably hit three pointers. It's a physical limitation.
That's why socialization is so important. You can't get voters to understand the difference between billions and trillions or put anything in context when the numbers get that big. All you can do is socialize them from an early age to have directionally correct gut feelings like, "there's no such thing as a free lunch" or "saving is good."
Economics class is usually in high school and it's optional.
Schools are really expensive to operate. Most districts and schools make it easy to graduate to maximize their graduation rates. Standardized testing is suppose to catch local lowering of standards but state departments of education also under pressure to maximize test pass rate. So resources flow into pulling the bottom quintile of students up to a minimum standard. This means teaching to the test on math and English, and de-prioritizing other subjects or dropping them entirely.
We could expand the breadth of educational basic standards. This would require a cultural shift in valuing formal education more, increasing teacher training/recruiting resources, making schools year round, more centralization of education budgets at the state or even Federal level.
Generally speaking public schools tend to be better in states like Massachusetts than Kansas.
I know cynics would run to say this, but on the whole the lack of knowledge is an unambiguous net negative even to the powers that be. And they even know this, but somehow it's still expected for people to just innately understand what's going on, but they don't. And everyone else who does have the insight just ends up perpetually frustrated.
The "lack of knowledge is an unambiguous net negative even to the powers that be".
I think it's far more ambiguous and less measured of a net negative, than it is a clear, measured net positive for the "powers that be" if we define them as the wealthy.
You can take a very clear, measured look at wealth distribution over the past 50 years.
I have never worked with anyone in business who wished their customers had less economic/financial literacy. Just endless frustration.
On the other hand, you have a massive contingent of people who are constantly scoring own goals because their economic insight is purely an emotional surface level intuition.
It depends. Predatory salesmen are happy to oblige a customer's desire for a $299 monthly payment, while glossing over the 84 month schedule and 12% interest. They have a very short term view. Uninformed customers are like shooting fish in a barrel.
A mainstream bank takes a longer term view. They offer financial literacy info for customers who are interested. If a customer overdrafts less frequently and is able to leave significant amounts of money deposited the interest spread is more profitable than collecting overdraft fees.
If calculators had never been invented then perhaps arithmetic and economic literacy would be required of citizens. A big problem is that we invented a tool for something that's most powerful when you can do it easily and constantly in your head. People are not pulling out the tool to use it constantly because there's friction to that.
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.
Let’s say you wee solid middle class and bought your forever home, in what was at the time, the near suburbs. Now that neighbourhood is unaffordable. The city might set a percentage of the home value as their target but now your well placed forever home is beyond your what your pension can afford. This happened a lot in Canada.
The worst part is that for all these taxes, the level of service has dropped since that home was bought.
Isn't it better for society if retirees downsize to a retirement community and allow young families to move in to the neighborhood with schools and amenities?
Depends on the jurisdiction. I've lived in both, budget based rates like you describe (Minnesota), and fixed rates with market based assessments (D.C.). I wonder which is more common.
> 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.
I wouldn’t count somewhere I don’t want to live being cheaper as the prices of all other homes falling… ;) Nor as lack of need to stay either - if real estate prices were the only thing keeping people around, cities might not exist.
I mean yes it’s a bet, but real estate in SF has historically done very well. The progressives/NIMBYs have a strong presence to thwart new housing so that existing properties increase in value.
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.
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.
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.
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.
School system and taxation for schools in NH is very specific to NH « low/no taxes » mantra.
I am a resident of a neighbor state with several co-workers living in NH and I recall 15 years ago that there were massive school funding differences between towns. So there was an attempt at redistributing taxes to help pay for other schools from other towns, which was extended to all schools (freedom!) - so home schooling etc.
Is NH state funding local schools in some form ?
Typically it’s a mix of local, state and federal funds…
I was encouraged by a story I heard from NPR about a Hasidic community turning out the vote and using official powers to take private a school building that had been underfunded under municipal control. It was genuinely impressive how much they changed their local community.
I understand how this would be infuriating to other locals. But it shows the power of community organization. They don’t win because America is systemically pro Hasidic, they simply turned out the vote (after years of non-participation.). This is an encouragement to be active in your own community. If you don’t, someone else may do it for you.
