I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible. In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people. It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
Someone I know is trying to plan such a thing right now. She has a decent paying job and a degenerative, disability-inflicting illness. She'd like to see the possibility of a secure future in the city where she's lived for the past 10 years, but property taxes and HOA fees alone in her city can be multiple thousands of dollars per month in neighborhoods that from the outside you wouldn't think seem particularly new or posh or luxurious. It seems that if she's forced into early retirement by disability, she'll have no choice but to relocate. So instead she feels trapped in a job she hates because she got it before she became disabled because she's reasonably afraid that employment discrimination, which is terrible at her job that nominally espouses inclusive values, will be even worse most other places. And while she's already disabled, her disability will only continue to get more profound for the rest of her life. And property taxes for sole and lived-in-by-the-owner homes is one of the reason that owning a condo or apartment is so much more expensive than renting one for her.
> property taxes and HOA fees alone
I feel like HOA fees have to be doing most of the damage there. AFAIK the highest property taxes in the US still top out around 2%, so for a "multiple thousands per month" property tax bill it has to be a house worth more than $1.2 million. I'm not sure what the line is for what level of housing expense is reasonable for society to subsidize housing security for, but I'm pretty sure $1.2 million is well past it.
True but imagine you're in the same home for 30 years. That home with somewhat affordable property taxes could double in value and now you owe double the tax. With no real increase in useable income unless you sell
That's just property taxes in a nutshell, though. We periodically see discussions about land value taxes and it's a feature of those as well; proponents shrug and point out that you didn't do anything to earn that extra value so it doesn't belong to you anyway.
I'm not taking a position here other than to say I don't believe there is a universally acceptable tax. Every tax I've ever read about or experienced personally, someone has made a valid argument for why it leads to a bad outcome or is otherwise unfair. You have to decide what gets priority, pick the system that matches that, and then be honest about where you're making tradeoffs and why.
But property tax is just absurd.
The property was purchased with "after tax" money. So at purchase date the value was already taxed.
If one sells, and make a profit, we tax that profit. Why ask for a tax on the value of the property, each year.
There should be local taxes, and there are. To fund services and whatnot of course. But taxing a percent of the current value of a property is unfair as the owner may live in there with no intention to sell and potentially no revenue whatsoever.
Why is it unfair to tax a property that is receiving services at a rate proportional to its value? One part of the value of the police service this is paying for is for protecting your property, and certainly that is more valuable the more valuable your property is.
And one value of property taxes (one that is dysfunctional on empty lots) is that it encourages "maximum" use of high value property (lots of bad particulars here, but the overall direction is about right). While we may dislike an elderly person being effectively forced out of the home they have lived in for decades, it is usually for more "productive" uses (for the market definition of productive).
As an example my in-laws have three properties in Hungary that are empty, and have been for quite a few years. Cumulatively they get something like ten weeks of use in a year. But since Hungary does not have property taxes there is almost no incentive to make better use of these properties (yes, they could rent them out for an advantage, but there is no disadvantage pushing them to sell).
Isn't all money "after tax" though? It all goes around. The exception would maybe be the treasury minting loans.
Everything is unfair. The housing crisis is unfair. Young families struggling to afford a family home is unfair. Having to pay into a pension system you'll never get to use is unfair. Land and housing is different from personal property. There's only so much to go around and we'll have to share. A property tax is one tool to incentivize efficient allocation, and to drive prices down.
I haven't researched national stats, but from the experience of having lived in two states, one blue and one red in case that's important to a counter-argument, both limited property tax to 3% annual growth, even if the valuation is higher, preventing that exact scenario. It only jumped to tax on the correct valuation when the property exchanges owners.
Sure this doesn't prevent issues if someone is stuck on savings/Social Security, etc., but it prevent surprises, such as a boom in your area causing sudden explosion of equity and taxes due.
The cap required it be your residency, i.e. you aren't renting it out and you are a citizen.
3% yearly compounds to doubling the value in 24 years.
So even with the cap, it's more than likely the property tax costs a typical owner more than double what it did 30y ago.
Not a big deal if you bought at age 20 (unlikely) and still receive some work income. But if you are retired, it stings harder each year.
Again I can't speak for every principality across the board, but for the places I have lived, it seemed very fair. Regarding your concern, I might have been unclear, but when I said "limited property tax to 3% annual growth", I meant it can be lower, but doesn't exceed 3%. It adjusts with inflation unless inflation is over 3%, so no matter what, the owner is winning if it is their primary residence, with the caveats I previously mentioned.
Inflation adjusted though it is like a 10% increase.
Property taxes are not that simple, usually. E.g caps on growth of total property tax receipts or on increase per year, rebates, other schemes.
The typical way property taxes are done in the US is that the local government first sets a revenue amount, then a tax rate is determined which produces that much revenue. You don’t have a situation where property values double and the local government automatically ends up with double the tax revenue.
