How Property Taxes Shape Our Cities
strongtowns.org
strongtowns.org
As a result, a new homeowner in Silicon Valley ($1.5M median home price) will pay $16K this year. Meanwhile there's a homeowner in Atherton (where CEOs live) who has a $6M home and pays $3K a year (and their children inherit this rate.)
Disney pays about $0.08/sqft in property tax on Disneyland. The new owner will pay about $7/sqft.
Unsurprisingly, this has caused California schools to get about $9K/child in funding. About the same as Mississippi. But the cost of living/labor is 2x-10x.
Warren Buffett was always amazed at how he paid more in property tax for his place in Omaha than in California - simply because he bought in the right year.
https://www.sfgate.com/politics/article/Buffett-s-Prop-13-co...
> The most important thing in this country is not the school system, nor the police department nor the fire department. The right to have property in this country, the right to have a home in this country, that’s important.
Now it has made a lot of very rich people even richer (not to mention driven elderly renters out of their homes) as well as caused a budgetary crisis in California.
Jon Coupon's (current president) response to this budgetary crisis that they helped caused is to argue that California state pensions add up to too much of an unfunded liability and should be slashed.
Additionally, if you compare the percentage of renters in California to other states, it's often much higher, and this is a result of the fact that the cost of purchasing a home is substantially higher than renting the same home. Prop 13 enables this because these same PE firms who are able to leverage long term action are willing to prop up the value of homes in the short term since it is incredibly cheap in the long term.
The fact that Prop 13 assessed values can be passed down to children and grandchildren and is also applied to corporations causes its unfairness to continue to increase each year. The sooner it is repealed the better.
If I offer you a ton of money to buy your house, you can accept that or reject it. Rejecting it is a fine choice. But you still have to pay higher "rent" to the government just because I'm willing to buy your house for a lot? It's nice to stabilize people's homes against the market.
I wish I had a problem like this — I could just sell the house, cash in the profit and retire...
Kind of interesting there are those who want certain people kicked out of the area (elderly homeowners) but not others (homeless).
I don’t want to kick anyone out of the area, but I don’t think people who made a million of dollars (in the example above) are the ones who need the protection the most.
Numerous elderly have trouble moving due to their poor health. Forcing them to sell is akin to an early death sentence.
I’m not sure why you keep talking about homeless though.
The result of your policy is not only increased cost of housing and underdevelopment, but higher sales taxes as well. If California had a more healthy proportion of property taxes, then sales taxes wouldn't be forced up to nearly 10% to fund government.
If your turn it into apartments though, you've probably eliminated turnover, since it's much easier to own apartments through corporate forms that won't trigger a reassessment.
In other words, “investing” in property by purchasing it but not putting it to use is an unproductive investment
I bet more people will be in the later bucket than the ones who analyze things like you do. Since (property) tax policy depends on politics, which is driven mostly by emotions rather than reason, how would you persuade people to think like you? And if one cannot persuade them and simply try to impose one's preferred tax policy by whatever means, then we will see a tax revolt similar to what happened in 1978 with Prop 13.
If you have $1M in capital in your $1.5M house, banks will be begging you to take out a reverse mortgage to pay your taxes. It just means that your heirs will get a slightly smaller windfall from your death rather than the full $1M.
None of this would be a problem if the proposition had been sane. They could have just allowed primary home owners over a certain age (59.5, 65, etc) to have locked-in property taxes. The bullshit is that the “stabilization” applies to corporations with indefinite lifespans, and that the tax rates can be inherited. By corporations we’re not just talking big, actual business like Google. The way the proposition works incentivizes real estate funds to simply buy all the land they can as soon as possible to lock in a low rate that can be maintained indefinitely. This brings housing prices further up and disincentivizes actual land ownership over the long term (it makes it cheaper to rent from a group that structurally locked in a stupid low property tax rate).
It’s such a stupid fucking law. Clearly nobody bothered to think of the long term consequences
The prop 13 issue seems pretty nuanced but a component of it is certainly helpful to low income long time residents.
It last sold in 1977 for $30,500. Over the last 40 years, climbing at 2% a year as allowed by Prop 13, it's current assessed value is $60,716, nearly 20X under its actual market value!
This past year, the owners paid $1,857.78 in property taxes: $724.40 in ad valorem tax at a rate of 1.3486% and $1,133.38 in fixed parcel taxes. The new owners will pay $16,979.43 in property taxes, with $15,846.05 due to the ad valorem portion. That's 9X the previous owner, which works out to $1,414.95 a month in taxes!
And the old owners were probably angry about the increasing fixed portion, which went from $548.28 in 2005, to $1,133.38 this past year, and which for them makes up the bulk of their property taxes.
When you look at the actual, concrete numbers, it really is mind-boggling. Prop 13 aside, this house has appreciated 40x in 40 years, only 4x of which is due to inflation. Do you think the new owners will see another 10x in real returns over the next 40 years? Will the sales price in 2058 really be $45 million dollars? Somehow, I doubt it.
I still hate the "fair market valuation lock-in". So much of it comes down to timing and nothing else. When rates were high in the 70s and 80s, people locked in a tax rate at a low price. Therefore, it's probably advantageous, from a property tax perspective, to buy in a high rate environment in CA. Rates have been going down consistently since then, and thus we have all of these older people that have locked in their property tax rate at a ridiculously low valuation. There is just so much the market can do that legislating these things like growth into the law just has too many unpredictable effects.
I was renting a place for 2500/mo from a woman's son who paid $600/year in property taxes. He wasn't the least bit interested in maintaining it either.
My opinion is that Prop 13 provides useful planning benefits to property owners and municipalities, and the rate of increase could be adjusted to still give those benefits, without having quite the same distortion. 5% annual assessment increase cap would probably be much too high, but 3% or 4% might be enough to stay within throwing distance of current values.
