Posted on 12/01/2011 6:41:11 AM PST by SeekAndFind
Standard & Poor’s released the latest Case-Shiller data on house prices on Tuesday, and the results weren’t pretty. In the past five years, house prices have declined to 2003 levels, and the average home declined in price by 3.9 percent over the last year alone. National politicians are scrambling to reverse the trend. But the remedy lies in state houses and town halls.
Two weeks ago, both Republicans and Democrats in Congress cited the struggling housing market as their reason for extending an “emergency” subsidy for homebuyers. The taxpayer-backed Federal Housing Administration will continue to guarantee mortgages on houses worth as much as $729,500, something it has done for three years. No middle-class family can afford such a home. But the home-builders lobby argued that a reduction in the guarantee would mean less demand and thus lower home prices not just at the top, but throughout the market. If you can buy an “expensive” bottle of wine for cheap, why buy the cheap bottle? The same thing goes for houses: When expensive houses become cheaper, there is less demand — and thus lower prices — for even cheaper houses.
No matter how hard Washington tries, though, it can’t legislate away reality. And the reality is that even half a decade into a housing slump, Americans still have good reasons to be wary of plunking down their hard-earned cash and signing up for a long-term mortgage. These reasons are closer to, well, home, than to Washington.
A house is worth what a buyer is willing to pay for it in monthly costs. That’s why if mortgage interest rates go down, house prices go up (or at least fall less than they would have otherwise). When a potential homeowner has to spend less on mortgage interest, he can devote more money to paying principal, and therefore is willing to make higher bids. So the house is “worth” more — at least until interest rates rise again.
But when you buy a house, you’re not just committing to a mortgage. You are also promising to pay the future property taxes on that house. What drives those local property taxes are the future costs of paying state and local workers and retirees, particularly retirees’ pensions and health care. These costs are going in one direction: up.
Unless state and local governments take steps now to reduce future costs, or unless they plan on suddenly repudiating their promises to their public-sector work forces one day, every dollar in unfunded pension and health-care costs is up to a dollar less in the future value of a house.
Take one example, New York’s Westchester County, the highest-taxed county in the nation. According to the Tax Foundation, property taxes in Westchester average $9,044 annually — up by $1,707, or 23 percent, in the five years from 2005 to 2009. Inflation accounts for less than half of the increase.
What if property taxes in Westchester were to increase by another 23 percent, to $11,124, in the next half decade, or even the next decade? That’s an extra $2,080 in annual costs per house, or nearly $175 every month. Even after deducting these levies from his federal tax bill, a homeowner would end up losing $1,456 a year. Families that considered buying a house would sensibly lop that extra amount off the price they are willing to pay — and the seller would lose about $23,500 in investment value.
When houses prices were skyrocketing, nobody cared. The force of the bubble seemed strong enough to overcome such cash outflows. But now that the bubble has burst, these costs are much more real.
Westchester may be an extreme case. But in New York State, counties, villages, towns, and school districts (excluding New York City) have made about $28.7 billion in health-care promises to future retirees without setting aside any money to pay these bills. That money has to come from somewhere.
A home buyer should consider part of this projected burden to be a call on the future resale value of his house. New Jersey, California, and other states have made similar promises with their residents’ home equity.
Yes, it’s true that New York and New Jersey recently enacted caps on property-tax hikes, and California has long had such a cap. But unless state and local governments rein in costs, local governments will have no choices but to find a way around these caps. The New York and New Jersey caps already feature generous loopholes, allowing local governments to increase taxes above the cap to pay pension and some debt costs.
Moreover, if local governments can’t pay their bills through property taxes, they’ll try to get the money from taxpayers by some other route, likely state income taxes. In the past few days, New York governor Andrew Cuomo has seemed to be backing away from a pledge to allow a “temporary” income-tax surcharge on six- and seven-figure earners to expire.
Higher state income taxes similarly mean less discretionary income for taxpayers — and thus less money available to spend on housing. Less money in a future taxpayer’s pocket means less money for today’s homeowner when he wants to sell his house tomorrow.
Washington can continue to take extraordinary measures to prop home prices up. But forces at the state and local level are pulling prices down.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
Taxes do drive down home values but they also keep the rich or well to do from mingling with the poor and those of other races. The most segregated states in America are the most liberal and that is how they disguise segregation.
