
How Property Taxes Shape Our Cities - oftenwrong
https://www.strongtowns.org/journal/2018/6/28/how-property-taxes-shape-our-cities
======
kindatrue
This is a great time to call out California and its Prop 13 (1978) where
property taxes are capped at 1%ish and can grow no more than 2% from time of
purchase.

As a result, a new homeowner in Silicon Valley ($1.5M median home price) will
pay $16K this year. Meanwhile there's a homeowner in Atherton (where CEOs
live) who has a $6M home and pays $3K a year (and their children inherit this
rate.)

Disney pays about $0.08/sqft in property tax on Disneyland. The new owner will
pay about $7/sqft.

Unsurprisingly, this has caused California schools to get about $9K/child in
funding. About the same as Mississippi. But the cost of living/labor is
2x-10x.

Warren Buffett was always amazed at how he paid more in property tax for his
place in Omaha than in California - simply because he bought in the right
year.

[https://www.sfgate.com/politics/article/Buffett-s-
Prop-13-co...](https://www.sfgate.com/politics/article/Buffett-s-
Prop-13-comments-cause-stir-2595878.php)

~~~
ravar
One thing that always bothers me is how it is framed as something for the
rich. Yes the rich do benefit, however prop 13 also does a lot of good for old
people who live off a fixed income. My grandparents are really poor, in terms
of savings and assets, and often times get help from my family. If it weren't
for prop 13 they would have had to leave California a long time ago, and move
away from all their family. I know that in other states , like New Jersey, the
property taxes can cause a lot of stress for older people who live off fixed
incomes. I am not entirely sure about the actual value for prop 13 for the
entire state. But prop 13 does provide a lot of value for older people and
that can't be ignored.

~~~
yonran
A proper tax relief program for the elderly would actually target the elderly,
as many states do.

Proposition 13 does not target the elderly. It gives tax breaks to all
property investors, including corporations and (due to Proposition 58)
inherited estates.

~~~
ryandrake
It effectively targets the elderly because its benefits go disproportionately
to people who bought homes many decades ago, in other words, the elderly.

Another way to determine who it targets is to suggest repealing it and watch
who complains the loudest.

~~~
yonran
Yes, the limit on increase of assessed value helps the elderly. All the other
property investors (such as grandchildren and corporations) are just happy to
reap the benefits. In other words, the design does not target the elderly.

~~~
anoncoward111
This is the correct answer. The effect is as follows, currently:

1) Elderly who bought early pay low tax, elderly who bought recently pay high
tax

2) Younger people who are also rich pay high tax, but can afford it, and it is
proportional to the amount of services they are receiving

3) Younger people who cant afford these property taxes are priced out of the
area.

------
EddieRingle
I'll take this opportunity to bring up Land Value taxation as an alternative:
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

Creates incentive to use land efficiently, coupled with fewer economic
distortions.

~~~
rcpt
Such a great system. I don't know why it's not used more often.

~~~
munificent
One of the things I always find frustrating about economists and economic
writing is how often it completely and deliberately disregards the humanity of
the actors in the system. My hunch is that the people who are drawn to
economics like it specifically _because_ it attempts to offer a cleaner, more
mechanical understanding of human behavior than humans actually demonstrate.

But, of course, using that model to then derive policy is obviously flawed
since your model doesn't accurately capture the essential features of the
objects being modeled.

If we let economists design furniture, every chair would be a miserably
unpleasant cube whose dimensions match the median posterior.

Land value tax does have a lot going for it, but it overlooks one critical
component:

Humans have a fundamental desire for stability, especially in where they live.
I do _not_ want my home to be a rectangle of maximum market efficiency. I want
it to be a place where it's worth the effort to garden because I know I'll get
to watch those plants grow over the coming years. I want it to be a calm
respite, a sanctuary that I can rely on in the face of the chaos of the larger
world. And, as I get older and my ability to generate revenue natural
declines, I want some confidence that hard work I did when I was younger will
enable me to live out the rest of my years with some degree of stability.

Of course, our desire for stability needs to be weighed against the desires of
the larger community. But you do that by balancing those desires, not by
completely ignoring one half of the equation.

I'm not sure what an ideal solution for housing is, but I'm certain it's not
based on a slavish devotion to market efficiency.

