>>No one has proven conclusively on this thread or any other that Prop 13 was the primary driver of the above average real estate inflation nor have they proven that without Prop 13 prices in an area like SV would be any more reasonable. Consider that the outrageous real estate price inflation (and subsequent tax increases) were the primary driver behind Prop 13 in the first place. If the law can be faulted at all it is that it failed to do what it was intended to do and that was rein in government spending. <<
the only argument that has been proffered about this that hold any water whatsoever is the "fairness" issue...
and one could poke some holes in that one considering as you pointed out earlier, RE is the only asset class we have that is taxed higher and higher on unrealized gain.
when our state changed over to reassessments of properties (every 2 years) it had absolutely no effect on the prices of the expensive homes in the most desirable zip codes...those properties continued to appreciate handsomely because of their location
and the wealthy (like buffet) can afford the increase, the middle and upper middle class (for that matter even poor if they own property and it is reassessed at higher levels) are the ones who are most effected by rising RE property taxes.
and as you have also aptly pointed out, price inflation was the reason for prop 13 in the first place, if anything, as a result of the RE inflation in some areas other than CA (yes they do exist) we may see a drive for more initiatives in other states like prop 13 as people start realizing just how large those tax increases are, i expect to see more pressure politically for RE tax abatement than the other way around.
money.cnn.com
Taxes: The bane of the housing boom
Property taxes have been rising with home values, in some cases wiping out the effects of low rates.
June 6, 2003: 10:59 AM EDT
By Sarah Max, CNN/Money Staff Writer
New York (CNN/Money) - Willie Fortier, for one, could do without the booming housing market.
For Fortier and homeowners throughout the country, the rise in home values has meant just one thing -- higher property taxes.
"One year my property taxes went up more than 25 percent," said Fortier, a retired postal worker in Wichita, Kan. The annual tax bill on his three-bedroom house, about $1,300, has gone up more than 60 percent since 1999.
For state and local governments, property taxes represent the single largest source of tax revenue. In 2002, according to data from the U.S. Census Bureau, states and local governments collected almost $285 billion in property taxes, a 9 percent increase from 2001.
For homeowners, however, property taxes represent the single largest expense outside of their mortgage. And while all-time-low mortgage rates allow homeowners to cut their monthly payments, spiraling property taxes eat away at much of that savings.
Calculating your annual dues
According to a survey conducted by the National League of Cities in February, 25 percent of city finance officers said they are responding to budget shortfalls by increasing property taxes.
But with some noteworthy exceptions, such as New York City, most local governments have not made any drastic increases to their property tax rates, at least not yet. They haven't needed to.
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For now they are simply counting on home values to keep rising. After all, two things generally affect property taxes: the actual tax rate, or mill levy, and the assessed value by which this rate is multiplied.
"Rates haven't gone up, but as values go up, taxes go up," said Michael Carliner, an economist for the National Association of Home Builders, adding that governments will lower tax rates to counter some, but not all, of the effects of rising home values.
While every state has its own laws regarding how property taxes are levied, local governments have quite a bit of say in what tax rate is applied and how property is assessed. (See "Trim you taxes.")
"We've probably seen about twice the level of public anger and concern this year versus two years ago," said Pete Sepp a spokesperson for the National Taxpayers Union, an advocacy group for lower taxes. "We've also seen a about a 50 percent increase in orders for our brochure on how to fight property taxes."
Pushing up the price of home ownership
If you plan to stay in your house for a while, rising home values can be a curse rather than a blessing.
"For most people, they view rising home values as paper wealth," said Lawrence Yun, senior economist with the National Association of Realtors. And while it's possible to tap this higher value by borrowing against your equity, homeowners still feel they're paying a tax on gains they have not actually realized. "They see rising tax payments as sucking the dollars out of their pockets," Yun added.
Although low mortgage rates are providing the main support for the housing market, Yun and other economists are keeping a close eye on property taxes in forecasting the direction of the housing market. "A higher tax rate dampens enthusiasm for wanting to be a homeowner," said Yun, who is studying the effects of property taxes on home values.
In some cases, any benefit of a lower interest rate can be wiped out by higher property taxes.
For example, say you bought a house for $200,000 for which you borrowed $160,000 at a 6.5 percent rate over 30 years, making your monthly mortgage payment $1,011. Your property tax , meanwhile, is $15 for every $1,000 of your home's assessed value or $3,000 a year.
Now, flash forward a few years. You owe $150,000 on your house and refinance at 5.5 percent, keeping the same terms of your loan. In doing so you reduce your monthly mortgage payment to $890, saving about $1,450 a year.
Ah, but there's just one catch. You live in hot real estate market where prices have increased 15 percent a year, bringing your home's assessed value to $300,000. While you're saving on a lower interest, you are paying $1,500 a year more in property taxes.
But remember, you get what you pay for
The relation between property taxes and home values is complicated.
"If you look at the pattern of house prices, they do reflect property taxes," said Karl Case, a professor of economics at Wellesley College and founding partner of the real estate research firm Fiserv Case Shiller Weiss. All things being equal, buyers will pay less for a house if the property taxes are high.
But, Case explained, it's important to remember that when you buy a house you're also buying the qualities of its neighborhood or town.
On the one hand you may pay more in property taxes to live in an area with good schools, leafy parks and well-maintained streets. On the other (assuming your tax dollars are spent wisely) you reap the benefits of those taxes. And, when it's time to sell, you'll be able to ask more for your property because of its great location.
Hopefully this will give you some comfort when you receive your annual property tax statement. |
