Why Property Taxes Must Be Cut

According to the S&P/Case-Shiller 20-city Home Price Index, housing prices peaked in July 26. They have fallen 23% through October 2008. With employment falling, housing prices will no doubt go lower in coming months.

If there is any good news in this, it is that the affordability index is improving. This index tries to give us some sense of how affordable the median priced house is for the median income family. In addition to housing prices, the affordability index considers mortgage rates, which have also come down largely due to government intervention.

Unfortunately, the affordability index ignores an increasingly important cost of home ownership: property taxes. Prospective home buyers in many parts of this country, especially the Northeast and Midwest, must pay close attention to this cost before signing on the bottom line. For many homeowners, the monthly outlay for property taxes now rivals their monthly payment toward principal and interest.

This economic recession we are currently struggling through was largely brought on by the collapse of housing prices. The recession won't end until housing prices stabilize. Lower mortgage rates are certainly helpful, but reducing property taxes would go a long way to provide a much needed boost to the housing market. Obviously, the federal government has no role here. It is up to local municipalities to cut property taxes. Like the rest of us, they need to trim their budgets and live within their means. Otherwise, more neighborhoods will be plagued with vacant and foreclosed homes.

Comments

[ArtfulDodger:]

Mr. Janjigian:

You are certainly right: cutting both spending and taxes is what's needed across the nation. But with all due respect, I think it's wishful thinking that will not happen any time soon.

Most local municipalities are run by leftists who have no plans to cut property taxes. They have taxed and spent and borrowed and spent during the real estate boom.

Now, instead of cutting spending and cutting taxes, they're waiting for the new Democrat Ad & Congress to send them money to make up for their deficits.

Heck, the leftist Bloomberg mayor of NY is planning a 7 1/2% property tax increase!

I don't know of any city or county planning on cutting taxes, except in Florida, where the state government had to make a move on cities and counties last year to stop them from their continuous property tax increases. There have been cuts there, but the cities and counties didn't do it on their on.

If anyone knows of any other cities cutting property taxes, I'd like to know about it.

Jan 11 08:39 AM

[fastcad:]

Haven't you been paying attention, lowering the property taxes will just cause home ownership to be lowered and then Real Estate Agents and Home owners will raise the price of owning a home. This cycle has got to stop, our governments can keep borrow and spending, most states are close to bankruptcy. Everyone needs food, transportation and a place to live. Housing prices have been distorted by supper low interest rates to 'create wealth' which the whole market melt down shows only goes so far. Owning property is having property taxes, renters pay rent which includes property taxes. The market will only recover when the cost of a house and taxes will equal the monthly rental value, It has been shown, by this bubble that lowering, interest rates or any thing that artificially lowers housing costs will only cause House flippers to get rich, everyone else will lose. So we must raise property taxes.

Jan 11 10:36 AM

[DuffBeer:]

Vahan, Finally someone is noticing this part of housing and a very big problem now and ahead.
Taxing bodies are no longer using market valuation of current sales !!!
They are now going back to those days the real estate agents set the high wealth creating years. Wait till they factor in the new cause of foreclosure when homeowners will lose their homes to unpayment of real estate taxes.
FASTCAD will most likely be scooping them up at the County Sheriff sale.

Check out what is happening in Chicago highest tax rate in the country !!!
Fastcad just send in your extra dollars to you local taxing body I am sure they will accept your generosity with giving themselves a handsome pay raise .
As you me lower them so I do not have to here about another Grandma losing her home because she can not pay the taxes.
Cheer's DuffBeer

Jan 11 11:28 AM

[Econ 101:]

And what everyone misses is that when the taxes arent paid and the city or county doesnt have the revenue someone doesnt get paid. Will it be the first responders (FRs) or the clerks in the business office? What happens when the FRs realize they no longer have a pension?