If the value of a house doesn't increase, then the property taxes, upkeep, mortgage interest, and selling fees would make home ownership untenable and worse than renting. And then if you rent the problem gets pushed up to the landlords anyway.
It's nice that you would like the world to be this way but it's time to put this tired old canard to bed. It's not individuals but the financial system that treats houses as assets. They do so by extending mortgages. Try getting one for your car.
It’s a consumer good most people want and will pay for and it retains its use for a very long time. So naturally there are fairly liquid markets and loans for it.
Yeah, I view my house as a consumer good and I don't want the value of my home to increase relative to inflation - ignoring taxes if I have to sell it I'd just have to buy another house at an increased price which will take up any realized gains from the transaction. Plus the fees involved in the cost of buying/selling are higher now b/c they are usually a percentage of the transaction.
> 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.
Yes there is. You own a more valuable asset, so now even if you want to keep it you could take out a loan against it for a greater amount than if it hadn't appreciated.
Your statement is based on assumptions that just don't hold for many people. First and foremost, you imply a subjective utility of receiving a loan. For many people, having loans - especially collateralized against your home - has negative utility, not positive. Case in point: someone who'd need to take our a loan to pay the property tax.
But even if you were right for the majority of home owners: feel free to tax collateralized homes as commercial property based on the volume of the mortgage. Case solved.
You mean take out a loan to pay for the increased taxes? The banks win with that one. Some people, especially as they age, are seeking out simplicity with their finances amongst everything else.
You're making a valid point, but not in favor of taxing owner-occupied homes, but in favor of treating collateralized homes as commercial property. I'd be okay with that as long as the basis for taxation is the volume of the mortgage.
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.
But isn't it understandable? You work your whole life to buy a piece of property. But not just a piece of property anywhere. It's a specific one, in a specific neighborhood, in a specific zone. All of these things tie into the $ that you paid for that property. Regardless of the change in value, a change there impacts how you perceive living there.
If all of the sudden the neighborhood behind you gets rezoned to industrial and you get a datacenter nearby, everybody understands you're up in arms.
If at the same time the neighborhood behind you gets converted from 200 single-family homes to 200 8-plexes, complaining is NIMBY. Even though it has the same dramatic impact on the quality of life you bought into. Way more noise, way more street parking, cars racing late at night etc.
Why should society value stability of your quality of life (which is a pretty nebulous bundle of your preferences and environment—neither of which we can bet on being stable in any event) over the interests of all those people who want to live on land that can readily support them—and without putting any true undue burden on your ability to do the same on your land?
You need extremely high levels of trust and community to incentive the kind of behavior you are asking for. That is not reinforced or taught at any of our schools or government institutions. It only exists in small family or religious communities.
So absent of that, I think your personal incentives also lead you to your current housing policy preferences. Don’t you?
> 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
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.
Surely one missed tax payment is not enough for the government to evict and assume ownership? I see these cases in SF occasionally and it takes years of non-payment.
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.
> 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?
Actually that often is how local governments see it in many places.
Local bond issues, which are paid for by property taxes, are often not a fixed rate. They are often a fixed amount (e.g., $2 million/year for 5 years) or a fixed initial amount with some growth allowed (e.g., $2 million/year for 5 years with inflation adjustments, often capped at some maximum adjustment).
With these each year the rate changes to keep the amount collected on target. If aggregate property values go up the rate goes down and if aggregate property values go down the rate goes up. If everyone's property values went up or down by the same percentage the amount of tax each person paid would stay the same.
Your share of the tax is proportional to your share of the aggregate property value, so our individual taxes can change regardless of any changes in aggregate value. For example if aggregate value goes up 5%, but your assessed value us up 10% and mine is up 3% your tax for a fixed amount bond will go up and mine will go down.
If the price of housing the rises, the cost of living will rise, employees will demand raises, and the cost of providing services will increase. Even if housing prices remain flat, there will be inflation leading to the same result.
But I agree that pinning all hopes of class mobility or comfortable retirement on perpetually increasing housing costs cannot work for very much longer.
Most of local and state gov expenditure is salaries (subject to inflation, particularly local housing) and financial support for low income residents (also tied to inflation and housing).