~~~
germinalphrase
Why would land value tax undermine housing stability?

~~~
prutschman
The unimproved value of land is still a function of its proximity to other
desirable things. Barring remodeling, it's not generally the value of the
building on a piece of land that goes up over time.

------
novaRom
In Germany we have extremely high property taxes (6% of purchase cost on new
buy and 1.2% annual in my region). Plus very high transaction costs associated
with real estate business (notary costs).

It is interesting fact that more developed European countries, such as
Switzerland (42%) or Germany (51%), tended to have a lower home ownership rate
compared to less developed countries such as Lithuania (90%) or Romania (96%).

~~~
vorpalhex
It's sort of an interesting tradeoff. On one hand, it's not desirable for most
people to rent longterm, and owning property is an important way to store and
grow wealth. On the other hand, you don't want a few well financed investors
sweeping in and buying all the available housing just as a kind of depository
for funds.

Texas has an interesting setup. Property taxes are relatively high, but you
can choose one house that you occupy to get a "Homestead exemption" that
brings the taxes down quite a bit. This doesn't prevent you from owning say, a
vacation home, but does make it quite a bit more expensive (which seems to be
fair).

~~~
rory096
>On one hand, it's not desirable for most people to rent longterm, and owning
property is an important way to store and grow wealth.

Neither of these are particularly true in an economic sense, except in that
homeownership in growing, zoning-throttled areas is a ticket to the rent-
seeking wealth transfer those supply restraints create.

Homeownership is driven by this effect, federal subsidies, and general social
norms encouraging it, but it creates labor market frictions by tying you to a
place and ties up all your wealth in a single asset.

[https://marginalrevolution.com/marginalrevolution/2016/02/67...](https://marginalrevolution.com/marginalrevolution/2016/02/67635.html)

[https://www.economist.com/free-exchange/2010/04/21/rent-
or-b...](https://www.economist.com/free-exchange/2010/04/21/rent-or-buy)

~~~
vorpalhex
You can't live in or raise kids on a stock portfolio. If you're a single
bachelor who moves wherever they can make 5% more every year, then by all
means, rent.

Kids, spouses, and most people with friends, don't care to be constantly
uprooted or at the mercy of a landlord who is likely to raise prices every
year. Renting results in no value - it's a direct cost for never any gain.
Even buying a house in a declining market will net you less loss then pure
renting.

Does it tie up your wealth? No. It converts your wealth into a usable asset (a
house). You can't build a shelter out of bricks of cash, or convert a money
market account to a nursery.

~~~
mattzito
I mean, it is certainly _possible_ to be uprooted every year as a renter. But
I've lived in two places for 14 years as a renter, and switching from one to
the other was a significant upgrade. The first apartment was even rent
controlled, so I was guaranteed a renewal lease at a controlled amount, and I
had lots of protections.

In fact, it's renting that _allowed_ us to upgrade our place when we had the
opportunity, as we didn't need to sell our place in order to be able to buy a
new one - we just moved our stuff over.

And to your point:

> It converts your wealth into a usable asset (a house). You can't build a
> shelter out of bricks of cash, or convert a money market account to a
> nursery.

You absolutely can do that - it's called "Renting" or "airbnb" or
"subletting". The challenge is turning a usable asset back into a pile of cash
if macroeconomic forces play against you.

~~~
prop13blows
As someone who generally agrees with you on the benefits of renting, my family
has been uprooted twice in the past two years by landlords who wished to
convert their assets into cash. And the most recent time, it was a forced
downgrade due to rising rents. ¯\\_(ツ)_/¯

------
AtlasBarfed
Sprawl taxes are badly needed for the environment. What needs to be
financially incented is extremely dense urban population centers. As in
Manhattan everywhere.

IIRC Japan has density patterns like this.

Basically, if an area adjacent to a high density population area wants to
expand into the area, it accepts a very very high entry cost, either ongoing
property tax or initial permit cost. That would force only very large and
dense building development.

Transportation could be exempted as could parks and certain low income housing
which is basically government controlled anyway at this point.

That might also incent vertical farms, although I haven't kept up with the
viable economics of skyscraper-class vertical farming yet.

One of the primary challenges of modern environmentalism is just sprawl:
people driving too far, people spreading out too much, people buying too big
of houses that are energy inefficient, people buying yards that they use 1% of
the time

~~~
swebs
>extremely dense urban population centers. As in Manhattan everywhere

Sounds like hell to me.

