10 ms·

Economist explains why you can't afford a house anymore [video]

30 points by hunglee2 2y ago

iknownothow 2y ago
I have a question for people who know how American housing works. Are property taxes based on current price? If so, who sets current price? Also does property tax fill the coffers of local municipalities or the state?
- cmmeur01 2y ago
  What’s the current price of a house purchased before right now? They’re usually based on sales price and then also “reassessed” every couple / few years by the PVA (property value administrator) which now usually means using some sort of algorithm based on recent sales and whatever else. Then you’re given a chance to appeal the value with evidence showing why it doesn’t fit your specific situation before the tax payment is due. At least this is how it works in my area. This is on a county level in my state.
  - mistrial9 2y ago
    all residential property in the US is administered at the county level AFAIK.. Louisiana has parish law and New England has some township structures that may be a bit different. information welcome
- acchow 2y ago
  In the US, property taxes go to state and local governments. > Are property taxes based on current price? Yes, except in California due to Prop 13, where your assessed value is decided when you purchase the property (or revalued when it is significantly rebuilt) and increases by at-most 2% annually (below inflation).
- positr0n 2y ago
  Yes it's a percentage of the current market value. The value is determined by the county tax assessor in all states I'm familiar with. They usually try to lowball the value by 10% or more. That way no one can really complain they valued the house more than you can sell it for. 60% of actual market value is official policy in Alaska my friend told me. Usually there are various discounts and deductions depending on the taxing entity. E.g. for your primary residence you deduct $100k off the value. Value growth YoY is capped at 10%. If you are over 65 the tax owed is capped until you die. X% off for disabled veterans, etc etc. People complain about the amount they are paying, but I've never heard serious complaints the system is unfair or corrupt (though I'm sure it exists somewhere). The assessors use the statistics they know about your house, sq. ft., lot size, etc as well as neighborhood "comps" for what similar houses have sold for. Also there is a lengthy and formal protest period every year. In Texas there is a cottage industry of lawyers that will protest your property value for you. Sign some documents and they will send letters and show up at protest proceedings and send you a bill for 30% of the tax they saved you. No money out of pocket and nothing owed if you don't save money.
- hinkley 2y ago
  It tends to trail real value in two ways. One, it's not assessed continuously so it tends to fall behind during inflationary and demand curve events. Second, it's very unpopular to have the value overestimated or even objectively correct. The people in charge of those decisions are elected officials and property taxes are a sure way to piss off your constituents. So they tend to be lowballed. I bought an empty lot a number of years ago, using the agent we used to close on our house. I had that agent find and contact the owner to see if I could buy it, and he volunteered to sell it at the assessed value. I told the agent 'sold', but then he talked to his friends and they clearly told him he was crazy, which is true. He asked for about 12% more and I didn't even blink.
- pyuser583 2y ago
  Yes, property tax is based on current price. The price is set by local government. They offer an assessment, you are given notice, and it can be appealed. Different agencies have very different approaches. How much property tax you pay is based less on your the rate, and more on the assessment philosophy. Lower rates tend to correspond to more aggressive assessment, and higher rates with more lenient assessment. The taxes go mostly to the local school district and water district. These are very specialized local governments that focus on one service. Collection is done by the city or country, depending on … things. They get a very small cut, but not much. Cities are funded by sales tax. Counties are funded by state revenues (I live in a “weak county” state where counties are agents of the state). State revenues are funded by income tax. So speciality districts = real estate tax, municipalities = sales tax, counties = mostly state revenue, state = income tax, federal government = income tax and magical debt Everything except federal varies in state by state basis.
  - lotsofpulp 2y ago
    The breakdown of which governing entity gets which taxes varies greatly among the 50 states. Even individual taxes can get split up amongst various governments, such as a portion of sales tax going to state, a portion going to county, and a portion going to city.
- m463 2y ago
  In california prop 13 was created for older people, because their houses appreciated and could make living in their own house unaffordable. Sort of like "rent control" but for house taxes. I think though that commercial properties got the best deal, because they can own a property for a much longer period of time. It also gives an advantage to renting over buying, as rental properties generally have less money going to taxes than buying a new house. I've heard from many people moving into a neighborhood, paying significantly more taxes than their neighbors, who have been there for years or decades.
  - lotsofpulp 2y ago
    > In california prop 13 was created for older people, Technically, it was created for people who owned homes (and other real estate) at the time the law was passed, and their heirs. The longer you have owned a property, the more of a tax break you get at the expense of a person who bought property more recently. Basically, it created a society where long term land owners and their heirs have even more of a step up than newer or prospective land owners. And the longer you own property in CA, the more incentive you have to support prop 13. Quite an innovative way of creating a class divide.
    - SR2Z 2y ago
      IDK about you, but to me rewarding long-term landholders is basically feudalism and doesn't count as "innovative." It's the same shit we've had for thousands of years, but because it's CA, they have to PRETEND it's progressive.
