Economist explains why you can't afford a house anymore [video]
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So the population went up by a lot because of immigration. Housing construction didn't keep up with the immigration levels, because of various structural reasons, of which there is only one and that's NIMBYs. And the speculators accrue housing assets and restrict it's supply to the market and then extract rents.
And somehow the NIMBY and speculator coalition override the actual structural change to the housing market, which was artificially low interest rates that financialized the mortgage even more than pre-2009, such that private equity and a bunch of other investment groups dump money into housing and hold it.
So the reason that you can't afford a house is illogical immigration policy, lame NIMBY policies, and wacky interest rate management. Funny, it's rather easy to fix each of these if you have the political will. Alas...
They’re usually based on sales price and then also “reassessed” every couple / few years by the PVA (property value administrator) which now usually means using some sort of algorithm based on recent sales and whatever else. Then you’re given a chance to appeal the value with evidence showing why it doesn’t fit your specific situation before the tax payment is due. At least this is how it works in my area.
This is on a county level in my state.
> Are property taxes based on current price?
Yes, except in California due to Prop 13, where your assessed value is decided when you purchase the property (or revalued when it is significantly rebuilt) and increases by at-most 2% annually (below inflation).
Usually there are various discounts and deductions depending on the taxing entity. E.g. for your primary residence you deduct $100k off the value. Value growth YoY is capped at 10%. If you are over 65 the tax owed is capped until you die. X% off for disabled veterans, etc etc.
People complain about the amount they are paying, but I've never heard serious complaints the system is unfair or corrupt (though I'm sure it exists somewhere). The assessors use the statistics they know about your house, sq. ft., lot size, etc as well as neighborhood "comps" for what similar houses have sold for. Also there is a lengthy and formal protest period every year.
In Texas there is a cottage industry of lawyers that will protest your property value for you. Sign some documents and they will send letters and show up at protest proceedings and send you a bill for 30% of the tax they saved you. No money out of pocket and nothing owed if you don't save money.
Second, it's very unpopular to have the value overestimated or even objectively correct. The people in charge of those decisions are elected officials and property taxes are a sure way to piss off your constituents. So they tend to be lowballed.
I bought an empty lot a number of years ago, using the agent we used to close on our house. I had that agent find and contact the owner to see if I could buy it, and he volunteered to sell it at the assessed value. I told the agent 'sold', but then he talked to his friends and they clearly told him he was crazy, which is true. He asked for about 12% more and I didn't even blink.
The price is set by local government. They offer an assessment, you are given notice, and it can be appealed.
Different agencies have very different approaches.
How much property tax you pay is based less on your the rate, and more on the assessment philosophy.
Lower rates tend to correspond to more aggressive assessment, and higher rates with more lenient assessment.
The taxes go mostly to the local school district and water district. These are very specialized local governments that focus on one service.
Collection is done by the city or country, depending on … things. They get a very small cut, but not much.
Cities are funded by sales tax. Counties are funded by state revenues (I live in a “weak county” state where counties are agents of the state). State revenues are funded by income tax.
So
speciality districts = real estate tax,
municipalities = sales tax,
counties = mostly state revenue,
state = income tax,
federal government = income tax and magical debt
Everything except federal varies in state by state basis.
I think though that commercial properties got the best deal, because they can own a property for a much longer period of time.
It also gives an advantage to renting over buying, as rental properties generally have less money going to taxes than buying a new house.
I've heard from many people moving into a neighborhood, paying significantly more taxes than their neighbors, who have been there for years or decades.
Technically, it was created for people who owned homes (and other real estate) at the time the law was passed, and their heirs.
The longer you have owned a property, the more of a tax break you get at the expense of a person who bought property more recently. Basically, it created a society where long term land owners and their heirs have even more of a step up than newer or prospective land owners.
And the longer you own property in CA, the more incentive you have to support prop 13. Quite an innovative way of creating a class divide.
The supporters are explicitly non-partisan:
https://www.hjta.org/about-hjta/paccommittees/
The main issue is that while they were setting this up, they also arranged for a 66% voter threshold for renewing things like school funding.
Most districts around here are only 60-66% progressive, which means the schools are chronically underfunded (funding is 47th in the nation, despite California being one of the richest states).
From the discussion, most states that people comment on work similarly to ca.bc:
The provincial assessment authority sets a 'value for property tax purposes' that loosely tracks the actual market value. Then, the local authority (city/district/town) sets the total taxes and this is distributed pro-rata over the overall property assessed value within that authority's jurisdiction.
California seems to be an exception as near as I can tell (from a long distance and not particularly caught up in it): Prop 13 locks in the value (more or less, no idea as to if there's a COL adjustment) as of either the passing of the prop or the recent sale (hence the case that new buyers pay way more than the folks next door who bought in 1967).
The us.ca idea seems intended to solve the problem of 'house-rich/cash-poor'. The ca.bc (yes, confusing abbreviations) solution is to allow the owner of a principal residence to defer property taxes as a lien on the property, payable on sale (at a favourable interest rate).
so this is going to create inflation which means that money is effectively decreasing in value.
so this means that people need to park their money somewhere in a safe asset.
property is a pretty safe asset.
Cap rates are around 4-6%. Only people buying right now are parking money hoping for appreciation, not cash flow.
that's pushing as good as s&p 500 index fund.
then factor in you have more control over the asset than being at the whims of CEOs and boards of directors.
There is the potential for lots of sleepless nights and stress. Also, you may need to contribute capital unexpectedly if repairs are needed or vacancy is higher than expected.
The last few years in multifamily are NOT normal. Appreciation and rent growth are not straight lines up and the rough times can be very rough indeed. But, history tells us that if you can hold and maintain a property for at least 7 years, you should not lose money.
YOU ARE WELCOME.
Your theory doesn’t explain the same situation playing out across every other 1st world country at the same time.
"financialization of housing" is basically the same thing as "FED". Absent value retaining money, flooded with worthless paper, people look for anything scarce they can park their savings in, turning a social necessity (housing) into savings account, and give into incentives to make it artificially scarce (like NIMBY). Historically (before fiat money) housing was a poor investment. https://www.lynalden.com/most-investments-are-bad/
You clearly do not understand what financialisation actually means - it’s creation of derivative financial products based on the underlying assets. Eventually these products become so complex, no one knows what’s happening to the original assets. That’s how we got 2008
And you can have 2008 style collapse even if your currency is based on gold coins.
they're saying houses are becoming an financial instrument to keep money safe instead of a place to live.
we currently have 1 trillion dollars of debt interest payments every 100 days.
the only way to pay this is for the Federal reserve to print money which devalues the current currency with inflation.
so houses have become a financial instrument to keep monies safe.
leaving the gold standard allows the Federal reserve to create any amount of inflation they want which allows the government to loan as much money as they want as the Federal reserve can just print money to pay the debt.
the usa is currently hitting unforeseen levels of interest rates on that debt which means inflation is going to increase in perpetuity.
which means rich people need places to park their money as this is the beginning of massive currency devaluation
as interest increases inflation will increase which means people need safe places to park their money... property
Hence, inflation.
Isn't that just economics 101?
In 2024 the interest expense surpassed defense spending for the first time in history.
the fed government already can't meet its obligations without borrowing.
so what that means is the Federal reserve has to print more and more money every year to compensate for these debt obligations of the federal government.
which is ultimately inflation
you're right there's other factors of play but this is the gigantic looming elephant in the room