5 ms·

Property taxes are not that relevant for the masses who can't afford to buy property.

danhak 6y ago
But...that’s who this article is discussing: homeowners who are listing their properties for sale in higher numbers.
x87678r 6y ago
It is because a big chunk of your rent goes to property taxes. Where I am property taxes are $1k a month for a $3k/mo apartment.
- jeffbee 6y ago
  Property tax is not an input to setting the market rate of rental housing, though. Changing the tax does not change the rent. Ask yourself if your rent would decrease if they decreased the taxes. Rent is a simple supply/demand system.
  - bluedevil2k 6y ago
    Totally false. Changing the tax rate will definitely change the rent. A property tax increase will increase the floor that tenants (edit: meant landlords) would be willing to rent their places out across the entire city as they look to protect their profit margins. You don't think that a landlord will see a property tax increase and think "oh well, I guess I'm going to make less money from now on". Rent is definitely not a simple supply/demand situation as there are many hands in on the equation (taxes, rent control, zoning).
    - jeffbee 6y ago
      Nope, you're wrong. Your argument rests on the idea that landlords (I assume you meant landlords where you said "tenants") have the ability to raise prices. If they did, they would have already raised them. Landlords who are not subject to rent controls charge whatever the market will bear, and no less. Therefore property tax has no bearing on rent.
      - bluedevil2k 6y ago
        So if propert tax went up 50% you think rent wouldn’t change at all? C’mon, you’re making a silly argument.
        jeffbee 6y ago
        I'm not being silly and it's easy to see why. The differences between taxation of otherwise-identical buildings are already much more than 50%, because of Proposition 13. There are similar buildings on my block where the tax bills differ by more than an order of magnitude. Does this have any effect on the rents? It does not. The house paying $2000/year commands as high a rent as does the house paying $20000/year.
        stale2002 6y ago
        Lets take this even further, then, to demonstrate a point. Lets say that property taxes were 1 million dollars a year, per apartment. What do you think would happen? What I think would happen is that property owners would abandon their property/destroy it/remove it from the market, because they don't want to pay that 1 million dollars a year. This would effect support of housing, meaning that price would go up. Yes, rents are effected by supply and demand. And property taxes can have an effect on supply. This is clear, in our extreme example of 1 million dollars a year, per apartment.
        jeffbee 6y ago
        OK, but in this context how does reductio ad absurdum help us? Actual property taxes aren't flat fees, they are rates on the value, and the value is derived from the gross rent the property commands. You are talking about a tax that would be much greater than 100%, while actual San Francisco taxes are 1%. We can talk about the small-signal response of this system, how it behaves if you double or halve the tax, without having to think about whether our model holds at the extremes. It doesn't matter if the model can't predict what happens if the tax rate goes to infinity. On the other hand we do know what happens if the tax rate goes to zero, because there are many rental properties in San Francisco which are essentially untaxed. These properties have the same rents as any other, following the market price up and down. We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
  - x87678r 6y ago
    It absolutely does if you're thinking of building new apartment building.
    - jeffbee 6y ago
      That would depend on the tax regime. In "highest and best use" jurisdictions you'd already be taxed on the potential value of the building, whether you build it or you don't.
      - seanmcdirmid 6y ago
        That doesn’t happen anywhere in the USA that I’m aware of. Your 3 story townhome is racked a lot less than the 33 story apartment story that could have been built on its land instead. Private capital will chase the best money making opportunities regardless. They will just avoid buying property if they don’t think they can make enough money on it. Property tax rates definitely play a role in that.
KallDrexx 6y ago
It indirectly does though. Because property tax in california is always taxed at the amount you purchased your house at (as opposed to what your house is currently worth at), it incentivizes immobility. If you bought your house a decade ago it's going to be worth WAY more now than it is now. In a healthy market you might then either try to roll that extra equity into another place by either upsizing to get something that more fits your needs, or downsizing if that makes sense. However, because of the property tax mechanisms if you move from a $1m house to another $1m house your property taxes will go up substantially even if it is a side grade. That means that you are less likely to move (in fact you may not be able to afford even a side grade depending on your circumstances). This keeps housing inventory low, which keeps prices rising.
- kradroy 6y ago
  If you're 55 and meet some other requirements your property tax assessment can be transferred to a new property once in your life. Prop 13 has been expanded for assessment transfers among family members. You can imagine what kind of extremes this will equate to in a few generations.