Most property taxes are tyrannical as the vast majority of property taxes go to the state mandated public school...if you don't want to send your kids to that particular public school-—you have to pay twice, first for the lousy public school and second for the school you really do want your kids to go to...if there was real school choice/competition (public, private, homeschool etc), the schools would be awesome, and property taxes would be much easier to swallow.
I dread the property tax bill every October, and I only have county taxes, no city taxes....
There should never be taxes on property. They are called “Land Rents” and were paid to the King. Nothing different here. Fail to pay your taxes and the King takes your land. Same thing. We fought a Revolutionary War over this type of nonsense.
OK, if there are no property taxes, how do you propose we pay for local schools, libraries, garbage disposal, parks, police, firefighters, snow removal, local road repairs, etc.?
Or are you proposing that they all be totally priovatized?
As an American I ask you that question. Are you saying Land Rents, the taking of private property rights, are the only means to support government funding?
RE: Are you saying Land Rents, the taking of private property rights, are the only means to support government funding?
The only other means I can think of is INCOME TAXES, or SALES TAXES. Otherwise, we’ll have to privatize all these services we are so used to (in which case, we might see one part of the street snow plowed and other parts which don’t pay, covered with snow unless they do it themselves. We might also see houses that burn NOT being saved by firefighters because they did not pay).
If you can think of any other more efficient means, you’re welcome to propose it.
You mean violation of property rights, the basic and fundamental right to own property without fear of confiscation, is the only means you can think of that is viable?
Real Estate taxes mean you do not own your house, you are just renting it from the city and county.
RE: You mean violation of property rights, the basic and fundamental right to own property without fear of confiscation, is the only means you can think of that is viable?
I just proposed INCOME TAXES and/or SALES TAXES as the other means. I can’t think of any other. You seem to be a smart man, tell me what you think is viable other than the ones I just proposed.
user fees and tuition. No one should be forced to pay for what they don't use
No matter what your union says
I live in Westchester. Its totally nuts.
I agree! It appears that Americans do not own anything outright and that is sad.
OK, if there are no property taxes, how do you propose we pay for:
local schools, user fees (tuition with scholarships)+ sales taxes
libraries, eliminate, or user fees
garbage disposal, user fees (duh!)
parks, privatize, eliminate, or user fees, sales taxes
police, sales taxes
firefighters, user fees funded though homeowners insurance companies
snow removal, gas taxes
local road repairs, gas taxes
If you wish, you can augment things labeled “sales taxes” with other forms of state revenue including gax taxes, income taxes (yecch!) and gaming revenue.
Here’s the irony of property taxes. They simply “soak the rich” because they are based on value, not proportional costs incurred or benefits received.
Say there is a vacant buildable lot next to my home. If I buy it to have more space, I ensure that there will be less future demand on our schools, roads, and for other services. Yet I’m being charged more because I have to pay the taxes on two properties now.
I understand that by keeping someone from improving the lot, I’m depressing the tax base, but that’s about the government’s NEED for more money where they can get it, and not based on the demands a property puts on local services.
With respect intended, do some more indepth thinking. Think of means for collecting taxes based on “No Taxation Without Representation” and without the need to violate the right to own property without confiscation. If you have to pay rent or else lose something you simply do not own it.
Look at road maintenance, gas taxes in most States pay for that. Use the roads then pay the gas tax. Perfectly fair.
Indeed, there should be no tax for merely existing or owning something. That undermines the basic freedoms of life, liberty, and property on which our society is based.
The usage tax is absolutely the way to go.
If you use something that is a “public” capital resource, like roads, there is a way to tax that through fuel taxes.
Fire and police protection, however, are less of a “per use” kind of concept. But even today, we have renters who live under the protection of police and fire control without directly paying for it in the form of property taxes. Sales tax would be the way to cover that. If implemented, the cost of the property tax for the owner of the property would not be passed on to the renter, and would make up for the increase in sales tax.
RE: Use the roads then pay the gas tax. Perfectly fair.
I just said Sales tax. How is that not thinking? A gas tax is essentially a sales tax on using gas.
Sorry, misunderstood your previous reply. Yes, a commerce tax is the way to go, just like in yesteryear the Port Tax was paid by ships sending or receiving commerce through the ports to pay for such things as the port itself, national defense (Navy), and other representative services of that port.
We are currently hoping to sell our house for $170k. Property taxes are five grand a year. Ten years ago the house cost us $175k and taxes were $3500 a year. How’s that for nuts?
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