Friday, June 30, 2006

Being priced out of your home

These are interesting times. As home prices go up and long with them, the property taxes associated with those home prices, some consumers are being priced out of the housing market or, in some cases, need to sell their homes.

It's partly a supply-and-demand issue. Years of soaring house prices (and recent increases in mortgage rates) have simply priced many people out of the home-buying market. Indeed, the portion of U.S. households owning their own home slipped to 68.5 percent in the first quarter from 69.1 percent a year earlier, according to the Census Bureau.

Wherever I travel in Vermont, I hear stories of the pain being inflicted by rapidly rising property taxes. Property taxes now threaten many of the qualities we cherish in our state.

Legislation lowering the cap on local property-tax increases met resistance right up to the end. Supporters of the property-tax cap told lawmakers that Rhode Islanders are being priced out of their homes by taxes that average $4,000 a year.

In each of these cases one can find the same problems, which are not discussed. Speculators / flippers / developers speculating on land prices, urban sprawl, and rising costs associated with government.

These are the mains reasons why home prices have risen so sharply, which for most people wouldn’t be a problem except their property taxes are also going up. But why? If the costs of government remained the exact same or at least kept pace with inflation, the property tax rate should decrease as values increase. However, in many communities, in addition to the escalating rise in values the tax rate is going up as well. This from my own town of Red Hook, NY.

But why do costs with government go up? Sure, wages for teachers should go up, garbage collection fees should go up, and everything else should also go more or less with inflation. But, it doesn’t. Why?

Because of urban sprawl, the cost for the government to support one more additional child is greater then it would be in a more condensed city. Those subdivisions with those huge yards each need long roads to connect them. They need power lines. They need cable lines. Buses need to travel further for each additional child. Cars need to travel further and spend more time in traffic.

Drive by your local strip of suburbia big-box stores and what do you see? Parking lots. Lots and lots of parking lots. Think about how many stores in the urban center of any city could be on just one of those massive parking lots, which are rarely used to maximum capacity. Here is the kicker. Those huge stores pay almost nothing in taxes on those parking lots.

For example:

The subsidies Wal-Mart lobbies for run the whole gamut: free or reduced-price land, infrastructure assistance, tax increment financing (TIF), property tax abatements or discounts, state corporate income tax credits, sales tax rebates, enterprise zone tax breaks, job training funds and low-interest tax-exempt loans. The most deals and dollars were found in Texas (30 deals worth $108 million) and Illinois (29 deals worth $102 million).

On top of that, the property tax is a hybrid tax which taxes both capital and land and usually at the same rate. Hence, the majority of the tax falls on the building and improvements. This gives incentive for these firms to take valuable out of production for massive parking lots, which you the consumer need to drive around. Often times this land is some of the most valuable and productive land around. Transforming it into a parking lot is a major cost to all of society. Speculators, who are waiting for “the rise” and will sell when the conditions are right ten or twenty years down the road.

The solution to all of these problems is to tax land. Shift our taxes away from capital improvements and labor, and towards land.

Our cities, towns, and villages need to grow. But they need to grow smartly. Property tax caps, rate caps, subsidies, and portioning were implemented in many cases with the idea of reducing the tax burden or slowing down sprawl. In all cases the opposite has happened.

Land Value Tax would eliminate the sprawl. It would eliminate the speculation associated with the boom / bust cycle in the markets. It would help eliminate much of the poverty associated with the speculation in land markets.

I encourage you to support Land Value Taxation reform. Write your lawmaker and ask if they support LVT reform. Or, you can help me in any of my ongoing projects.