As a soon to be former CA property owner it was nice to be able to know for sure my taxes would basically grow at 2% once prices started climt. Municipalities could count on property tax revenues staying flat or even continuing to grow during the housing market collapse because so many owners had their assessments constrained, and many of the sellers had assessments below even the depressed market value. Having constrained assessments also reduces the burden of assessment appeals, which I've heard is significant in locales without constraints.
Proposition 13 does not target the elderly. It gives tax breaks to all property investors, including corporations and (due to Proposition 58) inherited estates.
Another way to determine who it targets is to suggest repealing it and watch who complains the loudest.
1) Elderly who bought early pay low tax, elderly who bought recently pay high tax
2) Younger people who are also rich pay high tax, but can afford it, and it is proportional to the amount of services they are receiving
3) Younger people who cant afford these property taxes are priced out of the area.
[1] No doubt fanned by the usual anti-government, anti-civic rabble rousers that would eventually come to completely dominate politics.
I feel like a clean repeal of Prop 13, while it would be good for California overall, just isn't possible.
What I would like to see is: -Prop 13 applies applies to only your lived in primary residence. This applies to new buyers as well. -Commercial and Investment properties have a 10 year sunset clause. That is to say property taxes go up to market rate over a 10 year period. (i.e. first year you're paying 10% more...then 20%...etc) up until year 10
I don't even think THAT is politically feasible here though, and I'm a home owner.
It's ironic that most of the people complaining about Prop 13 driving housing prices up are oblivious to the fact that they, if not born in the bay area, are the sole reason for the astronomical housing price increases. Housing is expensive in the bay area for one reason, more people want to live here than there are houses available. How about addressing the real root cause and implementing a new resident tax? We can use the proceeds to pay for affordable housing initiatives.
Prop 13 is framed as something for the rich because it's for the rich and it's the rich who benefit.
As awkward as it is, the purpose of property taxes is to keep land economically productive. These policies are needed to enable governments to provision services and at least slow down the hereditary growth of wealth. If you can't afford the house, that's the policies working as intended. It's time to sell and get something you can afford.
Real pain, and the empathy and compassion that respond to it, do not always justify a change in public policy. Especially in a place like California, where we tend to enact that wonderful empathy and compassion as half-assed public policy that transfers wealth from the young to the older.
If people are worried about high home and property tax prices, isn't it time for them to move to an area they can afford?
Empathy is a powerful emotion, but not a good way to get to sound policy. It's rarely difficult to find a way to evoke empathy on any side of any given issue.
But my main point is that it seems unfair (for lack of a better word) to force someone to have to sell their home because it’s paper value has increased.
- remove Prop 13 protections for non-people owners (i.e. corporations, trusts etc)
- remove Prop 58 protections (inheritance benefits) for non-primary residences
- remove Prop 13 protections for non-primary residences
Let's inundate California voters with ballots which will start removing Prop 13 protections from those who don't deserve them. Some ballot initiatives will fail, but some will succeed and things will be better for them.
This is incorrect.
It's limited to an annual increase of 2%. That's still limited, but far different from 2% of the original purchase price.
Creates incentive to use land efficiently, coupled with fewer economic distortions.
But, of course, using that model to then derive policy is obviously flawed since your model doesn't accurately capture the essential features of the objects being modeled.
If we let economists design furniture, every chair would be a miserably unpleasant cube whose dimensions match the median posterior.
Land value tax does have a lot going for it, but it overlooks one critical component:
Humans have a fundamental desire for stability, especially in where they live. I do not want my home to be a rectangle of maximum market efficiency. I want it to be a place where it's worth the effort to garden because I know I'll get to watch those plants grow over the coming years. I want it to be a calm respite, a sanctuary that I can rely on in the face of the chaos of the larger world. And, as I get older and my ability to generate revenue natural declines, I want some confidence that hard work I did when I was younger will enable me to live out the rest of my years with some degree of stability.
Of course, our desire for stability needs to be weighed against the desires of the larger community. But you do that by balancing those desires, not by completely ignoring one half of the equation.
I'm not sure what an ideal solution for housing is, but I'm certain it's not based on a slavish devotion to market efficiency.
Why should society have to slow down just to help you and your little old house? You can just move somewhere else with a garden. Everybody else is also trying to work and live their lives. This isn’t little house on the prairie, it’s quite selfish to buy a house in a city (an inherently dynamic landscape) and then expect the rest of the world to freeze in time
Simultaneously we are collectively complaining that people don't communicate or form bonds as they used to and how community died yadda yadda and people are lonely, especially men and how sad it all is yadda.
Guess what, this attitude kills any kind of in-person bonds or willingness to invest into them way more then much maligned social networks.
My original point is that if you want to own land forever without “the neighborhood changing”, don’t buy a plot in a city or suburban area. You have no right to enjoy the benefits of living in a city while forcing everyone else to respect your rights of a homesteader on a ranch in unincorporated land. People had to deal with rising property prices and change to make the city a desirable place to live, but as soon as you get property all you can think of is keeping everything just the way it is. That’s why it’s selfish.
You have zero right to demand that neighborhood dont change - nearby land owners should be free to do as they please.
Rising property prices is what incentivizes current people to sell to new people. Or maybe build higher building so that they sell to more people. That is dealing with it. Not raising taxes for existing people so that we can push them out while keeping total amount of people in area the same.
All you want is to change who lives there - not to add new people or build higher houses.
America has tons of space. Businesses could move had they wanted to, houses could be build had people did not seen urban living as oh-my-god-end-of-world.
This would be the ethically fair system. Of course in the present world the landowner class successfully lobbied that the fees are subsidized by other people from their income and similar taxes. There you have an explanation of the perpetual housing boom, because it is highly subsidized investment and there is only so much of it.