Thurston county WA collects my property tax. Thurston county should not have attacked Iran and caused a surge in energy prices. The county should have hiked rates earlier and more aggressively. Thurston county is out of control!
Government is not a borg. We elected the dumbest motherfucker in the country, he consolidated power, and we got incredibly inflationary (among other things...) policies. Local government is just along for the ride.
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.
Of course. Everyone wants the money they have to increase, the amount of services they receive increase or stay the same, and the money they pay to decrease or stay the same.
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.
This works in other areas of life. A courtesy charge creates a better environment by giving participants skin in the game and filtering out actors who wouldn’t mind abusing you but wont pay to do so.
Don't have HOA, have everything you have, AMA
all of those services are ones that should be realized by the city, from taxes paid to the city. If they are not, the problem is that people vote for wrong people
I have heard way too many horror stories about obnoxious neighbors in HOAs to ever want to live in one, personally
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”.
> 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”.
My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home, which would offset some of the costs we currently pay in ad valorem property taxes.
The local real estate community had a meltdown and poured hundreds of thousands of dollars into defeating it, which my neighbors obliged and did.
>> 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”.
>My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home,
First comment suggests taxing the gain (income tax), while second comment suggests a tax on sale price (gross receipts tax). Two very different things.
I think many people would have a hard time believing that a new tax in one area would be offset by lowering taxes in another. Even if they did reduce property taxes shortly after passage, many people would assume they will raise them again later on.
If it wasn’t combined in the same bill, the people will just have two taxes going forward. Effectively every “temporary” tax becomes a permanent tax. During the last local election, our city council was asking people to vote to replace an expiring tax with one at a lower rate and trying to sell it as voting for this reduces your tax.
The problem with transfer taxes is they bolt you to the place.
A major problem with decoupling property taxes on owner-occupied housing from market prices is that it removes the biggest incentive for a homeowner to vote for policies that keep the local real estate market in check. An owner occupied house in a desirable area where there is no disincentive to politically engineering a supply shortage becomes a financial investment. Any increase in housing value becomes profit for the owner (or their descendants). This leads to supply restrictions and escalating prices and an increasingly unhealthy society as the young and the poorer are pushed out of the city, county, or even state.
This is essentially what has happened in coastal California over the last 60 years.
The issue with that is the disincentive to sell (or buy), which leads a lot of people to stay put in their oversized home during retirement, for example.
In the UK, 'stamp duty' is something that buyers pay (as opposed to sellers), but sellers also have to buy, so everyone pays to move and everyone stays put to avoid paying.
(And of course no one builds, which is the biggest issue).
I'd say it's OK to defer your property taxes until you sell (or die), but it shouldn't be the default, only something you apply for if you're in a vulnerable position.
I think it's a great idea to let land taxes create the incentives to build efficiently.
Except they don't, taxing single house owner is just cost of living increase any time area gets gentrified or more desirable
It's basically excuse to get rid of poor that made a mistake of buying a house in area that turned more expensive 2 decades after.
Tax anything after first house, sure, but taxing house by value is terrible idea that never actually worked in a way proponents are saying it would
> Any gain in value cannot easily be realized since it’s not a liquid asset.
Reverse mortgage
Exactly. Surely the finance industry can come up with a product that automates this so you automatically sell them a tiny slice of your home to make up the property taxes without it affecting your cash flows.
"Oh no, someone's given me an extra $500k for doing nothing which I'll get when I (or my kids) sell my house, how terrible"
But they didn’t do nothing. They put up capital for a resource. Generally more capital than anything else until late in career.
I disagree. In my country we are currently in a inheritance boom. Everyone who has parents is getting free money.
Or just loosen supply side restrictions so much that houses typically don’t go up in value.
It’s really hard to loosen supply side restrictions on “this somehow became a hip neighborhood.” You can in general make more housing available, but not prevent rising prices in specific neighborhoods.
You absolutely can prevent a "hip neighborhood" from becoming the equivalent of a short squeeze. Prices are not only signals of current scarcity, but also future scarcity. Once you've established that any increase in property value will lead to an influx of capital, followed by a swift increase of supply, every increase will partially suffocate itself.