      - hedora 2y ago
        No one pretends it is progressive. Prop 13 and the group that supports it are from 1978, which is before the progressive moment was really a thing. The supporters are explicitly non-partisan: https://www.hjta.org/about-hjta/paccommittees/ https://www.hjta.org/about-hjta/paccommittees/ The main issue is that while they were setting this up, they also arranged for a 66% voter threshold for renewing things like school funding. Most districts around here are only 60-66% progressive, which means the schools are chronically underfunded (funding is 47th in the nation, despite California being one of the richest states).
- deleted 2y ago
  [deleted]
- cranky908canuck 2y ago
  Very dependent on the jurisdiction. From the discussion, most states that people comment on work similarly to ca.bc: The provincial assessment authority sets a 'value for property tax purposes' that loosely tracks the actual market value. Then, the local authority (city/district/town) sets the total taxes and this is distributed pro-rata over the overall property assessed value within that authority's jurisdiction. California seems to be an exception as near as I can tell (from a long distance and not particularly caught up in it): Prop 13 locks in the value (more or less, no idea as to if there's a COL adjustment) as of either the passing of the prop or the recent sale (hence the case that new buyers pay way more than the folks next door who bought in 1967). The us.ca idea seems intended to solve the problem of 'house-rich/cash-poor'. The ca.bc (yes, confusing abbreviations) solution is to allow the owner of a principal residence to defer property taxes as a lien on the property, payable on sale (at a favourable interest rate).
NEETPILLED 2y ago
Answer: The Federal Reserve. YOU ARE WELCOME.
- abracadaniel 2y ago
  It is disingenuous to state your pet theory as though it were the explanation given in the video. By 1:20 he summarizes that it is down to “construction failure”, “excessive speculation”, and “financialization of housing” Your theory doesn’t explain the same situation playing out across every other 1st world country at the same time.
  - dpc_01234 2y ago
    All world countries are operating on fiat currencies, that are inflated away at similar rates. "financialization of housing" is basically the same thing as "FED". Absent value retaining money, flooded with worthless paper, people look for anything scarce they can park their savings in, turning a social necessity (housing) into savings account, and give into incentives to make it artificially scarce (like NIMBY). Historically (before fiat money) housing was a poor investment. https://www.lynalden.com/most-investments-are-bad/ https://www.lynalden.com/most-investments-are-bad/
    - ClumsyPilot 2y ago
      > financialization of housing" is basically the same thing as "FED“ You clearly do not understand what financialisation actually means - it’s creation of derivative financial products based on the underlying assets. Eventually these products become so complex, no one knows what’s happening to the original assets. That’s how we got 2008 And you can have 2008 style collapse even if your currency is based on gold coins.
      - the_real_cher 2y ago
        they're talking about something different I think. they're saying houses are becoming an financial instrument to keep money safe instead of a place to live. we currently have 1 trillion dollars of debt interest payments every 100 days. the only way to pay this is for the Federal reserve to print money which devalues the current currency with inflation. so houses have become a financial instrument to keep monies safe.
the_real_cher 2y ago
everyone conveniently neglects to mention that we have an interest on our national debt that goes up by 1 trillion dollars every 100 days. so this is going to create inflation which means that money is effectively decreasing in value. so this means that people need to park their money somewhere in a safe asset. property is a pretty safe asset.
- m463 2y ago
  what is the doubling time of property vs say an index fund?
  - mitthrowaway2 2y ago
    What interest rate will the bank charge me if I borrow $500,000 from them to invest in an index fund?
  - the_real_cher 2y ago
    I think landlords make 10% to 20% net profit plus 4% increase in property value YOY on average. Maybe drop that down with a few percentage points with a property manager. Still better than s and p 500 index fund over time.
    - drgiggles 2y ago
      If you were to buy a property today in any major market, the average unlevered cap rate on leasing residential property is nowhere near 20%. In many cases it’s not even profitable without a significant housing price return assumption.
      - deleted 2y ago
        [deleted]
    - bequanna 2y ago
      Not even close to that in the current market. Cap rates are around 4-6%. Only people buying right now are parking money hoping for appreciation, not cash flow.
diogenescynic 2y ago
Two reasons--supply of new homes has stagnated and hasn't kept up with demand for decades and obviously the more recent change has been the Fed lowering interest rates during the pandemic, the massive expansion of the money supply, and all the excessive stimulus when unemployment was already low and demand was already exploding.
remarkEon 2y ago
Okay. So the population went up by a lot because of immigration. Housing construction didn't keep up with the immigration levels, because of various structural reasons, of which there is only one and that's NIMBYs. And the speculators accrue housing assets and restrict it's supply to the market and then extract rents. And somehow the NIMBY and speculator coalition override the actual structural change to the housing market, which was artificially low interest rates that financialized the mortgage even more than pre-2009, such that private equity and a bunch of other investment groups dump money into housing and hold it. So the reason that you can't afford a house is illogical immigration policy, lame NIMBY policies, and wacky interest rate management. Funny, it's rather easy to fix each of these if you have the political will. Alas...