But...that’s who this article is discussing: homeowners who are listing their properties for sale in higher numbers.

It is because a big chunk of your rent goes to property taxes. Where I am property taxes are $1k a month for a $3k/mo apartment.

jeffbee 6y ago
Property tax is not an input to setting the market rate of rental housing, though. Changing the tax does not change the rent. Ask yourself if your rent would decrease if they decreased the taxes. Rent is a simple supply/demand system.
- bluedevil2k 6y ago
  Totally false. Changing the tax rate will definitely change the rent. A property tax increase will increase the floor that tenants (edit: meant landlords) would be willing to rent their places out across the entire city as they look to protect their profit margins. You don't think that a landlord will see a property tax increase and think "oh well, I guess I'm going to make less money from now on". Rent is definitely not a simple supply/demand situation as there are many hands in on the equation (taxes, rent control, zoning).
  - jeffbee 6y ago
    Nope, you're wrong. Your argument rests on the idea that landlords (I assume you meant landlords where you said "tenants") have the ability to raise prices. If they did, they would have already raised them. Landlords who are not subject to rent controls charge whatever the market will bear, and no less. Therefore property tax has no bearing on rent.
    - bluedevil2k 6y ago
      So if propert tax went up 50% you think rent wouldn’t change at all? C’mon, you’re making a silly argument.
      - jeffbee 6y ago
        I'm not being silly and it's easy to see why. The differences between taxation of otherwise-identical buildings are already much more than 50%, because of Proposition 13. There are similar buildings on my block where the tax bills differ by more than an order of magnitude. Does this have any effect on the rents? It does not. The house paying $2000/year commands as high a rent as does the house paying $20000/year.
        stale2002 6y ago
        Lets take this even further, then, to demonstrate a point. Lets say that property taxes were 1 million dollars a year, per apartment. What do you think would happen? What I think would happen is that property owners would abandon their property/destroy it/remove it from the market, because they don't want to pay that 1 million dollars a year. This would effect support of housing, meaning that price would go up. Yes, rents are effected by supply and demand. And property taxes can have an effect on supply. This is clear, in our extreme example of 1 million dollars a year, per apartment.
        jeffbee 6y ago
        OK, but in this context how does reductio ad absurdum help us? Actual property taxes aren't flat fees, they are rates on the value, and the value is derived from the gross rent the property commands. You are talking about a tax that would be much greater than 100%, while actual San Francisco taxes are 1%. We can talk about the small-signal response of this system, how it behaves if you double or halve the tax, without having to think about whether our model holds at the extremes. It doesn't matter if the model can't predict what happens if the tax rate goes to infinity. On the other hand we do know what happens if the tax rate goes to zero, because there are many rental properties in San Francisco which are essentially untaxed. These properties have the same rents as any other, following the market price up and down. We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
- x87678r 6y ago
  It absolutely does if you're thinking of building new apartment building.
  - jeffbee 6y ago
    That would depend on the tax regime. In "highest and best use" jurisdictions you'd already be taxed on the potential value of the building, whether you build it or you don't.
    - seanmcdirmid 6y ago
      That doesn’t happen anywhere in the USA that I’m aware of. Your 3 story townhome is racked a lot less than the 33 story apartment story that could have been built on its land instead. Private capital will chase the best money making opportunities regardless. They will just avoid buying property if they don’t think they can make enough money on it. Property tax rates definitely play a role in that.

KallDrexx 6y ago

It indirectly does though. Because property tax in california is always taxed at the amount you purchased your house at (as opposed to what your house is currently worth at), it incentivizes immobility. If you bought your house a decade ago it's going to be worth WAY more now than it is now. In a healthy market you might then either try to roll that extra equity into another place by either upsizing to get something that more fits your needs, or downsizing if that makes sense. However, because of the property tax mechanisms if you move from a $1m house to another $1m house your property taxes will go up substantially even if it is a side grade. That means that you are less likely to move (in fact you may not be able to afford even a side grade depending on your circumstances). This keeps housing inventory low, which keeps prices rising.

kradroy 6y ago
If you're 55 and meet some other requirements your property tax assessment can be transferred to a new property once in your life. Prop 13 has been expanded for assessment transfers among family members. You can imagine what kind of extremes this will equate to in a few generations.