The funny thing about land and population growth is that land doesn’t. It’s fixed.
and population in developed world is also no longer growing
Immigration means that population will grow in first tier countries.
The premise of real estate (above survival) is living somewhere other people don’t.
That's basic Econ101: households optimize for (subjective) utility, not for profit on some balance sheet. Taxing households for non-realized gains doesn't take into account liquidity nor the (subjective) negative utility and opportunity cost of selling your home and moving away.
This will drive rent up, punishing people who lack the credit to purchase.
> One way out could be to tax the value gain at the time of sale
This is how it works for sales in Sweden, via the so called "reavinstskatt", or profit realisation tax. Funnily enough, it is mostly applied to individuals in practice. To avoid the taxation, companies package properties in subsidiaries, which can then be sold and traded like any other stock. The tax is then postponed until the de jure sale of the property, which never occurs. Individuals are not eligible because the loophole is closed if the legal owner also occupies the property they own.
> One way out could be to tax the value gain at the time of sale
Stamp duty in the UK, horrendous tax. It's better than nothing at offsetting the unearned increase in house (land) value, but far worse than a regular tax.
If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move. This encourages people to live in less suitable houses for longer.
As to your worry about land values increasing -- the owner is deriving benefit. The higher the land value is, the more benefit the owner gets from the land.
> If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move.
This sounds like a problem with the way the particular tax is written, not with the idea of taxing housing gains at the time of sale.
> The higher the land value is, the more benefit the owner gets from the land.
What benefit does a homeowner derive from increased land value before selling?
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.
Most people aren't capable of understanding numbers: https://politifact.com/factchecks/2020/mar/06/msnbc/bad-math.... You can't educate them to do it, any more than you can educate your average person to be able to reliably hit three pointers. It's a physical limitation.
That's why socialization is so important. You can't get voters to understand the difference between billions and trillions or put anything in context when the numbers get that big. All you can do is socialize them from an early age to have directionally correct gut feelings like, "there's no such thing as a free lunch" or "saving is good."
Economics class is usually in high school and it's optional.
Schools are really expensive to operate. Most districts and schools make it easy to graduate to maximize their graduation rates. Standardized testing is suppose to catch local lowering of standards but state departments of education also under pressure to maximize test pass rate. So resources flow into pulling the bottom quintile of students up to a minimum standard. This means teaching to the test on math and English, and de-prioritizing other subjects or dropping them entirely.
We could expand the breadth of educational basic standards. This would require a cultural shift in valuing formal education more, increasing teacher training/recruiting resources, making schools year round, more centralization of education budgets at the state or even Federal level.
Generally speaking public schools tend to be better in states like Massachusetts than Kansas.
Scarcity of instructors competent to teach such subjects? Followed by the natural bureaucratic response: Pretend no such need exists.
Destruction? It's by design:
"One man gathers what another man spills."
I know cynics would run to say this, but on the whole the lack of knowledge is an unambiguous net negative even to the powers that be. And they even know this, but somehow it's still expected for people to just innately understand what's going on, but they don't. And everyone else who does have the insight just ends up perpetually frustrated.
The "lack of knowledge is an unambiguous net negative even to the powers that be".
I think it's far more ambiguous and less measured of a net negative, than it is a clear, measured net positive for the "powers that be" if we define them as the wealthy.
You can take a very clear, measured look at wealth distribution over the past 50 years.
I have never worked with anyone in business who wished their customers had less economic/financial literacy. Just endless frustration.
On the other hand, you have a massive contingent of people who are constantly scoring own goals because their economic insight is purely an emotional surface level intuition.
It depends. Predatory salesmen are happy to oblige a customer's desire for a $299 monthly payment, while glossing over the 84 month schedule and 12% interest. They have a very short term view. Uninformed customers are like shooting fish in a barrel.
A mainstream bank takes a longer term view. They offer financial literacy info for customers who are interested. If a customer overdrafts less frequently and is able to leave significant amounts of money deposited the interest spread is more profitable than collecting overdraft fees.
If calculators had never been invented then perhaps arithmetic and economic literacy would be required of citizens. A big problem is that we invented a tool for something that's most powerful when you can do it easily and constantly in your head. People are not pulling out the tool to use it constantly because there's friction to that.