~~~
droopyEyelids
The point is, one should pay enough that infrastructure maintenance of their
location is possible.

StrongTown's thesis (that isn't really in question) is that suburban sprawl is
financed by handouts from the government, but nothing finances the maintenance
of that sprawl after the initial build out.

StrongTowns does a lot of analysis proving that densely occupied areas
generate enough revenue to repair their gas, electricity, transportation,
sewage etc- but less dense suburban areas do not.

If dense population is hell, then you better pay enough money for repairs that
happen on 30+ year cycles, or else you're looking at another type of bad
situation.

~~~
claydavisss
Most of the US is sprawl and seems to be adequately handling maintenance.
Density is not a necessary precondition for economical maintenance...NYC's
subway system is in a shambles despite the highest density in the US, and
mostly affluent residents.

Only a few places in the US have both sprawl and very high labor costs. It
would be a crisis if the entirety of the US resembled Palo Alto and had
similar costs...but this isn't the case.

------
pimmen
In Sweden we removed the property tax completely which has shaped our housing
market a lot. People over consume living area and use their homes as
retirements savings since it’s dift cheap to sit on it, contributing to the
housing crisis we’ve had for the past decade.

~~~
virmundi
Here's a counter-argument. Keeping property taxes means that old people have
to pay yearly rent to the government to simply keep their house. In Florida
that's about 2k a year for my home. That's fine when we have an income. It's a
bit more problematic when that's 10-20% of a yearly retirement income from
which one also has to pay for necessities.

As to the housing crisis, what laws are preventing multistory buildings? SF
blocks a lot of housing over 3 stories since they want to keep the mystique of
the city from the Full House days
([https://en.wikipedia.org/wiki/Full_House](https://en.wikipedia.org/wiki/Full_House)).
This makes housing extremely expensive since no one can easily put up a 50
story luxury housing apartment complex (which could have 1.5k sq/ft for a mere
$675k).

~~~
rayiner
> Here's a counter-argument. Keeping property taxes means that old people have
> to pay yearly rent to the government to simply keep their house.

So what? It's not like old people don't continue to use the roads, police
services, etc. If they had kids, then they're also paying off what it cost to
educate those kids (the property taxes they paid while their kids were in
school covered only a fraction of the annual cost per student).

~~~
ahallock
Why can't other taxes pay for that? There are surely plenty of other tax
revenue streams. My parents, who were on a fixed income, had to move from
upstate NY in part because of property tax increases. You never truly get to
own your house and are instead renting from the government.

~~~
rayiner
You're not "renting" from the government. You're paying for the ongoing
services you use, which are connected to your property (roads, police
protection, etc.). As to having other taxes pay for it--that just shifts the
tax burden onto other people.

~~~
ahallock
The road to our house was awful and in disrepair. The plowing was decent, I'll
give them that. I know your answer: we need yet more taxes. It couldn't be
that these taxes enable all sorts of non-essential and wasteful programs,
while what's truly essential gets neglected. Do we really need all those cops
setting up speed traps and fleecing drivers? Or all the cops looking to catch
someone growing a plant on their property? That's the only time the police
ever came to our property, to look for suspicious plants. Would people really
pay for that or consider that an essential service if they weren't forced?

~~~
wedn3sday
You like having phone lines right? and power? and not being invaded by canada?
The reason you've never needed to have police on your property is in large
part because they're doing a good job and keeping crime down. Yes, the
government is giant and stupid at allocating resources, but its also fairly
stable and allows you to live your life in peace (with the occasional
inspection for naughty plants).

------
cletus
So I've lived a few places now (Australia, USA, UK, Switzerland, Germany) so
I've seen a few different systems.

Australia has a horrible system called stamp duty, which is a tax paid on the
purchase of a property based on a sliding scale of the property's purchase
price. This was fine back when a house cost $100k (and you might pay $2-3k to
the government). It hasn't scaled with massive housing inflation and state
governments (who administer the tax) are now addicted to the revenue.

The median house price in Sydney now is A$1.1m (last I checked). This seems to
mean stamp duty of nearly A$50k. When household income may well be under $150k
paying $50k after-tax to move is a huge barrier to moving and thus labour
market flexibility. Want to move across the country for a new job? Enjoy the
$100k in transaction costs for swapping houses.

The US property tax system with almost no transaction taxes is far, far better
(IMHO). There are exceptions (eg NYC has a "mansion tax" of 1% on properties
over US$1M). Of course this will never happen in Australia because all the
existing homeowners, who have already paid stamp duty (even if it was 40+
years ago), don't want to pay higher property taxes.

Of course large parts of the US have voted themselves massive tax breaks for
incumbents, the posterchild of which is Prop 13 in CA. All under the guise of
"won't anybody think of the retirees?" (when you could individually give them
tax breaks if you really wanted to). New York state has a series of property
tax caps that greatly benefit established SFH dwellers (and SFH taxes are far,
far lower than those on apartments/condos).

The biggest downside to property in at least English speaking countries (and
elsewhere no doubt) is rampant speculation. I kind of liked the Swiss system
for this in many ways. Punitive taxes on short term capital gains. Also, in
Switzerland, when you owned property outright, it's notional rent was deemed
income. So there's no point having a property sit empty because you're being
taxed on the "income" anyway.