This article is only the first part of the crisis & chaos ahead of us

Jan 11 04:47 PM

[Obama is Bu...:]

What many people forget when they want more education spending or more first responders or more local government services in general is that we have to pay for this largess.

Obviously we are in a recession at the moment, but if you look at U.S. GDP over a long period (25+ years), it has been growing a little less than 5%.

Government spending by municipalities has been growing 8-9% (looking at a national average) over the same long period.

Expenses cannot grow faster than revenues... that should be common sense.

Municipal workers are whining all the way to the bank. While *stated* salaries are "only" 60K in my town, many of the bureaucrats actually take home well into six figures. A high school janitor last year apparently raked in $180K with all sorts of overtime.

Another recently discovered scam is "double dipping" -- and its a scam that has appeared in newspapers in FL, CT, NY, and Illinois (that I am aware of -- probably elsewhere). Municipal workers are eligible for retirement after a much shorter period. After working 20yrs, they "retire" for 32 days (one month plus one day) and then get rehired into the same position -- collecting both a pension and a paycheck for the same job.

Even if these cases are isolated to just the four states above -- the simple practicality is that the United States cannot afford to pay so much for government. Period.

If GDP is growing 5%, government can grow no faster... its a mathematical truism. Liberals may want government to grow the full 5%, conservatives may want government spending confined to 2% (CPI rate). Anything in that range is a valid opinion -- even if we don't agree with the other guy.

But growing government spending faster than the economy is a recipee for bankruptcy -- plain and simple.

California is learning this lesson the hard way -- they will be forced to cut government spending whether they want to or not. New York City had to learn the lesson back in the 1970s -- and indications are they will have to learn the lesson again soon.

Money doesn't grow on trees -- not even if you are a government

Jan 11 10:41 PM

[ArtfulDodger:]

fastcad:

There are two problems with your points: 1) house flippers for the most part did not get rich; everyone I know who stuck his nose in this bees nest is now sitting on the sidelines busted; or paying huge interest payments on properties that are now worth much less than they paid for them.

2) cities and counties did not lower rates during the last real estate boom; they raised them to the heavens, and what happened: home prices soared.

Now that they've crashed you can't possibly justify home owners paying the same millage rates as they did when their homes were worth 20-40% more.

Lowering property taxes at this time is a matter of equity and justice, not an attempt to raise home prices.

Of course, every leftist I know thinks higher taxes on everything is the answer to everything; and that's not going to change no matter how much proof, truth, or evidence is presented to them.

Jan 12 03:14 AM

[DionyzJ:]

The key is not only cut property taxes, but also how they are assesed.

Ask yourself what do property taxes go for - schools, police, fire dept, street maintenance.
Now ask yourself what does a value of a home have to do with any of this? NOTHING.
Property taxes have to be restructured such that they are not base on the value of the property. They should be equal for all houses regardles of value, except for the school portion of the property tax. Portion of property taxes going for our schools should be based on the number of children living in the home.

Lets stop DISCRIMINATING against the sucessful people and move to a fair property tax system.


On Jan 11 08:39 AM ArtfulDodger wrote:

> Mr. Janjigian:
>
> You are certainly right: cutting both spending and taxes is what's
> needed across the nation. But with all due respect, I think it's
> wishful thinking that will not happen any time soon.
>
> Most local municipalities are run by leftists who have no plans to
> cut property taxes. They have taxed and spent and borrowed and spent
> during the real estate boom.
>
> Now, instead of cutting spending and cutting taxes, they're waiting
> for the new Democrat Ad & Congress to send them money to make
> up for their deficits.
>
> Heck, the leftist Bloomberg mayor of NY is planning a 7 1/2% property
> tax increase!
>
> I don't know of any city or county planning on cutting taxes, except
> in Florida, where the state government had to make a move on cities
> and counties last year to stop them from their continuous property
> tax increases. There have been cuts there, but the cities and counties
> didn't do it on their on.
>
> If anyone knows of any other cities cutting property taxes, I'd like
> to know about it.