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.
Let’s say you wee solid middle class and bought your forever home, in what was at the time, the near suburbs. Now that neighbourhood is unaffordable. The city might set a percentage of the home value as their target but now your well placed forever home is beyond your what your pension can afford. This happened a lot in Canada.
The worst part is that for all these taxes, the level of service has dropped since that home was bought.
Isn't it better for society if retirees downsize to a retirement community and allow young families to move in to the neighborhood with schools and amenities?
Depends on the jurisdiction. I've lived in both, budget based rates like you describe (Minnesota), and fixed rates with market based assessments (D.C.). I wonder which is more common.
> 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.
https://news.ycombinator.com/item?id=42156977
I wouldn’t count somewhere I don’t want to live being cheaper as the prices of all other homes falling… ;) Nor as lack of need to stay either - if real estate prices were the only thing keeping people around, cities might not exist.
> Buy in a VHCOL area like San Francisco
How does this work? VHCOL does not mean that prices will appreciate or even sustain.
I mean yes it’s a bet, but real estate in SF has historically done very well. The progressives/NIMBYs have a strong presence to thwart new housing so that existing properties increase in value.
ATX real estate is still in free fall. You can win making a move within the state at this point.
Just dont complain about loss of relationships and community while also advocating for policies that make lasting community ties impossible.
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.
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.
True it's not a direct property tax, but house value is included in total wealth and is thus taxed through the general wealth tax.
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.
> There’s no reason the local government budget should increase at the same rate as the property values in the taxed area.
There's some reason. City workers may need to live in the area. If housing becomes more expensive, the city may need to pay higher wages.
Sure. But that’s why schools in California are underfunded.
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.
School system and taxation for schools in NH is very specific to NH « low/no taxes » mantra. I am a resident of a neighbor state with several co-workers living in NH and I recall 15 years ago that there were massive school funding differences between towns. So there was an attempt at redistributing taxes to help pay for other schools from other towns, which was extended to all schools (freedom!) - so home schooling etc. Is NH state funding local schools in some form ? Typically it’s a mix of local, state and federal funds…
If you really want to rage, read about Hasidic cults in NY/NJ gaming government funds.
I was encouraged by a story I heard from NPR about a Hasidic community turning out the vote and using official powers to take private a school building that had been underfunded under municipal control. It was genuinely impressive how much they changed their local community.
I understand how this would be infuriating to other locals. But it shows the power of community organization. They don’t win because America is systemically pro Hasidic, they simply turned out the vote (after years of non-participation.). This is an encouragement to be active in your own community. If you don’t, someone else may do it for you.
I think it's a great idea to let land taxes create incentives for efficient building.
If you view homes as consumer goods rather than financial assets, the tension disappears.
If the value of a house doesn't increase, then the property taxes, upkeep, mortgage interest, and selling fees would make home ownership untenable and worse than renting. And then if you rent the problem gets pushed up to the landlords anyway.
So you are saying that somehow landlord can pay all the same taxes and offer cheaper rent than buying it ?
Also did your six neurons figured out that it would also cause rent to decrease yet ?
It's nice that you would like the world to be this way but it's time to put this tired old canard to bed. It's not individuals but the financial system that treats houses as assets. They do so by extending mortgages. Try getting one for your car.
Assets != investments.
It’s a consumer good most people want and will pay for and it retains its use for a very long time. So naturally there are fairly liquid markets and loans for it.
I'm pretty sure people buy cars on finance all the time.
Yeah, I view my house as a consumer good and I don't want the value of my home to increase relative to inflation - ignoring taxes if I have to sell it I'd just have to buy another house at an increased price which will take up any realized gains from the transaction. Plus the fees involved in the cost of buying/selling are higher now b/c they are usually a percentage of the transaction.
> 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.
Yes there is. You own a more valuable asset, so now even if you want to keep it you could take out a loan against it for a greater amount than if it hadn't appreciated.
Your statement is based on assumptions that just don't hold for many people. First and foremost, you imply a subjective utility of receiving a loan. For many people, having loans - especially collateralized against your home - has negative utility, not positive. Case in point: someone who'd need to take our a loan to pay the property tax.