~~~
rayiner
> The US property tax system with almost no transaction taxes is far, far
> better

Many U.S. states have real estate transaction taxes. In my county in Maryland,
for example, recordation tax + transfer tax totals about 2.2% of purchase
price.

------
seanalltogether
I remember someone claiming that property taxes in Greece only come into
effect when a building in completed, and as a result there are lots of homes
with unfinished roofs and whatnot. Any truth to this?

~~~
Balero
As far as I understand there are tax incentives for being able to add another
floor to a house, as opposed to expanding another way. So the rebar out the
top is due to tax.

I am fairly sure that you are not exempt from tax if you have an unfinished
roof.

~~~
brazzy
It has absolutely nothing to do with taxation.

It's simply easier (and cheaper) to add floors in the future that way.

~~~
Balero
I stand corrected! It's good to get the facts straight, there is a lot of
misinformation about Greece and tax dodging (which, I imagine, is where I got
the idea)

------
avyfain
This is a point raised in James C. Scott's Seeing Like a State:

> The shorthand formulas through which tax officials must apprehend reality
> are not mere tools of observation. By a kind of fiscal Heisenberg principle,
> they frequently have the power to transform the facts they take note of.

> The door-and-window tax established in France under the Directory and
> abolished only in 1917 is a striking case in point. Its originator must have
> reasoned that the number of windows and doors in a dwelling was proportional
> to the dwelling's size. Thus a tax assessor need not enter the house or
> measure it but merely count the doors and windows. As a simple, workable
> formula, it was a brilliant stroke, but it was not without consequences.
> Peasant dwellings were subsequently designed or renovated with the formula
> in mind so as to have as few openings as possible. While the fiscal losses
> could be recouped by raising the tax per opening, the long-term effects on
> the health of the rural population lasted for more than a century.

------
johnymontana
I recently learned about the concept of Allodial Title, a form of ownership of
real property that exempts the owner from property taxes. This could protect
landholders in unincorporated areas from a huge surge in property tax when
their land is then annexed into a city. Is Allodial Title common? I can't seem
find many examples of it.

[https://en.wikipedia.org/wiki/Allodial_title](https://en.wikipedia.org/wiki/Allodial_title)

------
h8trswana8
Ehhm, San Francisco...

------
TangoTrotFox
I wonder why we don't have a system where the norm is no property taxes on
property that you designate as a personal residence which cannot be leased or
otherwise monetized, and then a moderate property tax on properties beyond
that. Ideally the goal of a property tax would be to discourage people from
buying up immense amounts of land simply as a sort of naturally inflationary
and stable wealth storage device, but as is the various rules seem to be
really just all over the place.

~~~
hadrian82
Because then the government doesn't own your land and can't take it from you
when you don't pay them off. Property "tax" is their way of forcing you into
agreeing that they own your land and they sell it as giving you better schools
in the area or some crap. And if people feel they REALLY own something and it
can't be taken away from them then they will fight for it. We can't have
people fighting for their land when the government comes to auction their
house off to the highest bidder.

We have been moving more and more toward a Capitalist Communism where the
government owns everything and you are merely renting from them (this is just
straight up how it is in China, they don't even pretend), but we still sell it
as Capitalism because businesses aren't owned by the government.

