I'm in Texas, a state with pretty high property tax. We've also seen a ton of appreciation in recent years. Booming economy, transplants from other states, then the COVID factor. We also have a near free market on rent; I've been a landlord and not aware of any limitations. There are a couple limits on property taxes (namely a cap of 10% increase per year on "homesteads", and an Agriculture exemption for rural properties). But for most people in the towns and cities, this means our property tax bills have been growing 10% a year for probably the last 15+ years. So, the problem we're having now is people that have owned a home for decades or even just 5 years are finding they get forced to sell because they can't afford the tax bill. Since housing has appreciated, they're not just forced to sell, they're likely forced to leave their community for another cheaper place. I don't think it's right to lock up land/property forever, but I do think people buying property should be able to predict whether they will be able to afford to continue living there as they age. Even rather young families are dealing with this.
I personally think it's awful to see elderly people getting priced out of a house they've owned for decades, young families have to move their kids in their high school years because the taxes have become unmanageable, how it disproportionately impacts POC as gentrification occurs, and all the other ways it impacts people's lives who just thought they were buying a house to set roots for their lives/families but then externalities cause it to suddenly become unaffordable.
It's extremely perverse when you consider that these people's tax dollars are often used by politicians to encourage the very "growth" that contributes to their affordability problem. They court corporations and give huge tax breaks to move their offices/factories to Texas, which drives up the demand for housing, etc.
Property tax on owner-occupied residential property everywhere should have a "replace it with a lien against the property" option - some states have it.
The exact situation you're referring to caused Prop 13 in CA, and something has to be done before something like that gets enacted.
California has the California Tax Postponement Program which predates Prop 13 and specifically protects poor old grandma.
Prop 13 wasn't passed as a law to help the unfortunate. It was anti tax hatred of the government. Jarvis wanted a "tax revolt" which is why all property in the state, even oil fields and golf courses, gets the tax break.
Doesn't that approach just defer the tax until the property was sold?
If so I wonder if that can create the opposite of the problem of elderly people being forced out by rising taxes. Namely someone who wants to move out but can't afford to because after all the deferred taxes are paid from the proceeds of a sale they won't have enough left for another place.
Do you mean transfer the lien to your new property? A lot of seniors move to different states which might complicate things.
There's another way that is better than it currently is, without the downside of building a potentially large debt if the senior manages to live a long time after retirement before finally needing to move.
That's exemptions and/or freezes. E.g., here in Washington if you are at least 61 and have a disposable income under 70% of your county median income they freeze the assessed value of your property and exempt you from part of the state-wide property tax. On a $400k assessed value home that would cut the taxes from $3400/year to $2200/year in my county. The 70% threshold is $65k.
There are more exemptions at 60% ($56k) and 50% ($46k) that remove more of the state-wide tax and also some of county and city taxes. For those below the 50% threshold in my county that would reduce the tax on a $400k assessed home to $900/year.
Washington does also have a tax deferral program, but that is aimed to low income in general rather than seniors. I think it is meant for cases where you have a temporary reduction of income but are expected to recover.
Exemptions also work - and we end up with something like that in areas that don’t have them - few taxing authorities will force s tax lien sale against an elderly or disabled family - the optics are just way too bad.
They’ll just record them and wait. It’s the one thing the government has that normal companies/people can’t do. Wait it out over lifetimes.
I can only find information on property tax liens as it relates to delinquency and non payment, not as an alternative model for deferring property taxes (I imagine until death of the owner or sale of said property)
Do you have any more information? At first blush I can see how inheritance schemes would create massive loopholes in this for example.
Old people in Texas get their property taxes frozen I believe at 65. But honestly it might be better for them to downsize into something more appropriate and perhaps free up the larger houses for families. My mother has basically just turned my parents' house into an eBay warehouse full of junk that she intends to sell one day. I can't say that I have any big problem with that at the end of the day, but if you think getting young families into housing is a more important goal for society, then it does seem like a waste.
Meanwhile, I'm pretty sore about the 10% year over year thing, particularly when I hear about how Republicans run a low-tax state or that a wealth tax is unconstitutional/infeasible. I pay my wealth tax every year, but I suspect I'm too poor for the kind of wealth tax they mean. I can at least enjoy the irony.
