Many people are struggling under the burden of property taxes - Politics Forum.org | PoFo

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#15319728
As we all know, home prices in the U.S. have been going up. Faster than wage levels.

In many parts of the U.S., an "average middle class" house can easily cost $500,000 ; and in many areas $1 million.

This of course has made things more difficult for people who do not already own a home.

But it's also having an effect on people who do already own their home. Because when home prices go up, property taxes automatically go up too.

A lot of people are having to pay $6000 to $15,000 in property taxes every year on that "average" house they own.
(This is in addition to any mortgage payment, if they have borrowed money from the bank, obviously)

A person working full-time at $15 an hour will have an income of about $30,000 a year. That would be about $22,500 after state and federal income taxes.

This is a very significant expense.

With rising home prices, especially in certain areas, it has been forcing some people to have to sell their home, because it is too difficult to afford the property taxes.

In many cases, the person will have to move far away, a far distance from their family, or into an area with a less pleasant climate (often less water and hotter summers), or away from urban infrastructure. In some cases this is pushing some people close to the verge homelessness.


In most areas of the U.S., nearly half the property taxes go towards helping to pay for local public schools.
In the U.S. it costs on average $18,000 per child per year to fund public schools.
(In many schools these days it seems 40% of the students are children of poor immigrants, which could be a different discussion)
#15319734
Thankfully, most of the people getting pushed out of their homes are not white. Am I right @Puffer Fish?

Seriously though, yea, it sucks. Although most places have homestead exceptions. Meaning, if the home is your primary residence, your taxes don't go up as much/fast. Counties need to make the exemption even better IMO. However, there is too much money to be made and then used to buy votes with, so they would not want to limit that tax revenue.
#15319761
Without reading anything but the thread title, I know with 100% certainty that the post will consist of bull$#!+ intended to justify increasing the subsidy to landowners.
Puffer Fish wrote:As we all know, home prices in the U.S. have been going up. Faster than wage levels.

In many parts of the U.S., an "average middle class" house can easily cost $500,000 ; and in many areas $1 million.

In statistical comparisons between US states, there is a clear inverse relationship between property tax rates and home prices: the lower the property tax rate, the higher the house prices. This is an inherent effect of the Net Present Value Equation.
This of course has made things more difficult for people who do not already own a home.

The average rate of property tax in the USA has been declining for over a century.
But it's also having an effect on people who do already own their home. Because when home prices go up, property taxes automatically go up too.

That's just baldly false. Almost all property taxes in the USA have adjustable mil rates that decline when prices rise to produce a stable revenue. When housing prices rise, mil rates fall.
A lot of people are having to pay $6000 to $15,000 in property taxes every year on that "average" house they own.

No, that is also false. While property tax bills in that range are possible, the houses are not average. Property tax rates vary by more than an order of magnitude, but most are less than 1%, while the median house price is $420K.
(This is in addition to any mortgage payment, if they have borrowed money from the bank, obviously)

The lower the property tax rate, the higher the prices, and the more people have to pay in mortgage interest. It is better to pay high property taxes and a low mortgage than low property taxes -- but commensurately higher income and sales taxes -- and a high mortgage.
This is a very significant expense.

No, because any land value that is not reduced by property taxes is paid in increased purchase prices.
With rising home prices, especially in certain areas, it has been forcing some people to have to sell their home, because it is too difficult to afford the property taxes.

I.e., the subsidy to owning the land has increased so much that the community has shoveled hundreds of thousands of dollars into the owners' pockets in increased land value, and they are not productive enough to repay even 1% of that subsidy in property taxes.
In many cases, the person will have to move far away, a far distance from their family, or into an area with a less pleasant climate (often less water and hotter summers), or away from urban infrastructure. In some cases this is pushing some people close to the verge homelessness.

No, that is just absurd bull$#!+. These people have typically pocketed hundreds of thousands of dollars in unearned and mostly untaxed capital gains that easily enables them to buy a clear-title home in a less affluent neighborhood. The notion that they are close to the verge of homelessness is an outrageous fabrication.
In most areas of the U.S., nearly half the property taxes go towards helping to pay for local public schools.

And good public schools are one of the most important factors in residential land value, so the owners who pay property taxes are getting value for their money -- unlike those who pay any other tax.
In the U.S. it costs on average $18,000 per child per year to fund public schools.

$15,633:
https://www.census.gov/newsroom/press-r ... pupil.html
(In many schools these days it seems 40% of the students are children of poor immigrants, which could be a different discussion)

The costs are largely mandated, and total administrative salaries now rival total teacher salaries -- because administrators tend to be paid a lot more than teachers. US public schools also tend to have very expensive facilities: huge concrete football stadiums, swimming pools, theaters, basketball arenas, etc.
#15319767
House prices have been rising for decades.