But even if you were right for the majority of home owners: feel free to tax collateralized homes as commercial property based on the volume of the mortgage. Case solved.
You mean take out a loan to pay for the increased taxes? The banks win with that one. Some people, especially as they age, are seeking out simplicity with their finances amongst everything else.
It is basically the billionaire/ unrealized gains argument.
I can take a loan against or collateralized my home value.
I can have greater operational flexibility if I know I have a deep financial backup.
There is something to it, even if overstated
You're making a valid point, but not in favor of taxing owner-occupied homes, but in favor of treating collateralized homes as commercial property. I'd be okay with that as long as the basis for taxation is the volume of the mortgage.
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
But isn't it understandable? You work your whole life to buy a piece of property. But not just a piece of property anywhere. It's a specific one, in a specific neighborhood, in a specific zone. All of these things tie into the $ that you paid for that property. Regardless of the change in value, a change there impacts how you perceive living there.
If all of the sudden the neighborhood behind you gets rezoned to industrial and you get a datacenter nearby, everybody understands you're up in arms.
If at the same time the neighborhood behind you gets converted from 200 single-family homes to 200 8-plexes, complaining is NIMBY. Even though it has the same dramatic impact on the quality of life you bought into. Way more noise, way more street parking, cars racing late at night etc.
Why should society value stability of your quality of life (which is a pretty nebulous bundle of your preferences and environment—neither of which we can bet on being stable in any event) over the interests of all those people who want to live on land that can readily support them—and without putting any true undue burden on your ability to do the same on your land?
You need extremely high levels of trust and community to incentive the kind of behavior you are asking for. That is not reinforced or taught at any of our schools or government institutions. It only exists in small family or religious communities.
So absent of that, I think your personal incentives also lead you to your current housing policy preferences. Don’t you?
> 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
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?
> Is that true and how is this not perpetual serfdom if you can't ever really own a home?
https://phillipslytle.com/a-review-of-new-yorks-response-to-...
Until 2023, some (many?) would sell off your house and pocket the difference, even if it exceeded the tax liability!
Surely one missed tax payment is not enough for the government to evict and assume ownership? I see these cases in SF occasionally and it takes years of non-payment.
Because Serfs didnt own the land. Lords did but had taxes.
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.
> 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?
Actually that often is how local governments see it in many places.
Local bond issues, which are paid for by property taxes, are often not a fixed rate. They are often a fixed amount (e.g., $2 million/year for 5 years) or a fixed initial amount with some growth allowed (e.g., $2 million/year for 5 years with inflation adjustments, often capped at some maximum adjustment).
With these each year the rate changes to keep the amount collected on target. If aggregate property values go up the rate goes down and if aggregate property values go down the rate goes up. If everyone's property values went up or down by the same percentage the amount of tax each person paid would stay the same.
Your share of the tax is proportional to your share of the aggregate property value, so our individual taxes can change regardless of any changes in aggregate value. For example if aggregate value goes up 5%, but your assessed value us up 10% and mine is up 3% your tax for a fixed amount bond will go up and mine will go down.
If the price of housing the rises, the cost of living will rise, employees will demand raises, and the cost of providing services will increase. Even if housing prices remain flat, there will be inflation leading to the same result.
But I agree that pinning all hopes of class mobility or comfortable retirement on perpetually increasing housing costs cannot work for very much longer.
Sounds like a reason to peg to CPI, but not home value.
Also, economies can grow rather than just inflate
Why would government services not be subject to the same cost pressures due to inflation as the rest of society?
Most of local and state gov expenditure is salaries (subject to inflation, particularly local housing) and financial support for low income residents (also tied to inflation and housing).
Because government is the reason for inflation.
The government should face a punishment for targeting constant inflation.
Thurston county WA collects my property tax. Thurston county should not have attacked Iran and caused a surge in energy prices. The county should have hiked rates earlier and more aggressively. Thurston county is out of control!
Government is not a borg. We elected the dumbest motherfucker in the country, he consolidated power, and we got incredibly inflationary (among other things...) policies. Local government is just along for the ride.
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.
Of course. Everyone wants the money they have to increase, the amount of services they receive increase or stay the same, and the money they pay to decrease or stay the same.
This isn't something special with taxes.