> Old people in Texas get their property taxes frozen I believe at 65.
True but if you're turning 65 after you're tax bill has grown 10% for over a decade as your transitioning to your fixed income years; it's not a good thing just to freeze the tax bill. You might not have time to earn and save enough to cover the value it gets frozen at. It does help soften the blow for many though.
> But honestly it might be better for them to downsize into something more appropriate and perhaps free up the larger houses for families.
I wholeheartedly despise this line of thought, unless it's coming from their individual decision to downsize. You're basically treating the house like a commodity. It's a Home this person lived in, raised family in, hopes to continue hosting holidays in, where grandchildren can go to visit, etc. They should be able to use it until they decide to leave. On average, they only have another decade or so of life left anyway after their taxes get frozen at 65, let them enjoy their home.
If you despise that thinking, then we need to regulate the housing market to discourage seeing housing as an investment as we see it today. Everyone expects, more or less, for real estate to climb in value but nobody wants to square that with these other emotional ideas attached to housing.
It either is an asset or it’s a commodity as far as the market goes. If you want generational housing and for housing to be generally affordable something has to give. Kill it as an asset class and you get what you’re looking for.
10 years is a long time in the housing market. Assets sitting for 10 years under utilized is another way to think about it.
These two ideas - that housing is an investment and that people shouldn’t be incurring tax burdens on them like this - do not square
It's fine to be an investment. It can climb in value. But it doesn't need to be such a need to force the liquidity. Your example of "under utilized asset" and downsizing must then translate down to some metric of square-footage per resident. How exactly to you propose to regulate the housing market with this in mind, in a reasonable manner. Because, to me I think of the 2 sides. Growing households and shrinking ones. On the shrinking side, we want the government enforcing laws requiring homes get sold as each child moves out to adult hood? Then again as each spouse dies? On the growing family side, they get to move into a bigger house only as each child is born? This is just insane right?
I personally do not think 10 years is that long in housing. Sure a lot can change in housing over that time but at any given moment, If I'm in need of housing and supply doesn't exist, I can build a custom home in less than 2 years. I can buy in a development basically immediately. This might not be a global truth but it's the state of things in Texas specifically, and has been for a long time. Affordability is the limiting factor, not time.
I think the property taxes in Texas make sense if RE grows at rate of inflation. For a long time, we had affordable housing and now that's not necessarily the case. So the rules/laws need to change to protect people from getting priced out due to taxes is all. It's an issue that didn't bother anyone before because they were assuming their raise in income would cover the raise in taxes. But wages don't increase 10% annually like our taxes do (whole other topic LOL!) so they get put in a hole. Anyone coming into the market now knows the prices, it's all available information, and they can decided if they want to move here or not. It could all be a bubble that pops and corrects one day, but not until inbound population growth slows down.
market churn (which is in part informed by time) matter with affordability.
I don’t propose what you’re saying either. A land value tax is more than sufficient, by any research I’ve seen on this topic. It doesn’t in any sense mean what you’re saying here. Only that under utilized land (usually classified as unbuilt or vacant) is taxed more heavily. Thats one facet. The other is that it shifts the property tax off of building values and onto land values can make both buildings and land less expensive. This has a knock off affect of reducing the value of real estate holdings to varying degrees in terms of value in the short term but stabilizes in the medium and long term.
That would be better in my view but as it exists today, we instead have to rely on building more housing or putting more existing supply in the market, neither of which in broad strokes are happening in a way that keeps pace with demand unfortunately
Also: not everyone who can afford to buy a home can buy a home built from scratch. There are different classes of home buyers and the vast majority aren’t moving into custom homes like that. Its unreasonable to think that it’s common place in aggregate
I don’t know that it’s possible to intrinsically make real estate non appreciable per se, but you can shift it to be more commodity like and stop treating it special and pass regulations that encourage selling and discourages holding, which as a land value tax, would be a good start. Removing the mortgage interest deduction would be another
Removal of sub class zoning for housing would also be beneficial. Its one thing to zone an area for industrial vs housing but it should not be permitted that when land is zoned for housing they can zone specifically for single occupancy homes for example.