This doesn't apply just for land but for anything life necessary which can't be easily created anew. If someone poisoned 90% of water on earth you'd have the same thing.
And you still did not made place for more people. Just changed who is living there. They dont matter, you do.
Rent control and other price controls favor one subset of consumers over everyone else. If we don't use prices to allocate housing and land, what makes one system better than another? Why not hold an essay writing contest or dance-off to determine who gets to live in a house or apartment?
Home ownership is implicitly subsidized by the government. 30 year mortgages for the masses are only possible through government guarantees. Highways to enable urban sprawl are government built.
It was mooted in the UK last year and some of the newspapers (owned by wealthy landowners) went ballistic:
http://www.dailymail.co.uk/news/article-4575382/How-Labour-g...
https://www.telegraph.co.uk/news/2017/06/03/labours-garden-t...
The stock market would likely take a dive if this was implemented too, since a lot of company profits are predicated upon parasitic land value extraction (Trump's businesses are a good example). Politicians are usually wary of policies that might cause the stock market to take a dive because of the optics.
Or are you saying that he would be even more likely to default on loans and the banks would feel it hard?
Especially local politics.
People here end up living in cardboard boxes just to avoid paying high taxes.
For instance, if housing is already at the zoning maximum for an area, would this tax be effectively the same as a property tax, because the best land value for this property would be the same amount of housing (assuming it is not completely run down) as currently exists?
Interestingly, my area is zoned at X single family homes per acre. Lots are smaller than an acre, and recently a pair of lots was combined/split and 5 (close together) houses are being built there. Does the land value of the neighboring houses go down when the area hits peak zoned requirements? Like, they could have potentially built another house in the 'backyard' of the first one, but now they would run into zoning because of the next yard construction. So now is the land value lower (and thus lower tax?).
People also say that they like LVT because they don't get taxed on improving their home. But wouldn't the LVT already factor in an improved home value (if the standard for the area was larger/improved homes)? Thus you're effectively penalized for not improving your home (ex: "The best value for this property is a 3000sqft home here, not a 1500sqft home"). I know the land value is supposed to 'avoid' improvements, but if we're taxing on what someone would pay for the land (if it was devoid of improvements), we would have to factor in what they would then build on it, which might be a much nicer, larger home than what currently exists. (Someone might value a piece of empty land highly if they expect to get a big payout by putting a large house on the property).
> Thus you're effectively penalized for not improving your home.
This is good. If the area you own land in becomes valuable you should be incentivised to make the best possible use of your land.
It is interesting fact that more developed European countries, such as Switzerland (42%) or Germany (51%), tended to have a lower home ownership rate compared to less developed countries such as Lithuania (90%) or Romania (96%).
Texas has an interesting setup. Property taxes are relatively high, but you can choose one house that you occupy to get a "Homestead exemption" that brings the taxes down quite a bit. This doesn't prevent you from owning say, a vacation home, but does make it quite a bit more expensive (which seems to be fair).
Wouldn't it also disincentivize people from lobbying for zoning laws that are only beneficial to homeowners?
Neither of these are particularly true in an economic sense, except in that homeownership in growing, zoning-throttled areas is a ticket to the rent-seeking wealth transfer those supply restraints create.
Homeownership is driven by this effect, federal subsidies, and general social norms encouraging it, but it creates labor market frictions by tying you to a place and ties up all your wealth in a single asset.
https://marginalrevolution.com/marginalrevolution/2016/02/67...
https://www.economist.com/free-exchange/2010/04/21/rent-or-b...
I have never understood this line of reasoning. I agree that it increases friction, but there is a whole lot of friction that has nothing to do with renting vs. buying. Particularly friction in long-distance moves.
I don’t know how common that sort of situation is, but I can easily imagine a much milder version of it in today’s housing bubble, which is people who bought ten years ago and now feel that if they moved, yes they’d get some equity out, but not enough to move to a home that would be “as nice” in the destination they’re considering. For example suppose you work in software and bought a house in Dallas, but you’re getting all these great offers to move to SF...
If you are open to moving when you have to, most real estate problems are non-issues. Once you limit yourself to a hard requirement of living in a particular metro or state, you are subject to the market.
Everyone reading this can afford a home somewhere decent in the US, but you have to be willing to move.
How many people reading this in the Bay Area would even consider moving to Gilroy or Benicia? Not many I presume.
But say you work in software and your career has plateaued. It’s tempting to move to SF because there are so many great jobs. But you cash out your $60k of equity or whatever in Dallas and go look for housing in SF.... well, you’ll have to accept a significant lifestyle change and switch to renting. There are a lot of people who feel tied down by that deal and so don’t move even though it might be better long term to be climbing the ladder at a major company than to be maxed out in the best available local job you can get.
I mentioned that. It's constant across the country though, so I don't think it creates a new cost to move from one place to another (the "friction"). Rather it's an ongoing subsidy on home ownership that incentivizes people on the edge to lean towards buying. More people buy because of the subsidy, who then have a higher one-time cost each time they move.
>How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg?
It's not clear to me that this is true, leaving aside places where rapid housing price appreciation due to supply restrictions dominate the cost of housing. Homeowners bear additional cost and risk - maintenance, insurance, interest on mortgage capital - that are part of the cost of rent. How much wealth accumulation results from acquiring home equity when you exclude tax and capital gains from demand shocks and include the transaction costs of buying and selling, potentially frequently?
Kids, spouses, and most people with friends, don't care to be constantly uprooted or at the mercy of a landlord who is likely to raise prices every year. Renting results in no value - it's a direct cost for never any gain. Even buying a house in a declining market will net you less loss then pure renting.