This is not the way life should be and all property taxes (i.e. government
owned property rentals) should be outlawed.

~~~
francisofascii
When you say "government" or "they", you are talking about your fellow
citizens and members of the community. Consider a hypothetical in which there
is beautiful beachfront property in your town. Would you rather it be owned by
a few wealthy citizens who pay no property tax or the government?

~~~
nybble41
I would rather the beachfront property be owned by those who bought it out of
their own savings, which they earned by providing goods and services to
others. Not an organization defined first and foremost by its claim to possess
a license to practice aggression, which transparently operates in a manner
indistinguishable from a protection racket. (Nice property you have there...
it'd be a shame if someone took it from you by force... Someone like _us_ , if
you don't pay up.)

~~~
infinite8s
Who do you think enforces property rights? And by what basis do they lay claim
to make other people respect those rights?

~~~
nybble41
> Who do you think enforces property rights?

I assume that you intended this as a rhetorical question, but the answer is
not "the government". Governments do not exist to defend property rights—that
is merely propaganda. No criminal organization violates property rights more
brazenly or systematically than governments do on a routine basis. Every tax,
every regulation, every disproportionate punishment, every victim prevented
from pursuing justice while those ostensibly granted that role do
nothing—almost everything the government does involves violating property
rights in some form. The only point in their favor is that, like any other
protection racket, they are jealous of their monopoly and not very tolerant of
lesser criminals setting up operations on their turf.

> And by what basis do they lay claim to make other people respect those
> rights?

There is no need to "make" other people respect anything. That is what makes
property a natural right; the very act of violating a property right naturally
justifies a proportional response in kind. That is simple universality and
reciprocation at work, the basis for any self-consistent system of rights, and
it is more than sufficient to ensure that most individuals will respect
others' property rights without being coerced, because they in turn need
others to recognize their claims to property as valid. Those who chose
otherwise cannot rationally object if their victims respond in kind, taking
back their own property plus a proportional amount as retribution.

If you are interested in further reading on this subject, I can recommend
Stephen Kinsella's "Punishment and Proportionality: the Estoppel Approach"
([https://mises-
media.s3.amazonaws.com/12_1_3_0.pdf?file=1&typ...](https://mises-
media.s3.amazonaws.com/12_1_3_0.pdf?file=1&type=document)).

~~~
infinite8s
What happens when a group of people with no property decide to come and take
yours and kill you and your family?

As a side note, in regards to your original point about beach front property,
the paper you linked only recognizes property rights of property that has been
homesteaded. So there would be no way of some rich person purchasing acres of
land for their own private use (using the structure definition of
homesteading).

~~~
TangoTrotFox
As might happen if you decide to stop paying the fee on your land to the
government? Well, sans the killing. You'll just have your family split up, be
imprisoned, and forced to live in dehumanizing conditions for years, while
your property is taken and sold off for 'revenue.' It's much more civil...

For what it's worth I'm playing devil's advocate here, as usual, but I don't
think this particular issue is so easy to defend. Something I was surprised to
learn is that in the US, the police didn't even exist until 1838. Prior to
that there were volunteer community watch and other such programs. I think the
proper balance is probably one we've gone long past that's somewhere in
between community efforts and heavily centralized paramilitary law
enforcement.

------
markoman
It was frustrating reading the captions to the photos because for each one it
would mention that tax policy affected various features of the building.
Except that, over and over, it mysteriously left out the why and how of tax
policy affecting roofing or windows being bricked over. That is, why would tax
policy cause windows to be bricked over? I just found it exhausting being
teased over and over. I don't read to be teased. I read to be educated, yet I
wasn't even sure that the read would have answered my questions. I gave up
instead.

~~~
Wildgoose
Quoting from the first photo example:

"In the early 17th century, buildings were taxed by the number of floors
leading up to the cornice of the roof.

Architect François Mansart ingeniously responded to this rule by hiding an
additional story or two under the roof for additional living space, rendering
it exempt from taxation."

...and hence the "distinctive architecture of Paris, with its mansard roofs".

You have to read the article, not just look at the pictures.

~~~
markoman
Why provide photos to illustrate your point and then not draw the relationship
(between building features & tax policy) in the captions. To me, it was
gratuitous. I know its a small point, but the subject matter is a bit light
anyways. It could have been made more facile.