The government should need to accept its 2% in kind. I guess by the time people cannot pay these taxes any more they are much closer than 50 years to their eventual death. Thus it only reduces eventual inheritance. Problem solved
Most of the problem solved, but does mean that generational wealth transfer stops being a way to climb out of instability. Just another chip in American class mobility.
you could rent out a room though?
but you also have a much improved quality of life as a result of that property value going up, because theres more desirable stuff around
Being stressed about finding the money to make your payments is probably not a much improved quality of life. And they probably picked the place cause they liked it as it was, so don't be so sure about appreciation of those new developments anyway...
Why should I get to have that sort of externality on others just because I have more money than them?
People refinance all the time.
>I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible.
You can also do this with combinations of renter protections + owner-occupier protections.
Currently the latter (whether the recent trend of red states lower property taxes, or Prop 13 in CA) is much more broadly-popular in the US than the former.
Property owners generally show pretty little empathy for anyone else wanting that security.
I go the other way: nobody should be forced out of their home because other people who have more money than them decide to increase the paper-value of their home. Something has to give between "I have a lot of money, I want this place" and "I was already here, I want to stay" and I think incumbency and stability is a better tiebreaker than "money wins."
The way they ought to do is is by having the government set not the mill rate but the amount of government revenue to be collected per capita, and then have the mill rate calculated from (revenue per capita x total number of residents) / (total value of all property in the jurisdiction) every year.
The premise being that if property values change city-wide, property taxes don't, because property tax revenue only changes if the city's population does -- and if population increases then it's usually associated with new construction, so as long as the newly constructed units have a similar value per-bedroom to the existing ones, the amount you pay in property taxes doesn't change then either.
"Forced out" meaning they choose to sell rather than spend their unearned windfall.
They could always borrow against their massively appreciated property, after all.
How do you expect to borrow against that property for the rest of your life?
And why is being a Google Programmer "earning" that money, but a construction worker who spent 30 years paying off their house is an "unearned" windfall?
I'm not sure where your friend lives, but my county (perhaps state level, but county for sure) exempts property tax for those with a permanent disability. I read the requirements and it was really reasonable to prove eligobility.
I understand that this doesn't fully solve the issue in that your friend, if to take advantage of this has to move, but it might be worth seeing if there are similar options around where she lives.
What if I'm not disabled. And healthy in part because I bought a property with hard earned already taxed money, and retired early?
The taxman says not enough. I should borrow money I don't have or sell for a cheaper place just to cover for the state's inability to do with sales tax
Sounds like you retired too early and are learning the lesson the hard way. Some parts of tax code suck, but that specific problem is self induced.
Then tough shit. Should not have retired so early.
> In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people.
Nah, the market is supply constrained, if taxes go down the price of the real estate just goes up to fill the gap. People make purchase decisions based on income & total expenses, not on anything else, "can I afford this house?". The price stops rising when the answer switches from "yes" to "no". If your friend can't afford a house right now they don't have enough buying power to compete in the market with other house buyers. Reducing taxes won't give them any advantage in the market that other buyers don't get.
Should we expect that people who become disabled continue to live by the same means they had before?
If yes, then that means replacing their entire income once they’re no longer able to work.
If no, then something must diminish. That may include needing to relocate to a less expensive living situation. If we accept that disability means reduced means, then I don’t see why housing should be exempt from that as long as they’re not on the streets.
> I think that's true but in some cases it's also about making home ownership, in the sense of having a home you can't lose short of a destructive disaster, even possible. In a lot of cities property taxes are enough to get in the way of secure housing for, e.g., disabled people. It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
It seems to be equally straightforward an answer to just not expect homes to function as an investment.
I do not now nor have I ever understood why people expect homes to rise in value. If you live in an area for 20 years, and you enjoy that area, and it serves you well, and educates your kids, and the crime is low, and all that good stuff: why are you then owed money? Why is that a fair expectation? Like I could see it if you made the house bigger, or otherwise improved it? Maybe you put in a new shed, or a nice brick backyard area with a kitchen, sure. House being worth more makes complete sense. But if you just buy a house, and live in it, and maintain it over the years, and then go to sell it: why is it reasonable for you to expect money back out of that?
You've already received what you paid for: a place to live.
Like I just don't see how people go like "My house needs to sell for more than I bought it for years from now" and then complain about the housing market being out of control and houses being expensive. Of course they are. Each time a house changes hands by this logic, it must necessarily be worth more than it was before. So every subsequent buyer of that home is effectively required to tithe to the previous owner for... some fucking reason, that nobody has ever adequately explained to me.
>why are you then owed money? Why is that a fair expectation?
Essentially everybody in the US is continually trying to make their fortune by picking a winner instead of adding productivity and value.
Have your house appreciate.
Pick the right stocks.
Invest in the right company.
Become a landlord in the right neighborhoods.
Everyone wants to be a genius speculator instead of doing work.
I mean, agreed. And I don't think you can disentangle that from the fact that working is less beneficial to workers than it's ever been.
Not only do they want the value of the house to go up, but they don't want anything around them to change. No new 5-story condo complex on that one corner. My neighbor shouldn't add a second floor and block my view.