Does it tie up your wealth? No. It converts your wealth into a usable asset (a house). You can't build a shelter out of bricks of cash, or convert a money market account to a nursery.
4% rule?
In fact, it's renting that allowed us to upgrade our place when we had the opportunity, as we didn't need to sell our place in order to be able to buy a new one - we just moved our stuff over.
And to your point:
> It converts your wealth into a usable asset (a house). You can't build a shelter out of bricks of cash, or convert a money market account to a nursery.
You absolutely can do that - it's called "Renting" or "airbnb" or "subletting". The challenge is turning a usable asset back into a pile of cash if macroeconomic forces play against you.
It does not have to be this way. My apartment is owned by a housing cooperative, and every renter is also a member of the cooperative. The cooperative is required to act in the best interest of all its renters, so while apartments are being redeveloped all the time (e.g. adding lifts to existing apartment blocks), rents are remarkably stable. And the cooperative literally cannot terminate my lease. Unless I misbehave, only I can terminate the contract.
(This is in East Germany. A lot of apartment blocks constructed in the GDR era are now owned by cooperatives like described above.)
If you are are renting, then you are paying significantly less than a morgage.
If you don't have a morgage, you can put a bunch of extra cash into investments that make more money than housing "investment".
And once that stock market investment increases, you can spend all that extra money you got on anything you want. You could even use it to buy a house! Probably even a bigger or more valuable house than if you "invested" in a morgage years ago.
I know many people that buy and sell homes profitably on about the same timeline as renters move (less than five years). I myself have never owned a home for more than ten years.
By time you are on your third home you will probably be buying in cash and not even be tied down by a temporary mortgage.
2. The cost of housing has risen significantly, compared to what you bought at. To sell your current house and buy an 'upgrade' would increase your mortgage bill, even if you dump the gain into the next house.
3. The higher barriers to moving since you have to list, sell, etc. While a renter can send an email and get a new place without much hassle. A renter can never be 'underwater'.
There is nothing requiring you to move into a property with higher taxes - you could substantially downsize or leave the state entirely.
Even if your costs and mortgage become more expensive, the tax system is still there to benefit you. The tax system will always reward home ownership. By time you are on your third house you will be paying cash, so even mortgage issues will go away. I don't know anyone on their third property who has a huge mortgage...maybe a small supplemental one but that is about it.
Not sure what the "barriers" to selling are...a good realtor will cover those details for you and in most parts of California, your house will sell very quickly, my last sale was less than ten days, about the same amount of time most renters probably spend looking for a new place.
Past performance is no guarantee of future results. Housing prices have risen faster than inflation in California over virtually any period ending today other than cherry picking the top of the housing bubble. Nothing says this will always be the case. Just ask the homeowners in Japan or in parts of the rust belt. I'm a homeowner in California but I also remember the last time everyone said housing prices only go up.
Furthermore, the tax system may not always reward home ownership. New caps on mortgage interest deductions are already affecting California houses although the effect is currently small. It used to be true that homeowners always itemized deductions. For 2018, it'll be about a wash for me as opposed to taking the standard.
And yes, the tax system will always reward home ownership.
Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura counties all allow this.
Persons over age 55 or who are severely and permanently disabled may transfer the base-year value of a residence to a replacement dwelling in the same county, or in another county if the board of supervisors of that county adopts an ordinance granting base-year-value relief to replacement dwellings when the original dwelling was located in another county
In California, where I live now, its only $7k. Proportional to house prices here, it barely qualifies as lost pocket change that fell out of your pants and is rattling around the washing machine.
Of course those laws sometimes include other provisions, such as tax cap portability when you move (sometimes only for old/disabled/etc, depending on the state). The limits on tax rate increase might sometimes also be tied to this.
California's housing policies are the shame of the state (and the nation) and are destroying the state's culture. They will ultimately destroy its economy by driving away the next generation of creative people and entrepreneurs.
Closing (transaction) costs in the US are in the ~$5k range.
https://tranio.com/articles/real_estate_agents_commissions_i...
Also, if you're paying 6% in the US you're doing something wrong. Selling through Redfin, for instance, and you'll be around 4.2% (1.5% for Redfin, 2.7% for the buyer's realtor).
Both of those are different things than paying money to the government just for the privilege of consummating the transaction.
As with any tax, depends on where in the US. Per Wiki, it's 4% in Pittsburgh[0].
https://www.zillow.com/homes/for_sale/Cresskill-NJ/pmf,pf_pt...
A house listed for sale for $1,350,000.
Annual property tax of $35,700.
I've seen annual property tax bill upwards of 6 figure for $3 million house.
Other houses with hilarious price tags nearby. https://www.zillow.com/homes/for_sale/Alpine-NJ/pmf,pf_pt/23...
http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsn...
This house is quite interesting too.
http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsn...
Sold for $1.5mil in 2014. Listed for $1.15mil now. It was sold for $860,000 in 1995 when real estate was very cheap.
That house is in a very nice part of the town too. (Allendale is all nice to begin with)
Many other metro areas and suburbs have seen much higher appreciation over the last decade, such as Seattle, Austin, Portland, Denver, Nashville, DC, SF, LA, SD etc. NJ doesn’t have a major city and it’s inconvenient to travel to NYC or Philly.
From a financial standpoint, I’d avoid NJ/CT/IL just due to their value having been maxed out in my opinion.
What is the denominator? Is it the current market price? The price you paid originally? Something else?
This keeps the estate market propped up and hurts people’s mobility. It’s the main way banks get to make risk-free money off the population in a country that has the biggest GDP growth in Europe based mainly on consumption.
Another factor is tenant rights -- renters in places like Germany have so many rights and protections that renting is a lot more like owning than it would be elsewhere.