30 points by hunglee2 2y ago

I have a question for people who know how American housing works. Are property taxes based on current price? If so, who sets current price? Also does property tax fill the coffers of local municipalities or the state?

cmmeur01 2y ago
What’s the current price of a house purchased before right now? They’re usually based on sales price and then also “reassessed” every couple / few years by the PVA (property value administrator) which now usually means using some sort of algorithm based on recent sales and whatever else. Then you’re given a chance to appeal the value with evidence showing why it doesn’t fit your specific situation before the tax payment is due. At least this is how it works in my area. This is on a county level in my state.
- mistrial9 2y ago
  all residential property in the US is administered at the county level AFAIK.. Louisiana has parish law and New England has some township structures that may be a bit different. information welcome
acchow 2y ago
In the US, property taxes go to state and local governments. > Are property taxes based on current price? Yes, except in California due to Prop 13, where your assessed value is decided when you purchase the property (or revalued when it is significantly rebuilt) and increases by at-most 2% annually (below inflation).
positr0n 2y ago
Yes it's a percentage of the current market value. The value is determined by the county tax assessor in all states I'm familiar with. They usually try to lowball the value by 10% or more. That way no one can really complain they valued the house more than you can sell it for. 60% of actual market value is official policy in Alaska my friend told me. Usually there are various discounts and deductions depending on the taxing entity. E.g. for your primary residence you deduct $100k off the value. Value growth YoY is capped at 10%. If you are over 65 the tax owed is capped until you die. X% off for disabled veterans, etc etc. People complain about the amount they are paying, but I've never heard serious complaints the system is unfair or corrupt (though I'm sure it exists somewhere). The assessors use the statistics they know about your house, sq. ft., lot size, etc as well as neighborhood "comps" for what similar houses have sold for. Also there is a lengthy and formal protest period every year. In Texas there is a cottage industry of lawyers that will protest your property value for you. Sign some documents and they will send letters and show up at protest proceedings and send you a bill for 30% of the tax they saved you. No money out of pocket and nothing owed if you don't save money.
hinkley 2y ago
It tends to trail real value in two ways. One, it's not assessed continuously so it tends to fall behind during inflationary and demand curve events. Second, it's very unpopular to have the value overestimated or even objectively correct. The people in charge of those decisions are elected officials and property taxes are a sure way to piss off your constituents. So they tend to be lowballed. I bought an empty lot a number of years ago, using the agent we used to close on our house. I had that agent find and contact the owner to see if I could buy it, and he volunteered to sell it at the assessed value. I told the agent 'sold', but then he talked to his friends and they clearly told him he was crazy, which is true. He asked for about 12% more and I didn't even blink.
pyuser583 2y ago
Yes, property tax is based on current price. The price is set by local government. They offer an assessment, you are given notice, and it can be appealed. Different agencies have very different approaches. How much property tax you pay is based less on your the rate, and more on the assessment philosophy. Lower rates tend to correspond to more aggressive assessment, and higher rates with more lenient assessment. The taxes go mostly to the local school district and water district. These are very specialized local governments that focus on one service. Collection is done by the city or country, depending on … things. They get a very small cut, but not much. Cities are funded by sales tax. Counties are funded by state revenues (I live in a “weak county” state where counties are agents of the state). State revenues are funded by income tax. So speciality districts = real estate tax, municipalities = sales tax, counties = mostly state revenue, state = income tax, federal government = income tax and magical debt Everything except federal varies in state by state basis.
