Housing Costs

[ohio jones]

Yes, but real estate taxes are not fixed. They are a percentage of the value of your house which goes up or down based on the housing market.

Some jurisdictions have caps and circuit breakers that limit the increase in taxes. They may not be entirely fixed, but there's assurance that they won't increase more than a specific percentage regardless of what happens to the assessed value.

[ken_sylvania]

There are two different markets involved here.

There is the market for housing itself which is driven by supply and demand. If there is abundant housing or high vacancy rates in an area rents and housing prices come down. If there is low supply and high demand, prices go up.

There is also a market for the raw materials and labor involved in housing construction. If the costs of bricks, windows, lumber, sheetrock, and labor goes up then the cost of building a house or apartment goes up. If those costs drop then the cost of building a house goes down. Each one individually may go in opposite directions. The cost of lumber might go up while the cost of labor might go down, or vice versa.

But not all housing is new housing. In fact, most of it is not new. In may cities the housing stock is 100+ years old. And so the cost of materials and labor was long ago spent. Housing is not a consumable product like toilet paper that we buy new every time we use it. Many of us live in houses that were built decades ago and in many communities there are few new houses being built, especially if the community is not growing.

However there is sill always going to be a market for renting and buying those existing homes and apartments even if a single new one isn't being built. In fast growing cities, construction cost is going to have a big impact on housing costs. In slow growing established cities, not so much since most of the housing being sold and rented is old housing not new housing.

And in both localities, real estate tax increases will have an effect because they are, if you want to put it that way, a consumable. Gotta pay them every year and will therefore have an impact.

Yes, but real estate taxes are not fixed. They are a percentage of the value of your house which goes up or down based on the housing market.

Here in SW Washington our housing prices have gone way up in the past 6 years due to supply and demand. Demand for housing in this area is growing faster than supply. So the value of my house has gone up by about 70% and so have my taxes. If this region was keeping pace with demand and building more houses and apartments then the value of my house would not have gone up, or not as much, and my taxes would not have risen as much. My house would be worth less but my taxes would be lower. So mixed blessing I guess.

It is all interconnected. But also ultimately driven by supply and demand. Except where government has intervened to limit supply. Generally government doesn't do much to limit demand since as Americans we are free to move where we want. Although I suppose when the Fed raises interest rates that limits demand since the cost of borrowing goes up. But government can and does very much limit supply through zoning and other regulations.

I guess this might be an example of a bespoke reality!

On the eastern end of the country, if the value of real estate doesn't rise fast enough for the government to get the tax dollars they need, they increase the mill rate and we end up paying more in taxes anyway.

[Josh]

Yes, but real estate taxes are not fixed. They are a percentage of the value of your house which goes up or down based on the housing market.

We have fixed-sum levies here which are quite common for certain types of things (school construction bonds is one of them, emergency school operating funds is another).

Here in SW Washington our housing prices have gone way up in the past 6 years due to supply and demand. Demand for housing in this area is growing faster than supply. So the value of my house has gone up by about 70% and so have my taxes. If this region was keeping pace with demand and building more houses and apartments then the value of my house would not have gone up, or not as much, and my taxes would not have risen as much. My house would be worth less but my taxes would be lower. So mixed blessing I guess.

In that case, that kind of property tax doesn't make sense and ultimately serves to dislocate people and drive them out of their homes due to circumstances completely outside of their control. This kind of chaos is what led California voters to pass Proposition 13.

[Ken]

Yes, but real estate taxes are not fixed. They are a percentage of the value of your house which goes up or down based on the housing market.

We have fixed-sum levies here which are quite common for certain types of things (school construction bonds is one of them, emergency school operating funds is another).

Here in SW Washington our housing prices have gone way up in the past 6 years due to supply and demand. Demand for housing in this area is growing faster than supply. So the value of my house has gone up by about 70% and so have my taxes. If this region was keeping pace with demand and building more houses and apartments then the value of my house would not have gone up, or not as much, and my taxes would not have risen as much. My house would be worth less but my taxes would be lower. So mixed blessing I guess.

In that case, that kind of property tax doesn't make sense and ultimately serves to dislocate people and drive them out of their homes due to circumstances completely outside of their control. This kind of chaos is what led California voters to pass Proposition 13.

Here in Washington, most property tax levies are approved by the voters. In fact, I can't think of any that are not. So some communities pass them and have the government services, schools, roads, etc. that they expect and pay for. Other communities repeatedly fail to pass property tax levies and lose those services or see them atrophy.

We have fixed sum levies too. In the form of bond measures to pay for specific items like a new school or fire station. But the property tax to pay for it is still based on property value. It simply has an expiration date once the bond is paid for.

In either case, there is nothing "out of control" It is simply democracy.

One might ask whether property taxes are the most appropriate way to pay for government services. Which is an argument I suppose. But either way there are going to be taxes, the only real question is how fairly they are distributed across the population.

[Josh]

In my state the majority of expenditures are funded by state income tax and then distributed to local governments as grants.

[Ken]

In my state the majority of expenditures are funded by state income tax and then distributed to local governments as grants.

Well then I expect your property taxes are MUCH lower than they are here in Washington which doesn't have a state or local income tax. In fact, income taxes are prohibited in the Washington State Constitution. So state revenues come mostly from sales tax and local revenues come mostly from property tax.

Each state has its own unique way of doing things. But none of that supersedes the law of supply and demand when it comes to housing or anything else for that matter.