4 ms·

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.
        ak217 6y ago
- 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.

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.
        ak217 6y ago
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.