- lotsofpulp 2y ago
  The breakdown of which governing entity gets which taxes varies greatly among the 50 states. Even individual taxes can get split up amongst various governments, such as a portion of sales tax going to state, a portion going to county, and a portion going to city.
m463 2y ago
In california prop 13 was created for older people, because their houses appreciated and could make living in their own house unaffordable. Sort of like "rent control" but for house taxes. I think though that commercial properties got the best deal, because they can own a property for a much longer period of time. It also gives an advantage to renting over buying, as rental properties generally have less money going to taxes than buying a new house. I've heard from many people moving into a neighborhood, paying significantly more taxes than their neighbors, who have been there for years or decades.
- lotsofpulp 2y ago
  > In california prop 13 was created for older people, Technically, it was created for people who owned homes (and other real estate) at the time the law was passed, and their heirs. The longer you have owned a property, the more of a tax break you get at the expense of a person who bought property more recently. Basically, it created a society where long term land owners and their heirs have even more of a step up than newer or prospective land owners. And the longer you own property in CA, the more incentive you have to support prop 13. Quite an innovative way of creating a class divide.
  - SR2Z 2y ago
    IDK about you, but to me rewarding long-term landholders is basically feudalism and doesn't count as "innovative." It's the same shit we've had for thousands of years, but because it's CA, they have to PRETEND it's progressive.
    - hedora 2y ago
      No one pretends it is progressive. Prop 13 and the group that supports it are from 1978, which is before the progressive moment was really a thing. The supporters are explicitly non-partisan: https://www.hjta.org/about-hjta/paccommittees/ https://www.hjta.org/about-hjta/paccommittees/ The main issue is that while they were setting this up, they also arranged for a 66% voter threshold for renewing things like school funding. Most districts around here are only 60-66% progressive, which means the schools are chronically underfunded (funding is 47th in the nation, despite California being one of the richest states).
deleted 2y ago
[deleted]
cranky908canuck 2y ago
Very dependent on the jurisdiction. From the discussion, most states that people comment on work similarly to ca.bc: The provincial assessment authority sets a 'value for property tax purposes' that loosely tracks the actual market value. Then, the local authority (city/district/town) sets the total taxes and this is distributed pro-rata over the overall property assessed value within that authority's jurisdiction. California seems to be an exception as near as I can tell (from a long distance and not particularly caught up in it): Prop 13 locks in the value (more or less, no idea as to if there's a COL adjustment) as of either the passing of the prop or the recent sale (hence the case that new buyers pay way more than the folks next door who bought in 1967). The us.ca idea seems intended to solve the problem of 'house-rich/cash-poor'. The ca.bc (yes, confusing abbreviations) solution is to allow the owner of a principal residence to defer property taxes as a lien on the property, payable on sale (at a favourable interest rate).