Jan 12 09:31 AM

[LVTfan:]

The property tax as most of us (outside of a few wise cities and towns in PA) is two taxes yoked together. They have very different effects, and we ought to separate them. The current property tax is a tax on land value and a tax on building value, both with the same millage rate.

Taxing buildings leads to fewer buildings, less redevelopment, lower quality buildings, poorer maintenance, a deader economy.

Taxing land value leads to prompter redevelopment, buildings closer to the highest and best use of prime sites in the central business district, more jobs, more vendors competing for your business, more housing, more opportunities.

So the answer is to unyoke the two taxes, and apply a lower millage rate to buildings -- say, 10% or 20% lower than the current millage rate (or be bold and eliminate the building tax completely!) -- and raise the millage rate on land value.

Not a single acre will leave town. Owners of prime sites who are sitting on vacant lots, or obsolete buildings serving a single tenant where there ought to be a multi-story building serving several or many will be motivated to either develop the land themselves or sell it to someone who will. Either way, the community gets better. Opportunities for those who want to work or to have a good location where customers and employees can reach them will increase. Housing will be available and affordable, and in central places where people can do without a car for much of their activity.

Jan 12 12:36 PM

[LVTfan:]

DionyzJ, I think you're wrong. Property taxes are generally used to provide exactly the services which maintain the value of the land you own. Schools, police, fire, street maintenance -- all of these maintain your property value. I agree with you that property taxes should not be placed on houses (see my comment on that, below). People flock to communities where the living is good, and taxing the land value is the best way I can imagine to collect the revenue to support those services rationally and justly.

I disagree about taxing people with children more than those without. We all benefit when our community's children are well educated. Even the childless, in their old age, will not want an uneducated illiterate person responsible for their care, or voting on who will govern and represent us. And it takes a community to finance good schools; families with school-age children are so financially stretched in most places, even with just one or two children.


On Jan 12 09:31 AM DionyzJ wrote:

> The key is not only cut property taxes, but also how they are assesed.
>
> Ask yourself what do property taxes go for - schools, police, fire
> dept, street maintenance.
> Now ask yourself what does a value of a home have to do with any
> of this? NOTHING.
> Property taxes have to be restructured such that they are not base
> on the value of the property. They should be equal for all houses
> regardles of value, except for the school portion of the property
> tax. Portion of property taxes going for our schools should be based
> on the number of children living in the home.
>
> Lets stop DISCRIMINATING against the sucessful people and move to
> a fair property tax system.

Jan 12 12:43 PM

[LVTfan:]

Have you noticed that the places with the highest property taxes are also the places which send the largest share of their high school graduates to four year colleges, and that the places with the lowest property taxes tend to send relatively few to college and have many dropouts?

Does a college education matter in 2009?

Jan 12 12:46 PM

[LVTfan:]

Vahan writes, "reducing property taxes would go a long way to provide a much needed boost to the housing market."

Yes -- that's what drove California's housing prices sky high, and its housing affordability to the point that the California Association of Realtors stopped publishing the Housing Affordability Index each month. People were forced into ridiculous mortgages, bidding for a relatively limited supply of housing. Proposition 13 has benefited one class of people greatly -- those who were of prime homeownership age in the 1970s and early 80s, and their heirs (who inherit their grandfathered miniscule tax bills) -- at the expense of young people. California has approximately the 4th lowest homeownership rate in the US -- but its seniors have a homeownership rate *above* that of their counterparts in the remainder of the US! And the younger people must subsidize them as well as pay huge mortgages to finance windfalls to those few who do sell, or drive long distances daily to new housing on the fringe. It is a very miserable system. It causes municipalities to court the big box stores and other things that destroy the downtowns. It makes it difficult for new owners to compete with longtime competitors, raising prices.

Prop 13 is a failed experiment, and we ought to learn from it and never repeat it.

Jan 12 01:06 PM