> If you despise that thinking, then we need to regulate the housing market to discourage seeing housing as an investment as we see it today
Quite the opposite, regulation of the housing market rarely ends well. There's quite a few countries that can speak to the horrible deadlocks that occur when regulation suffocates the housing market.
There's nothing particularly wrong with investment per se, now if you make the market so regulated such that there's no competition, you're destroying any kind of forces that push the price down, or if you make the investment so costly the prices go up to compensante.
Heck, there's even countries where the regulation was so insane it was far better to hold an empty home than to actually rent it out.
The property taxes should be placed proportionally towards those who are making money from owning properties and therefore have an ability to pay them.
If grandpa and grandma are just living in their house in Texas and surviving on the last of the pension, they're not even vaguely in the same category as a property owner deciding which of the next condo buildings to buy.
Their tax bill is rising 10% a year, depending on their property tax (if it is budget based or not), this could just be that their property is appreciating 10% faster than everyone else’s property. That means their equity is shooting through the roof. If it isn’t on a budget system, that could mean that their property (and possibly everyone else’s) property is appreciating 10% a year, or maybe they are adding levies or increasing the rate to fund new spending.
All of this sounds well and good until you see the natural conclusion of those policies to keep old people from having to pay for their dragon hoarde. It turns your city into the Bay area where no one can afford to live there except the landed gentry you've created.
You need to fix the problem, but fixing it by Prop 13 has numerous issues. If it had been deferred as a lien against future sale/inheritance, or didn't apply to commercial properties, or ...
Fixing the "problem" of people not moving out when the area prices go up is exactly the problem itself.
The issue is availability of property flat out. As long as there's no incentive to make affordable property available, every actor wants their property values to rise and cares little for the negative effects it has on everything else.
Those property taxes exist for good reason because you have to be able to pay for the services / infrastructure from it. Without those matching the area, problematic spirals occur.
Thanks for posting this view: I had read the "Land Value Tax"-side of the argument before (and somewhat agree with it), but I hadn't seen someone post good reasons _not_ to support LVT. I think your reply - and your other replies - are pretty good reasons
"We've got a bunch of people with massive wealth, so tax only the people earning new money" doesn't sound like it is going to equalise the state of the world.
I will also accept inheritance tax at 90%, if you really want to skip property taxes :)
California's housing situation is because they are a highly desirable location and didn't build enough housing to meet demand not because they have an income tax.
Selling your house and losing your lower assessment is a huge reason not to sell your house. This make California’s real estate market less liquid then other real estate markets, since selling can have a huge extra cost vs not selling.
One reason would be that it is the things on top of the land that determine how much of various government built and maintained infrastructure is needed.
Texas doesn’t have an LVT they have a traditional property tax system that primarily bases taxes on assessed value of the home on top of the land, not the land itself.
LVT would actually negate the parent posters complaints, as only the underlying land would be assessed and the penalties only really kick in if the land is unoccupied or is not utilized (sitting vacant is the most common of this, followed by lack of utilization, for instance under many LVT implementations large lot owners with single homes also get hit with underutilization penalties to encourage subdividing and utilization of the land which is a net win for society
And often the immediate land owner. Objections tend to philosophical on this point)
It disincentives empty / under-utilized land holdings like vacant lots or lots that could support more utilization (usually via an activities like building homes on top and selling / renting them or farming)
There is nuance in implementation details but in broad strokes that covers it in tl;dr fashion
There are ways to address this problem, but in any case this is still ultimately a very good problem for property owners to have. Their property value has increased dramatically. Being forced to move is inconvenient, but you do so with a large bag of cash.
That big bag of cash won’t buy a community where you know most everyone and have friends of decades or more whom you support and support you in return. Social connections take a long time to build and are hard to replace with cash.
You can’t have your cake and eat it too. Everyone wants their home to be worth more and more year over year but doesn’t want to incur any obligation for it.
How do you square that with the idea that communities and social connections are more important? Look at what California did with prop 13. It’s a disaster by all accounts. We need to switch models not create more complicated exemptions around property taxation.