NEETPILLED 2y ago

Answer: The Federal Reserve. YOU ARE WELCOME.

abracadaniel 2y ago
It is disingenuous to state your pet theory as though it were the explanation given in the video. By 1:20 he summarizes that it is down to “construction failure”, “excessive speculation”, and “financialization of housing” Your theory doesn’t explain the same situation playing out across every other 1st world country at the same time.
- dpc_01234 2y ago
  All world countries are operating on fiat currencies, that are inflated away at similar rates. "financialization of housing" is basically the same thing as "FED". Absent value retaining money, flooded with worthless paper, people look for anything scarce they can park their savings in, turning a social necessity (housing) into savings account, and give into incentives to make it artificially scarce (like NIMBY). Historically (before fiat money) housing was a poor investment. https://www.lynalden.com/most-investments-are-bad/ https://www.lynalden.com/most-investments-are-bad/
  - ClumsyPilot 2y ago
    > financialization of housing" is basically the same thing as "FED“ You clearly do not understand what financialisation actually means - it’s creation of derivative financial products based on the underlying assets. Eventually these products become so complex, no one knows what’s happening to the original assets. That’s how we got 2008 And you can have 2008 style collapse even if your currency is based on gold coins.
    - the_real_cher 2y ago
      they're talking about something different I think. they're saying houses are becoming an financial instrument to keep money safe instead of a place to live. we currently have 1 trillion dollars of debt interest payments every 100 days. the only way to pay this is for the Federal reserve to print money which devalues the current currency with inflation. so houses have become a financial instrument to keep monies safe.

the_real_cher 2y ago

everyone conveniently neglects to mention that we have an interest on our national debt that goes up by 1 trillion dollars every 100 days. so this is going to create inflation which means that money is effectively decreasing in value. so this means that people need to park their money somewhere in a safe asset. property is a pretty safe asset.

m463 2y ago
what is the doubling time of property vs say an index fund?
- mitthrowaway2 2y ago
  What interest rate will the bank charge me if I borrow $500,000 from them to invest in an index fund?
- the_real_cher 2y ago
  I think landlords make 10% to 20% net profit plus 4% increase in property value YOY on average. Maybe drop that down with a few percentage points with a property manager. Still better than s and p 500 index fund over time.
  - drgiggles 2y ago
    If you were to buy a property today in any major market, the average unlevered cap rate on leasing residential property is nowhere near 20%. In many cases it’s not even profitable without a significant housing price return assumption.
    - deleted 2y ago
      [deleted]
  - bequanna 2y ago
    Not even close to that in the current market. Cap rates are around 4-6%. Only people buying right now are parking money hoping for appreciation, not cash flow.

diogenescynic 2y ago

Two reasons--supply of new homes has stagnated and hasn't kept up with demand for decades and obviously the more recent change has been the Fed lowering interest rates during the pandemic, the massive expansion of the money supply, and all the excessive stimulus when unemployment was already low and demand was already exploding.

remarkEon 2y ago

Okay. So the population went up by a lot because of immigration. Housing construction didn't keep up with the immigration levels, because of various structural reasons, of which there is only one and that's NIMBYs. And the speculators accrue housing assets and restrict it's supply to the market and then extract rents. And somehow the NIMBY and speculator coalition override the actual structural change to the housing market, which was artificially low interest rates that financialized the mortgage even more than pre-2009, such that private equity and a bunch of other investment groups dump money into housing and hold it. So the reason that you can't afford a house is illogical immigration policy, lame NIMBY policies, and wacky interest rate management. Funny, it's rather easy to fix each of these if you have the political will. Alas...