For example, my childhood home in the Seattle area is now worth a whopping $3M USD. When my parents moved into that house in the 80s, it was worth less than $200K. I think the selling price in the 90s was $250K. I do not envy the family who has lived in that house since the 90s. Who is going to buy that house? It's way too expensive and out of reach for practically 99% of the population.
#15319769
Truth To Power wrote:In statistical comparisons between US states, there is a clear inverse relationship between property tax rates and home prices: the lower the property tax rate, the higher the house prices.

You are correct. Property taxes are not the root cause. This is only one element of the affordability crisis.

The real issue is that demand outstrips supply, which of course drives up price. (Too many people, overcrowding, immigration, maybe combined with wealthy investors buying up homes to rent, another discussion)

I also suspect high levels of inflation have been playing a role here.
With inflation, all the other taxes go up as well.
If government prints more money, someone has to pay for that. It seems like people are ending up having to pay in unexpected and unforeseen ways.

If inflation stops, then wage levels should eventually catch up with the increased tax levels, so part of this may not be permanent. But older people on fixed incomes will continue to hurt.
#15319805
Puffer Fish wrote:It would be easier to see what was happening with home prices if there was no inflation.


Inflation never really stops. It can increase at a slower or faster rate. Events like the pandemic accelerated inflation. We don’t want deflation.

House prices go up or down depending on supply and demand. But that's not the only thing impacting the housing market. Interest rates are another factor. The Central Bank is keeping rates steady at least for this month. They thought about cutting the rate, but decided not to. We'll see what they do next month.
#15319807
MistyTiger wrote:Inflation never really stops. It can increase at a slower or faster rate. Events like the pandemic accelerated inflation. We don’t want deflation.

Inflation would stop if government stopped printing more money.

It would be easier to see the price increases if inflation were lower, or if inflation were very low, or inflation was only a tiny bit above zero.


Inflation isn't really worse than deflation. That's sort of just a myth the modern school of Economics has been feeding to people.
If you want to have that discussion, we can have it somewhere else, in a new thread.


MistyTiger wrote:House prices go up or down depending on supply and demand.

Yes, but also due to inflation.

Both have been happening, obviously.


MistyTiger wrote:The Central Bank is keeping rates steady at least for this month. They thought about cutting the rate, but decided not to. We'll see what they do next month.

It's getting too expensive for the Central Bank to keep the rate down. The Central Bank is concerned about inflation.

The reason keeping the rate down causes inflation is that keeping the rate down is expensive! The Central Bank has to print more money and then loan that money out at interest rates below the market rate. That's the primary means they use to try to keep rates down.

Obviously when there's more market pressure for interest rates to rise, trying to keep the rates down only gets more expensive.
Inflation certainly creates pressure for interest rates to rise.
#15319895
MistyTiger wrote:House prices have been rising for decades.

Land prices. How much someone spends to build a house is directly dependent on how much they had to pay for the land. Someone who pays $600K for a vacant building lot is not going to want to live in the kind of house they can build on it for $100K. And land prices are determined by the discounted after-tax subsidy to the landowner.
For example, my childhood home in the Seattle area is now worth a whopping $3M USD. When my parents moved into that house in the 80s, it was worth less than $200K. I think the selling price in the 90s was $250K. I do not envy the family who has lived in that house since the 90s. Who is going to buy that house? It's way too expensive and out of reach for practically 99% of the population.

If that's the appraised value, someone is willing and able to pay that much for it, even if it is a private equity firm or hedge fund -- or someone who just sold a house for that much.
#15319901
Truth To Power wrote:Land prices. How much someone spends to build a house is directly dependent on how much they had to pay for the land. Someone who pays $600K for a vacant building lot is not going to want to live in the kind of house they can build on it for $100K.

That's true, but this can work itself out in strange ways.

In Japan, beginning around the 1970s, rising land prices meant families didn't have enough money for a well-constructed home, so as a result most homes were poorly constructed and made from flimsy materials, with an expected lifespan of only 30 years.
#15319902
MistyTiger wrote:For example, my childhood home in the Seattle area is now worth a whopping $3M USD. When my parents moved into that house in the 80s, it was worth less than $200K. I think the selling price in the 90s was $250K. I do not envy the family who has lived in that house since the 90s. Who is going to buy that house? It's way too expensive and out of reach for practically 99% of the population.
Truth To Power wrote:If that's the appraised value, someone is willing and able to pay that much for it, even if it is a private equity firm or hedge fund -- or someone who just sold a house for that much.