Commieblocks may be aesthetically ugly, but they do serve a nice functional purpose.
IIRC Japan has density patterns like this.
Basically, if an area adjacent to a high density population area wants to expand into the area, it accepts a very very high entry cost, either ongoing property tax or initial permit cost. That would force only very large and dense building development.
Transportation could be exempted as could parks and certain low income housing which is basically government controlled anyway at this point.
That might also incent vertical farms, although I haven't kept up with the viable economics of skyscraper-class vertical farming yet.
One of the primary challenges of modern environmentalism is just sprawl: people driving too far, people spreading out too much, people buying too big of houses that are energy inefficient, people buying yards that they use 1% of the time
Sounds like hell to me.
StrongTown's thesis (that isn't really in question) is that suburban sprawl is financed by handouts from the government, but nothing finances the maintenance of that sprawl after the initial build out.
StrongTowns does a lot of analysis proving that densely occupied areas generate enough revenue to repair their gas, electricity, transportation, sewage etc- but less dense suburban areas do not.
If dense population is hell, then you better pay enough money for repairs that happen on 30+ year cycles, or else you're looking at another type of bad situation.
Only a few places in the US have both sprawl and very high labor costs. It would be a crisis if the entirety of the US resembled Palo Alto and had similar costs...but this isn't the case.
This is in my opinion why so many people are resisting the destruction of single family home neighborhoods, namely because there is a huge lack of the diversity of housing types within apartments, especially at more affordable price ranges.
:)
Tell that to Chinese. 300m² upscale apartments are not rare. The most extreme ones are mansion apartments of up to 500m²
Indeed pouring the concrete of your Coruscant fantasy would be more harmful than just maintaining our existing infrastructure, flawed as it might be.
[1] https://host.madison.com/ct/news/local/writers/mike_ivey/by-...
I think house prices in china can't really be compared with other country for lots of reasons, eg: they don't own their homes (70y lease), very low interest on loans (1-2%), real estate is seen as a very good investment in china, etc.:)
Also, China lacks very good investments (the stock market is still a joke), so real estate is seen as the only viable option to beat inflation. So even in hot markets like Beijing and Shanghai, lots of nice apartment buildings will have empty units, which are just being held as an asset and are not even renovated to be rented out.
China is not really that unique from other countries, it’s real estate market is quite expected considering the factors that created it.
I believe that "you can't invest abroad unless you have money for a legal counsel" applies to a lot of countries.
Adding to you point on property taxes: Russian provinces with regional property taxes only saw, i think, 1/10th of the bubble in comparison to the rest of the country. At the time when an average private individual could buy 5 flats in 3 years in hopes of bubble growing faster than than interest on his loan, it will be pretty expensive to pay even 0.75% property tax, as it can easily be bigger than guy's annual income.
As to the housing crisis, what laws are preventing multistory buildings? SF blocks a lot of housing over 3 stories since they want to keep the mystique of the city from the Full House days (https://en.wikipedia.org/wiki/Full_House). This makes housing extremely expensive since no one can easily put up a 50 story luxury housing apartment complex (which could have 1.5k sq/ft for a mere $675k).
This particular fallacy is a classic false dichotomy. It's not an either-or situation. In CA the incumbents voted themselves a massive tax break ("because retirees") when, if retirees were something you really cared about, you could simply give them a lower rate of tax or no tax at all for their principal place of residence while still collecting taxes from non-retirees.
I was disappointed they didn't have photos of row after row of poorly maintained multi-million dollar single-story ranch houses in the Bay Area. My old neighborhood in Mountain View was filled with retirees who were paying next to nothing to stay in the houses they bought in the 60s and 70s. These were the same people who would regularly vote against new housing because it "harmed the quality of the neighborhood." Every time I walked to work, I day-dreamed of how many people could live close enough to walk to work if we could put a 10 story apartment building over each of those junky old Eichlers.
It's not a fallacy if you think people own land. They shouldn't have to pay a yearly fee to keep the government from taking their property. Think about applying the same thing to laptops. Laptops are tools, or at least may be tools, for production and income. Why not tax all laptops owned by software folk as we tax other business goods?
In general, this argument seems to come down to "the society provides so much, pay your damn share." How about no, I don't want the society to pay for so much? As a result, I want to pay less.
If you don’t want society to pay for so much, maybe move to somewhere without one. Most of us want to live in a place where we all pitch in to help provide public services.
For example, police. If you legalized all drugs, you'd not need as many as you have. You could save money by not having their salaries, pensions, and benefits. You could also increase revenue by having reasonable taxes on the sale of the vice. Now you don't need to take land from people.
My whole point in all of this is that property taxes are not necessary. Rather they are used by people that don't want to think about ways to truly free their society. Those people limit building heights. They limit trade. They limit the very means that a state could make a reasonable income.
Note than land value taxes, a special case of property taxes, are widely considered to be the most efficient means of taxation among economists.
Homes are relatively unique in being something you own and still have to pay taxes on. They’re also unique in being something whose ownership and location determines so much about your life, such as where you vote and who you vote for, whose taxes you pay (far beyond property taxes), where your children can go to school, which police department serves you, whose laws you have to follow... it seems reasonable that they would have a special tax status too.
Property taxes fund the society they benefit from so it's only fair that they keep paying them.
Property taxes means the government owns both your land and anything you have on it and you are merely renting from them. This is not OK in my opinion, and I believe all property taxes should be abolished as it requires people to continue paying rent to the government forever. My dad had to step in to prevent my 85 year old grandmother from being evicted and having her house auctioned off due to years of overdue property tax because (shocker) she didn't have any money. So let's evict this little old woman we should be taking care of and make them burdens on their families because her breadwinner spouse died years earlier and she couldn't afford to continue paying rent to the government who did nothing but bleed money from her and her husband their whole lives. Really considerate of us as a society. Luckily she had family to pick her up. What if she didn't.