Land Value Tax is more equitable and doesn’t have the intrinsic volatility and unpredictably of how we do property taxes today which is assessed in the unit value not the land and only punishes under utilization and vacant land holdings. This encourages building and to some extent smaller parcels of land per unit built
I would rather have my home than a bag of cash. I’m not even old, but I did grow up here and it has immense sentimental value to me. My grandma lived in her house for over 65 years, and died in it. I doubt she would have moved for anything short of multigenerational wealth.
In Texas, although homes are valuable it is or was easy to lose your home to an HOA without a court proceeding. There is a famous incident in 2010 where a soldier lost his home and neither him or his wife knew anything about it. Supposedly the HOAs have been reined in but the whole concept of HOA in a state that prizes rugged individualism is beyond me.
There was another case, in Texas too, I believe where an older widow didn't pay a HOA due after her husband died.
The amount was in the low hundreds (maybe $300).
HOA liened her house, then forced sale.
A local landlord put a bid that was found later to be about 70% under market (like $125,000 offered for a $400,000 home). The HOA Board voted to accept the offer and sold the house to this landlord.
In the drama that unfollowed there was also this little nugget: the landlord was on the HOA Board, and was one of the ones who pushed for the forced sale, and then voted in favor of the Board accepting his short offer on the house.
I don't recall the details of the outcome, although I believe some compensation was paid out to her.
> I personally think it's awful to see elderly people getting priced out of a house they've owned for decades
Housing being seen as this generational I own it forever thing that Americans have doesn’t also square with the American narrative of housing as an investment.
It’s one or the other. If you want housing to be seen as something that more or less “always goes up” but you can’t be taxed in the increased value then you are by nature distorting market dynamics you don’t see elsewhere.
We need a land value tax instead it’s more fair and less volatile
> Another way to think about it: they’re selling at a premium well over they bought it for.
It's not a premium. It's what housing costs. If they take their "premium" and buy the next house, their tax bill is unchanged (more or less). They have to actually go find a house that is much cheaper so they can afford the tax bill.
More often than not, it causes them to move out of an area that has seen growth to an area that has not seen as much. This might be moving from Houston to a suburb of Houston, or moving from a suburb of Houston, to a small town 100 miles outside Houston.
The correct "Other way to think about it" is like telling someone this;
You bought this property when the neighborhood was worth nothing. You lived here for years when it was nothing. That might mean it was rural or crime ridden or whatever; but it was cheap and you could afford it. Good job sticking it out all those years and then letting "us" build it up around you. However, now that we've done that, we feel you are still a nothing if you can't afford the tax bill, so go find another rural/crime ridden area to live in. That's where you belong.
> Another way to think about it: they’re selling at a premium well over they bought it for.
Not necessarily. The fact that they're getting priced out right now via taxes on the estimated value of the house doesn't mean they can sell the house at that value (being forced to sell) and that they can find a cheaper alternative that works as well for them. So they can be in for a net loss, all things considered.
> Housing being seen as this generational I own it forever thing that Americans have doesn’t also square with the American narrative of housing as an investment.
I agree with this part. Viewing it as investment is the wrong choice.
Not sure I do agree. During ownership, it should appreciate as assets do. Then things like taxes get reset for the next owner based on whatever they pay. In this way, things reset transparently and still often enough as the normal duration of mortgage is something like 8 years. Not everyone is a buy and hold generation of ownership, people move for jobs and a million other reasons, but people that do choose to live in a house for 50 years shouldn't get penalized for it.
This is why I distinguished it as asset class vs asset. It should be primarily tied to the value of the land beneath plus some nominal appreciation for the building on top rather than assessed value of the building on top plus nominal appreciation of the land. Similar to the land value tax formula. This treats it closer to a commodity rather than its own asset class as it is today.
This makes it more of a modest investment overall, one that people would stop tying their entire net with to
Deferring tax increases based on the sale of a house until the next owner is what California does and it’s a disaster.
Land value taxes are more equitable and treat it closer to a commodity and drive more efficient utilization
>>>> tied to the value of the land beneath >>>plus some nominal appreciation for the >>building on top
I'm not sure i agree with this take.