I think it’s worth pointing out that you and your neighbors actually do have a voice in local government. You don’t just have to sit there and take it. NIMBYs have realized this and actually show up to be counted. You can too.
"No change" is usually the much stronger behavioral driver than "increased property value."
"Don't turn this into Manhattan" is such a common refrain yet turning it into Manhattan would wildly increase their land value.
I’d expect property values to go up (or have gone up) as population rises; less space per person. I bet we could also put together some geometric argument about proximity to things like cities. But it’s the weekend, so let’s just halfheartedly gesture at the potential for rigor.
Anyway, nowadays population is barely increasing so I guess property values… maybe they’ll keep pace with inflation (for whatever reason)?
Another possibility is that property values tend to go up and down as some areas become more fashionable. Maybe, for whatever reason, there’s a selection bias where we tend to associate ourselves the trajectory of people who lived in those fashionable areas instead of the unfashionable ones?
> Why are you then owed money? Why is that a fair expectation?
Because getting the mortgage to buy the house involves parting with a large sum of money, after which some part of the mortgage payment goes towards something called principal. If it just goes towards interest, it may as well be rent.
Not to mention that when you try to sell the thing, there's some expectation by one or more third parties of some percentage of it.
Makes no sense to me. You take a loan to buy something you cannot otherwise afford, then you pay back the loan. Bank wants % on the loan, this is legal, therefore you pay back more than you borrowed. The amount gets split into two buckest, "interest" and "principal", presumably because of size and length of the loan, but arguably mostly to let the bank do various shenanigans that lead to them making more money on it.
Nothing in this gives any good reason for one to expect homes to appreciate in value, other than that some buyers want it to, and I haven't heard any good reason why those buyers shouldn't just be told, "no". If these people then decide not to get mortgages, due to it not being an investment, then all the better for everyone else, who want a home to live in.
But at the same time most people do the bare minimum to maintain their house, so the quality of the property continually decreases. I don't drive a car for 20 years and then expect to make a profit on selling it.
Your analogy might be applicable to the sale of an RV.
What makes a house that has set outside rotting for 30 years more valuable than the day it was originally purchased?
ChatGPT suggests the land might have appreciated, the neighborhood may be more desirable, inflation, or development potential. We don't need programmers anymore because LLMs can do it. It must be an expert on home values too.
I don't give a rats ass what ChatGPT said. Use your brain. Think for yourself.
Sorry, I don't understand. Can you explain again please?
My theory is that the "house" consists of two things: the land and the building.
The land goes up in value when other people spend money. More retail is constructed nearby, transportation is improved, schools improve, jobs are created, etc. My land captures some of that value even though I paid nothing. That to me explains some of the fairness of property tax: the owner should contribute to the government services, such as schools and police, that help make the land appreciate in the first place.
Then there's the building. It's a wood box that sits out in the rain and rots. Water soaks in from the outside and pipes burst on the inside. Termites eat it and insects and vermin invade. Carpet and walls slowly degrade. HVAC systems wear out. Appliances break. Concrete breaks apart. Even on the land portion, plants die and need maintenance. (Trees are the only thing on a property that get better with time.) This building needs constant maintenance and I'm always spending money and time on it.
So I figure the land might go up slowly in value over time. I figure I'm lucky if the building appreciates at all after I consider the money I sink into it.
On paper my house is worth a lot more than when I bought it. But I don't know how much of that is nominal price change due to inflation.
Is “inflation” not a valid answer? Or at least component of an answer?
You can restate all mentions of "value" in the parent post to "real value", and there entire point still holds: why should people expect the real value of a home to increase over time?
It's an answer to why the number is bigger but not to why the house is worth more. It is common to say "I want my house to appreciate in value" and inflation doesn't mean it's appreciating in value, it just means the number is bigger than it was before. That's not the same thing.
PP literally says “I just don't see how people go like "My house needs to sell for more than I bought it for years from now"” That is basically not understanding why people expect the number to be bigger.
> that nobody has ever adequately explained to me.
Jesus it’s not rocket surgery. People want to live in a nice area, as more people show up and want to live in a nice area prices rise with rising demand accordingly. For the counter example, there are very large houses basically for free in Detroit. No one wants them.
> For the counter example, there are very large houses basically for free in Detroit. No one wants them.
Is that true, or do they actually come with large tax liabilities?
>>It seems reasonable to want owning the house you live in to be a possibility for planning to eventually live on a fixed or low income.
One idea here is deferral - if it's your primary residence the taxes are deferred until the property is sold to someone else. This way you won't get evicted but the locality/state can get the payment at some point. This is better than just charging a tax on sale as many countries do because it doesn't discourage transactions.
I would certainly be discouraged from purchasing a property if the price was inflated by having to pay back taxes.
I read the idea as the seller would pay the tax. Not the buyer.
If you see that as inflated due to payback, then it's already inflated due to the yearly tax currently in place. Plus interest.
The the seller is locked in until equity is greater than the back taxes.