I can tell you what's going to happen to those $3M homes in Seattle.

Upwardly middle class "power couples" are going to buy those houses. The husband might be a dentist and the wife a lawyer, both working full time, or near full time. It's still going to be a stretch to buy a $3M home, but they find the neighborhood "charming" and want to live in Seattle. So they're going to get a 25-year mortgage (considered longer than usual) with monthly mortgage payments that are going to consume more than half of their after-tax income. Their combined income might be about $370,000.
And remember, in many cases these couples who are buying this home already had another smaller home in Seattle, and are selling that. So they did already sort of half get their foot in the door 10 years ago before prices were as high as they are now.

And for any home that is falling apart, developers come in and build a 2- or 4-unit dwelling on the property where a single house once stood. It's a blight to city, very hideous, but usually only happening in the "less expensive" ($1.4M house) neighborhoods. Then typically computer software engineers will rent those units, paying $3000 a month, which might be 60% of their after-tax salary, but they really want to live in city and be close to their job. (You can argue it is not a good financial decision for them, which is probably true, but they are doing it, which is driving this)
#15319934
Puffer Fish wrote:That's true, but this can work itself out in strange ways.

In Japan, beginning around the 1970s, rising land prices meant families didn't have enough money for a well-constructed home, so as a result most homes were poorly constructed and made from flimsy materials, with an expected lifespan of only 30 years.


No, this is not true.
#15319939
Rancid wrote:How do we make housing more affordable?

Well, the political Right has more than a few things to say about that, but you don't want to hear it.

Anyway, even reducing property taxes would probably not really do anything to solve the wider affordability crisis. This is all being driven by an excess of demand relative to supply, which naturally drives up prices. Higher property taxes tend to drive down property prices (according to economic theory), but the total amount of money people have to spend on housing stays the same.


The wider discussion of "how to make housing more affordable" probably belongs in a different thread.
The way I see it, there are really only two options: cut back on immigration, which has been driving population increase; or try to pursue policies that will move economic opportunities away from the expensive city regions and into undeveloped lower population areas where there is plenty of space for new housing. I think government might even have to take an active role in building new cities, investing in city infrastructure. (But as I've explained in other threads, all that infrastructure investment could end up being a gigantic waste if the economic opportunities do not end up materializing in that city, and government is notoriously poor at planning and economic forecasting)
#15319952
Rancid wrote:Don't assume dumb shit like that. I'd like to hear it.

But… but… you’re a Leftist, @Rancid. You therefore can’t be listening to what the Right is saying, because if you did you would automatically agree with them, because the Right is right. QED. Why are you denying this, @Rancid? :eh:
#15319964
Another potential economic strategy, that those on the Left seem to have a penchant for, is trying to LIMIT price increases. (There are a couple of different policies that could be used to go in this direction) This would fall under the "Command style" economic system category, rather than the "Free Market" category.

There are several big potential downsides to this policy, however.
First, it does not solve the overdemand problem relative to supply shortage problem. The same total number of people will still not be able to get homes.
It just shifts the allocation of who gets those scarce homes into factors other than price, such as luck, random chance, first-come-first served, and renters who are perceived to be "higher quality" tenants by landlords.
Second, it does not result in the most "efficient" economic allocation of homes. A home in that specific location could be much more desirable and especially suited to one family than another, but because high price can not be used as a decision factor for which family desires that home more, the distribution is random. A family will take that home because they are lucky enough to be able to get in at a low price, not because that home is a perfect fit for them and they are willing to pay more.

This is basically a queue system, where the public resources are distributed at random, and only a lucky segment of recipients get the prize. Somewhat of a lottery.
(Some could argue the free market capitalist system can be like that, but at least there is some incentive work, and some general connection between work and reward)

In the case of government taxing the population to fund "affordable homes", there is the question of whether that really creates the most fairness. It essentially turns housing into a lottery system where everyone has to pay but only a random lucky few get the benefit, since what we've seen is almost always under these schemes government cannot provide an affordable home to everyone who wants one and meets the qualifications.

Another issue is that price limits take away incentive for building of new homes and development. So a few cities have implemented policies where their price limits only apply to older buildings, and not to various categories of newer development. Again, this does turn the market into a lottery system where only a portion of the population can get the artificially lower cost homes. It also creates a perverse incentive for those who have the cheaper homes not to want to move away, even if they might have been considering it. This only contributes to locking additional people out of the housing market, even beyond what a free market system would do. If that person moves away and later decides they want to move back, they might not be able to.

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