I'm sorry but the government has done fuck all to make my land better other than be a pain in my ass when I want to make it better and force me to pay them in order to do any construction ON MY OWN.
Yes, that's correct and why this is so controversial.
I believe society has a right to tax land, because owning a completely inelastic item like land prevents others from using it.
The issue at hand is that if you do not pay property taxes, the government will take ownership of the land away from you. That undermines the ownership. (So does eminent domain and civil asset forfeiture.) The ability to keep out everybody except the government is still useful, but not nearly as valuable, since anyone that really wants to take something from you can just use the government to do it.
There are other sticks available to encourage people to contribute money to their communities. You could still assess someone's taxes based on the value of their land property, but rather than take the property, you cut off its access to municipality services. If you don't pay your vehicle tax, you don't lose your whole car, you just lose your license plate and the ability to drive your vehicle on public roads. Similarly, if you don't pay the property tax, maybe you lose the ability to connect to local utilities and make use of public services. Cops and firefighters charge fees to come to your property. Public schools charge your kids tuition to attend. Perhaps the city won't enforce street parking restrictions at the end of your driveway, and starts leaving the roadkill cleanup truck there. Or maybe the city just publishes a list of non-payers, and local businesses start refusing you service. Most critically, the local cops won't help you defend your property ownership.
The problem isn't that property taxes exist, it's what happens if you don't pay them. If the actual result for not paying property tax is identical to a landlord evicting a non-paying tenant, the actual relationship to the property is not ownership.
You choose to live in society you have to play by its rules. You have a vote as well, so it's not like you have no way to change things.
Allodial title is a good thing. But the city still has to pay the bills.
The rule is that prudent management of the commons has a cost, and that cost must be paid. It is reasonable to divvy up the bill by the extent to which someone is likely to benefit from the commons. As it turns out, assessing local taxes based on the value of land property owned in the jurisdiction is a reasonable approximation, it turns the tax rolls into an easy correspondence with the plat maps and ownership records, and it is not very difficult to assess. It's fine to assess the tax based on value of owned property. My point is that the taxes should attach to the owner of record, and not the property itself. Indeed, the article details several unintended consequences from various methods of assessment.
It would also be reasonable to pay by a flat capitation, but that is a regressive tax in practice, despite being neutral in theory. Sales tax is more progressive, as the tax scales with the amount of money you can afford to spend. Income tax can also scale progressively, such that the people who can afford to pay more by virtue of higher incomes must do so. Those are all the responsibility of people. If they fail to pay, the punishment lands on them. And I think it is not proper to seize real property for debts that were unilaterally imposed on people without their explicit individual consent. Seize cash. Seize bank accounts. Seize stock certificates. Do not evict a family from their home. Do not take the vehicle they use to drive to work. And yet, those latter two are often the only asset classes subjected to property taxes.
I am already a bit hostile to eminent domain thanks to the Kelo v. New London case, which stretched the concept of "public use" beyond the point of reason. I vote my one vote as hard as I can, and yet society still remains unjust. This is a failure of society's rules. Those treated unfairly by them have always had the option to stop playing by that set of rules, and institute another that they find more suitable. You have no inherent obligation to a society that does not respect your contributions to it.
You have one vote. You also have one voice, that spreads based on the height of your soap box. You also have a wallet, which you can open or close based on the societal values behind those things you might wish to buy. And you have one clever ape brain, which has a built-in dislike of unfairness, and the ability to set goals and make plans.
It is reasonable that one might wish to protest the imprudent spending of municipal funds by refusing to pay tax? Or is it preferable that one pays the tax, as assessed and on time, and then assassinates the mayor and city council, because all other reasonable and effective means of protest have been rendered unusable? I would prefer that protest via withholding of material support remain a viable option.
You mean like stopping the chemical plant up the creek from dumping in your water supply? Or do you mean building the schools your children go to, or do you mean building the highways/ports that allowed your washing machine to be built/imported? Or by "fuck all" do you mean building the electricity grid and telecommunication infrastructure so you can sit in your living room and write nonsense on the internet?
I don't see why, at least in an area with any sort of constrained land supply, it is desired to keep old people in the same home (I can see same community, not same home).
From a land efficiency standpoint, where single family homes and apartments/condos both exist, you'd generally want to incentivize:
* childless folks (young people, empty nesters) in smaller homes (apartments, condos)
* families with children in larger homes (single family homes)
Property taxes are a powerful incentive to encourage people that become empty nesters to move to smaller locations. The lack of incentive to do this is part of why Bay Area single family home prices are surging - older demographics aren't selling their homes to families that really want to own for stability reasons.
(note: For the curious, in CA, Prop 13 doesn't per se create a disincentive as it allows moving the tax base to a new property for those older than 55 - but its presence removes what would be a strong incentive (cut taxes by moving). A strong tax disincentive to move though is capital gains tax structure on housing).
Look at SF. The right answer is to for old people that bought into the town during the Haight-Ashbury days to sell since they are too cash poor for the rents (property tax). The wrong decision is to change the zoning laws that prevent 5+ story apartment buildings that meet earthquake code.
So what? It's not like old people don't continue to use the roads, police services, etc. If they had kids, then they're also paying off what it cost to educate those kids (the property taxes they paid while their kids were in school covered only a fraction of the annual cost per student).
I could happily do without all those things. Create a free-living zone where I could move with little tax. https://la.curbed.com/2015/3/13/9980908/slab-city-going-legi...
Land is a finite resource and we should absolutely make ownership of it subject to tax.
Or did you mean, why can't other people pay for that?
