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Comment by jlhawn | Hacker News Reader

This is why, I think, property taxes should not be based on the "full cash value" of a property but instead be based on the rental value. The market selling price that we used today is a lot more volatile than rental value because it is based not only on the rental value but also factors in the current interest rate, a speculative premium on future returns, and holding costs such as the property tax itself. Think about how rents have changed over the past few years versus home sale prices, particularly with interest rates being a roller coaster these past few years. If county assessors instead kept track of the rental price of comparable properties, the assessment would be a lot less volatile. This policy would also lead to homeowners having their interests more aligned with renters: keep property taxes stable by keeping rents stable.

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>Think about how rents have changed over the past few years versus home sale prices

In my area, rents have gone up concurrent with house prices - but aren't falling now that sales inventory is falling, because those owners still want to cover the mortgage.

> property taxes should not be based on the "full cash value" of a property

That's not quite how property taxes are calculated, at least not in the two states where I sell real estate. In fact, even after a house has recently sold and there is a new market value established, the property tax basis doesn't increase up to that new market price. I just went through this with an out-of-area buyer, where I took the houses I sold last year that were comps to the one they wanted to buy and showed them the new tax assessment for this year. Yes each had increased, but nowhere near the market value (in fact, the tax assessed value was between 50-60% of the market prices).

My comment was more about California, specifically, as that's what the original post was about. The state constitution uses the term "full cash value". I dislike the term "Assessed value" because so many people assume it's the same as "appraised value" which is a term that buyers, sellers, lenders, and real estate agents are usually more familiar with. I very much agree with the OP in that I think we should be explicit about the subsidies and/or exemptions that we give instead of hiding them in the way that taxes are assessed.

> property taxes should not be based on the "full cash value" of a property but instead be based on the rental value.

Look at how rents are calculated - over a long period they usually are somewhere near costs, of which the largest costs by far is the mortgage, which depends on the mortgage rate. Property owners are often speculating on the capital gain. Commercial property is different again.

You also need to consider what behaviour that would incentivise.

Finally, the property value in some markets is entirely dependent on rents (especially commercial) so you are not necessarily gaining anything.

Given that the float is so small, I think the asking price for rent is getting increasingly out of touch with what people are really paying, especially with rent control.

To make it less volatile they might as well just pick a number every year, the annual tax for a median house, then scale it in a relative sense based on relative house prices between taxpayers. They would more or less do that in a roundabout way anyway by tweaking the percentages every year.

that’s called the income valuation method and is used extensively for commercial property valuation (along with the comparative approach). in residential, it’s usually a combo of cost approach (replacement value of house plus value of land) and comparative. that’s because in many less dense areas, both rental and property comps are hard to come by (to the level of statistical significance).

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