The building is clearly a depreciating asset. If left alone the house will eventually be worth nothing because a decrept properly carries liabilities instead (neighborhoid fire hazard, penalties , fees etc) So there no nominal value there.
Onward to the land. The only real reason for land to appreciate is because it ia scarce resource. But then you see that the land also has a carrying cost (taxes) that is fixed regardless of its use. Therein lies the dilemma. If land is an asset that generates expense , and then that expense only grows as time passes but theres no income associated with it, are you really seeing land appreciation when you sell, or are you simply recouping your carrying cost during the term it was held?
Here in Washington state we have a pretty good system for helping elderly people not get forced out due to rising property taxes.
If you are at least 61, and your disposable income is less than 70% of the median income for your county you get two forms of property tax relief:
1. The assessed value of your property is frozen at the value of the first year you signed up for the tax relief. If your disposable income goes about the threshold for a year but comes back down the next you won't lose your frozen assessment. If you go above the threshold for two consecutive years you do lose the freeze. When it comes back down again you get a new freeze at whatever the current assessment is.
2. You are exempt from all "excess property taxes" and part of the state property tax that is for schools. An "excess property tax" generally means voter-approved levies, such as local school taxes.
If your disposable income is under 60% of the median income for your county but above 50% in addition to #1 and #2, you get:
3. You are exempt from regular property taxes on the maximum of $50k or 35% of the property value, but not more than $70k. For example for a $400k property you'd be exempt for $70k, so your regular property taxes would be computed as if your property was assessed at $330k.
If your disposable is under 50% of the median income for your county, in addition to #1 and #2, instead of #3 you get:
#4. You are exempt from regular property taxes on the maximum of $60k or 60% of the property value. For a $400k property this would mean regular property taxes would be based on a value of $160k.
In my county the 70/60/50% thresholds are $65k/$56k/$46k.
In my county a $400k assessed value home for someone below the $46k threshold would have an annual tax of $900, compared to around $3400 for someone not in the tax relief program. Here is a breakdown of the two (with some rounding):
$300 $ 760 fire
$240 $1000 state general
$ 930 local school
$140 $ 360 county road
$100 $ 260 county
$ 50 $ 130 stormwater management
$ 40 $ 111 regional library
$ 7 $ 18 PUD
$ 2 $ 2 noxious weed
Someone below the 70% threshold but not below the 60% threshold would pay about $2200, so still a big savings over the normal amount.
If your property tax is 23 million dollars then your overall income would in proportion be well over 100 million a year to afford it reasonably no? To even own a home like that in the first place, you’d have to have a property worth over 100 million dollars if tax calculators are correct.
I think this is outside the realm of what most people run into affordability wise and frankly at that level of income I’m willing to bet affording the property tax is much less of a concern
The property value may or may not be growing at 10% a year. My state (Oregon) has a tax cap similar to California's. Taxable property values were capped at their value in (I believe) 1979 and are only allowed to increase by 3% a year. My property market value could increase 10% but my taxes will only go up 3%. During the housing crash of the 2000s, my property lost about 40% of its value. My taxes still went up 3% every year because the gap between actual value and taxable value was so large.
Depending on the structure of TX property taxes, it is certainly possible to have your tax bill increasing rapidly while property values are stagnant or even falling.
> I personally think it's awful to see elderly people getting priced out of a house they've owned for decades
Do you actually have numbers on this? It's a huge talking point for the anti tax crowd but as far as I can tell there's no epidemic of house rich boomers being forced out of their homes.
I personally think it's awful to see elderly people getting priced out of a house they've owned for decades, young families have to move their kids in their high school years because the taxes have become unmanageable, how it disproportionately impacts POC as gentrification occurs, and all the other ways it impacts people's lives who just thought they were buying a house to set roots for their lives/families but then externalities cause it to suddenly become unaffordable.
It's extremely perverse when you consider that these people's tax dollars are often used by politicians to encourage the very "growth" that contributes to their affordability problem. They court corporations and give huge tax breaks to move their offices/factories to Texas, which drives up the demand for housing, etc.