Oh god, yes. The housing crisis is extremely complicated, what we see now in Sweden is the result of a perfect storm.
In the 90s Sweden had a surplus of houses from the 80s building craze and municipalities completely stopped building rentals. The municipalities in Sweden are extremely strong too and have a monopoly on what gets built on their land, and they don't want rentals they want expensive homes because expensive homes are inhabited by people paying good income taxes. So, they never took those plans for building new housing complexes off the shelves till very recently (but the municipalities still want expensive homes, especially in the bed communities outside Stockholm, Gothenburg and Malmö).
We've also had the start of the fourth baby boom very recently, that's put a lot of strain on our housing market. The kids from the third baby boom in the early 90s grew up to move out and they started getting their own babies. This is what happened in the mid to late 60s too with the people from the first baby boom during WWII grew up and Sweden launched the million program to cope (which the national government can't do this time with the current laws in place, it's up to the municipalities alone to predict this and solve it and they failed or didn't want to solve it).
In Sweden getting building permits is a very time consuming ordeal and can cost a lot in legal fees. Building in Stockholm is about twice the price of building in Berlin and will take about twice as long to negotiate with the local regulators.
We've had record immigration to the cities in recent years, some from foreign migrants but by far most of it has been internal migrants (since during most of this crisis municipalities could just say no to refugees and cite the housing crisis as a reason for it, which the big cities have taken advantage of multiple times. I grew up in one of the wealthiest parts of Sweden just outside Gothenburg, they've taken in a few hundred refugees since 2008 while tens of thousands of people have moved in from other parts of Sweden). This is also consistent with our previous history; in the 90s we had a very large immigration of refugees but the housing prices still took a dive.
And finally, this is just how Swedish culture has evolved and it's happened faster than we've had time to react. Compared to the rest of Europe, Sweden has an unusual amount of people living alone. We move out very early from our parents and divorce is uncomplicated here which instantly creates new demand for housing; where there was previously only demand for one home, now there is a demand for two.
Australia has a horrible system called stamp duty, which is a tax paid on the purchase of a property based on a sliding scale of the property's purchase price. This was fine back when a house cost $100k (and you might pay $2-3k to the government). It hasn't scaled with massive housing inflation and state governments (who administer the tax) are now addicted to the revenue.
The median house price in Sydney now is A$1.1m (last I checked). This seems to mean stamp duty of nearly A$50k. When household income may well be under $150k paying $50k after-tax to move is a huge barrier to moving and thus labour market flexibility. Want to move across the country for a new job? Enjoy the $100k in transaction costs for swapping houses.
The US property tax system with almost no transaction taxes is far, far better (IMHO). There are exceptions (eg NYC has a "mansion tax" of 1% on properties over US$1M). Of course this will never happen in Australia because all the existing homeowners, who have already paid stamp duty (even if it was 40+ years ago), don't want to pay higher property taxes.
Of course large parts of the US have voted themselves massive tax breaks for incumbents, the posterchild of which is Prop 13 in CA. All under the guise of "won't anybody think of the retirees?" (when you could individually give them tax breaks if you really wanted to). New York state has a series of property tax caps that greatly benefit established SFH dwellers (and SFH taxes are far, far lower than those on apartments/condos).
The biggest downside to property in at least English speaking countries (and elsewhere no doubt) is rampant speculation. I kind of liked the Swiss system for this in many ways. Punitive taxes on short term capital gains. Also, in Switzerland, when you owned property outright, it's notional rent was deemed income. So there's no point having a property sit empty because you're being taxed on the "income" anyway.
Many U.S. states have real estate transaction taxes. In my county in Maryland, for example, recordation tax + transfer tax totals about 2.2% of purchase price.
Did CH have a property tax on top of the imputed rent?
I am fairly sure that you are not exempt from tax if you have an unfinished roof.
It's simply easier (and cheaper) to add floors in the future that way.
reason - finished painted buildings get taxed, so nobody ever finishes them, and rather lives fugly but cheap.
Also valid for other towns, but it was most visible in La Paz, especially when using teleferico.
Our Greek-American family-friend (who owns a Greek restaurant in the US, and an American restaurant in Greece) explained that Greeks couldn't easily finance home construction or home improvements, so they build what they can afford at the time, and add on to it whenever they saved enough money (or collected enough stolen/black-market building materials). So everything has to be built for future expansion. And if that two-story building is taxed as a one-story building for a while, before it gets reassessed....
But this was before EU economic changes, so my information is likely out of date.
> The shorthand formulas through which tax officials must apprehend reality are not mere tools of observation. By a kind of fiscal Heisenberg principle, they frequently have the power to transform the facts they take note of.
> The door-and-window tax established in France under the Directory and abolished only in 1917 is a striking case in point. Its originator must have reasoned that the number of windows and doors in a dwelling was proportional to the dwelling's size. Thus a tax assessor need not enter the house or measure it but merely count the doors and windows. As a simple, workable formula, it was a brilliant stroke, but it was not without consequences. Peasant dwellings were subsequently designed or renovated with the formula in mind so as to have as few openings as possible. While the fiscal losses could be recouped by raising the tax per opening, the long-term effects on the health of the rural population lasted for more than a century.
We have been moving more and more toward a Capitalist Communism where the government owns everything and you are merely renting from them (this is just straight up how it is in China, they don't even pretend), but we still sell it as Capitalism because businesses aren't owned by the government.
This is not the way life should be and all property taxes (i.e. government owned property rentals) should be outlawed.
I assume that you intended this as a rhetorical question, but the answer is not "the government". Governments do not exist to defend property rights—that is merely propaganda. No criminal organization violates property rights more brazenly or systematically than governments do on a routine basis. Every tax, every regulation, every disproportionate punishment, every victim prevented from pursuing justice while those ostensibly granted that role do nothing—almost everything the government does involves violating property rights in some form. The only point in their favor is that, like any other protection racket, they are jealous of their monopoly and not very tolerant of lesser criminals setting up operations on their turf.
