Tuesday, October 18, 2016

I have voted for every expensive government program and now I can't afford to live here anymore

An interesting example of a complex problem. From Surge in property tax bills spurs push to reform tax appraisal process by Lori Hawkins and Shonda Novak.

The issue is the intersection point between individual freedom, property taxes and fairness. It is far more complex than this single use case but the example I form in my mind to crystalize the issue is as follows.
A person buys a home for $X. They live in that home for the rest of their life. They pay property taxes on that home. Those taxes are a function of two things, the property tax rate and the estimated value of the home. The person has a small influence on the tax rate through their capacity as an engaged citizen to lobby and vote. The person has virtually no influence over the value of the home as that depends on the market desires of other people.
So what happens if a person buys a home in 1965 for $20,000 (constant dollars). By 2005 the neighborhood has become immensely desirable and is now worth $300,000. The value of the home has increased 15 times. Assuming that tax rates have remained the same, the person, now retired, is having to pay fifteen times as much property tax through no action on their part. It is the action (desires) of others that has led to this outcome. If their budget is fixed, it is likely that they have to leave their home for a cheaper location, not because of anything they have done but because of the desires of others.

I recognize that there are two sides of this coin. When the person dies, their estate will benefit from the inflated valuation of the home but that will be whittled down by the government through taxes on the sale of the home as well as estate taxes. Besides, it is the estate that is the beneficiary, not the person.

All this is clearly unfair. The person could do a reverse mortgage in order to extract equity, but again, that doesn't remove the root issue that the desires of others are forcing consequences on the person.

But what is clearly unfair from a single person perspective is also unfair when you take other perspectives such as that of the government which does need to be funded, from neighbors, etc.

The closest I have come to a theoretical solution has its own issues. The solution of unfairness to the individual home owner is to lock in their home valuation at the time of purchase and adjust solely based on general inflation and not on neighborhood home valuation. Everyone can anticipate general inflation (whether accurately or not is a different matter) and should be accountable for organizing their affairs to take into account inflation. People cannot effectively anticipate whether or not their residential home will become dramatically more valuable in the future. Under the Residential Home CPI plan, the taxes on your residence would increase only by the general level of inflation which tends to be about 1-3% a year.

No one would be forced to move simply because others were desiring the person's home.

The problem with that is that you then have inequality among taxpayers in terms of how much property tax they are paying simply because of when they purchased their home. There are actually several other unfairness and practical objections but the Residential Home CPI plan is the closest I have gotten to a policy idea that would address the displacement of older people from their homes because of the desires of home buyers.

Hawkins and Novak are reporting on this issue playing out in Austin, Texas which has enjoyed/suffered high home price escalation in recent years. Older people and those on fixed incomes are getting squeezed out. However, Austin has a double play going on. The local government has been intentionally trying to make Austin more desirable. That was done via the voters. Current residents are being hit by two predictable issues and one unintended consequence but all of it through their own choices.

By electing administrations with the intention of improving civic life, they knew they would be increasing the desirability of living in Austin. They endorsed actions which would improve the value of their homes. The city government spent money to make the city more desirable via transportation, parks, etc. Even if home values had not gone up, residents would be paying more in taxes because the city government was spending more. However, the city succeeded in its plan to make city living more desirable. Now residents face the added bill of having to pay more taxes (for city spending) and more taxes (for home valuation inflation).
On a recent evening, more than 300 homeowners who are worried about their rising property tax bills filled First Unitarian Universalist Church in North Austin for a town hall meeting. If something doesn’t change, many said, they will soon be priced out of their homes.


“I’m at the breaking point,” said Gretchen Gardner, an Austin artist who bought a 1930s bungalow in the Bouldin neighborhood just south of downtown in 1991 and has watched her property tax bill soar to $8,500 this year.

“It’s not because I don’t like paying taxes,” said Gardner, who attended both meetings. “I have voted for every park, every library, all the school improvements, for light rail, for anything that will make this city better. But now I can’t afford to live here anymore. I’ll protest my appraisal notice, but that’s not enough. Someone needs to step in and address the big picture.”
It is easy to accuse Gardner of wanting her cake and eating it too. She endorsed all the city spending that would raise her taxes and she desired all the amenities that would make her life nicer (and the city more desirable to others). Now the piper wants to be paid and she doesn't want (or can't afford) to pay the piper. That has nothing to do with her fellow citizens; nobody is obliged to subsidize her life choices.

But still . . . That underlying problem of having to leave simply because others are desiring your home more than you can afford is simply not right.

I see no clear answer but I have long thought that the issue is one of the most consequential and least discussed in our civic discourse.

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