> And by what basis do they lay claim to make other people respect those rights?
There is no need to "make" other people respect anything. That is what makes property a natural right; the very act of violating a property right naturally justifies a proportional response in kind. That is simple universality and reciprocation at work, the basis for any self-consistent system of rights, and it is more than sufficient to ensure that most individuals will respect others' property rights without being coerced, because they in turn need others to recognize their claims to property as valid. Those who chose otherwise cannot rationally object if their victims respond in kind, taking back their own property plus a proportional amount as retribution.
If you are interested in further reading on this subject, I can recommend Stephen Kinsella's "Punishment and Proportionality: the Estoppel Approach" (https://mises-media.s3.amazonaws.com/12_1_3_0.pdf?file=1&typ...).
As a side note, in regards to your original point about beach front property, the paper you linked only recognizes property rights of property that has been homesteaded. So there would be no way of some rich person purchasing acres of land for their own private use (using the structure definition of homesteading).
For what it's worth I'm playing devil's advocate here, as usual, but I don't think this particular issue is so easy to defend. Something I was surprised to learn is that in the US, the police didn't even exist until 1838. Prior to that there were volunteer community watch and other such programs. I think the proper balance is probably one we've gone long past that's somewhere in between community efforts and heavily centralized paramilitary law enforcement.
That's not a rhetorical question since I imagine there would be a wide array of different views on it. In my opinion reasonable and fair taxation should be the priority. And the reason for this is because how tax is managed can radically reshape the economy. And so the role and expenditures of the government would shift accordingly. For instance today in the US there is an immense amount of land available for next to nothing.
I don't think most people realize what you can do with the smallest amount of land. For instance these [1] guys are self sufficient on 1/5th of an acre. In Pasadena, California no less! It just seems so wasteful and really just crazy that we have all of this land out there that we collectively aren't doing anything with especially at a time when ever more people are interested in environmentalism, sustainability, or even for those just looking for something different in their lives.
Are you willing to sacrifice many public services to reach the lower taxation level? I'm not talking about light rail and Shakespeare in the Park. In some rural areas the sheriff's jurisdiction is so large they tell 911 callers to get their shotgun and deal with suspicious activity themselves because a deputy won't get there in time. If the answer is yes, I applaud your intellectual honesty. Many people cling desperately to the notion that we can have comprehensive public services and rock bottom taxes, maybe through some magical and simple 10x government efficiency tweak. (At least local government can't deficit spend).
A big part of the problem is not the lack of money, it's completely reckless spending and management of money. If you look at the actual amount of money spent on any public servant ranging from teachers to police to garbage collectors, it's a minuscule fraction of the spending for their respective segment, as is the cost for facilities and other fundamentally necessary costs. Where the real expenses come in are in bloated administrative salaries paired with even more bloated administrative structure, unsustainable and irrationally constructed pensions, completely wasteful spending of discretionary funds, and so on. It takes a truly special government to manage to spend in excess of $2,000,000,000 billion on a website [1]. Of course that's federal spending but the exact same is true at the state level.
So for instance we ostensibly should take pride in the fact that we spend more on education than nearly any other country in the world (3 spend slightly more than us), even parity adjusted. It should show how highly we value education. Yet of course in reality our educational institutions are seemingly underfunded. What gives? As a random example Illinois, like most states, is currently in a 'higher education crisis.' This [2] article provides details on where their funding is going, and this is completely typical. Primary and secondary education suffers the exact same problems.
And this is a similar pattern in nearly (and that is a weasel word - to my knowledge it's safe to just say every) every single government program. So how can we fix this? One of the biggest problems with bureaucracy is that when money is 'free', there is a massive incentive to not only spend every single penny you have but also slightly overspend to justify budgetary increase requests in the future. Organizations that spend less don't get rewarded; quite the opposite - they get punished with reduced budgets in future years. If our government suddenly had an annual windfall of $10 trillion, it's not like we'd be living in utopia as far as state programs are concerned. We'd be running a deficit within a decade again with shockingly little to show for it all. It's the nature of bureaucracy. The point of this all is that whatever we are currently spending is certainly much more than we what we need to be spending, and if fair taxation resulted in less revenue (which, as an aside, is not necessarily a given) - I do not see that as a major problem.
[1] - https://www.bloomberg.com/news/articles/2014-09-24/obamacare...
[2] - https://www.illinoispolicy.org/reports/pensions-vs-higher-ed...
The idea that a significant portion of a tax will be payed by producers is only realistic in non-competitive markets where producers receive a nontrivial economic profit (revenues minus opportunity cost). In competitive markets, producers' economic profit approaches zero.
For example, the Netherlands has no capital gains tax or dividend tax, but it has a tax of roughly 1% - 1.5% of your net assets. So if you have a $300k investment property, it's taxed like that annually.
But, your own home is exempted. It's not considered part of your net assets.
The British taxed based on a count of windows.
Narrow buildings -- these buildings were taxed based on the number of linear feet facing the canal. In the picture, the door in the middle is the door for a house that is only as wide as that door, "the skinniest house in the world".
Covered / Bricked over windows -- buildings were taxed based on the number of windows. Building owners could save money simply by bricking over some windows.
Umm, RTFA
"In the early 17th century, buildings were taxed by the number of floors leading up to the cornice of the roof.
Architect François Mansart ingeniously responded to this rule by hiding an additional story or two under the roof for additional living space, rendering it exempt from taxation."
...and hence the "distinctive architecture of Paris, with its mansard roofs".
You have to read the article, not just look at the pictures.
Evidently not...