Progressive Property Taxes

So I was reading an article earlier about how everyone in the Bay Area wants to leave, and I thought to myself "well, not enough to actually move, apparently." Then I started wondering about what it would take to get them to move and if it would relieve the housing problem in that area and it hit me: raise property taxes in areas with insufficient housing supply. You drive up the cost to live there, it drives people out, evens out supply, and stabilizes prices. I did a quick search to see if people had discussed this idea much and found surprisingly little on the subject. Based on what I could find, here's a short rundown of the pros and cons as I see them.

Pros:

1. Increases housing supply without a large investment. The most common solution to the housing crisis as it stands is to increase supply, but there are several problems with that approach. One of the largest is that supply has had historically weak correlation with rent prices, if any. There was a boom in home-building in the 80s, for example, while rent prices continued to climb. The other problem is that investment doesn't always move quickly enough to meet demand. Investment only gets going once demand starts to ratchet up, and once demand starts to ratchet up you're already on your way to a crisis. By the time the original investment is completed demand is now higher, requiring more investment. This idea frees up houses without construction or investment, thus making the effects more immediate.
2. Directly addresses wealth disparity. Home ownership is one of the largest sources of wealth in the country, and the disparity in home values one of the largest drivers of wealth inequality. This idea would have the effect of lessening inequality by driving owners of valuable homes to sell and move to areas with lower taxes. This would then drive up the value of distressed areas and encourage more investment. More importantly, it would address the segregation between wealthy and non-wealthy and draw increased attention to the issues plaguing impoverished areas, such as a lack of services. This could even be sold as a method of paying reparations, as it would artificially increase the value of homes in many black areas. Property ownership, which has historically been used as a tool against black Americans, can be put to use as a tool reversing some of those wrongs.
3. Begins to address educational inequality. One of the biggest problems in American education is that it is funded by property taxes, essentially segregating students into well-funded and poorly-funded schools based upon where they live. This idea would encourage wealthy Americans to sell their homes in order to buy homes in less wealthy areas, thus raising housing values in those areas and their access to educational funds.
4. Could possibly address zoning laws. Zoning laws are another huge barrier to affordable housing. They prevent new development and exacerbate supply problems. This idea would have the effect of driving out many residents who band together to pass zoning laws, thus making new development easier and creating a positive feedback loop in regards to housing supply.
5. Could address predatory practices. One more obstacle to affordable housing are speculators, predatory landlords, and apathetic businesses who buy large amounts of property and either use them to drive up their own profits at the expense of the residents or simply let them go unused for prolonged periods of time, thus exacerbating supply problems. This imposes a cost to such behavior, makes it less profitable, and encourages responsible investment.

Cons:

1. Let's get this one out of the way right at the start, out current system is not progressive. Wealthier properties pay more in taxes, but it's still a flat tax rate. You can debate whether or not a flat tax rate is fair, but it's still not progressive.
2. It doesn't necessarily target the wealthy. You could end up simply driving the semi-wealthy out of wealthy neighborhoods, while further insulating the super-wealthy from the rest of society, as the latter can afford to pay higher prices while the former can't. However, this still creates housing vacancies, and the windfall from the taxes could be re-invested in construction of new units and upkeep and renovation of older units in struggling neighborhoods. This could soften the blow of forcing semi-wealthy individuals out of "good" neighborhoods and into "bad" ones.
3. It doesn't address one of the biggest issues, which is affordable housing. In most troubled markets, there is a complete dearth of affordable housing, with new projects aimed primarily at building luxury units. However, tax breaks can be employed strategically to encourage investment in affordable housing. If there is a neighborhood with little affordable housing and high property taxes as a result of this proposal, tax waivers can be granted to companies who specifically develop affordable housing.
4. One of the biggest arguments I came across against this was that it would force elderly homeowners with little income out of their homes. My first reaction is so what? The alternative seems to be accepting a situation where poorer elderly are faced with an extreme degree of housing insecurity while richer elderly aren't, that's exactly the sort of thing this proposal is supposed to remedy. I will admit that there could be situations where residents can't afford to move or would be burdened by having to move, but in that case we could either use the windfall from the taxes to assist with moving costs or use exemptions to keep qualifying individuals in their homes. I think that first part should actually go in the pros column, instead of people staying in homes they can't afford because they can't afford to move to homes they can afford, we can actually cover the moving costs for people to move to areas they can afford and which may be actively trying to attract more residents.
5. I'm sure that almost every business owner reading this is losing their mind in terror, but think it through for a minute. Yes, operating costs go up and relocating is costly. However, this actually pushes business owners who are struggling with costs of ownership to move to areas with lower costs of ownership if it makes fiscal sense. If taxes are too much of a burden then moving to a different area will lower your taxes and increase the value of said area, spurring more investment. If taxes are manageable, then you benefit from an influx of new prospective clients. Further, if you're hurt too much by taxes then your taxes next year will be lower. Finally, it will level the playing field between smaller and larger businesses. No longer will the first-year coffee house have to try to compete with Starbucks, because the former actually pays fewer in taxes relative to the latter than it does right now. Competitive advantage actually goes up for small businesses.

So, what does everybody think?

I'm not going to read all that, but higher property taxes means higher rent. You'll create a place only the weather could live, which is good for business, if the rich and business are all you care about.

so a person lives in a nice neighborhood w/ good services, schools, etc.. and the plan is to raise their property taxes more to try to force them to take their money and move to a place that has shitty services / schools in hopes where taxes are cheaper in hopes of somehow benefiting the depressed area?

this is also to increase housing stock in the affluent area?

i'm very confused by this.

I'm sorry, but...you want to drive people out?

The only reason my parents were able to live in the Bay Area for 40+ years and raise a family that went on to college (added money to state), got jobs (created money for state), and became tax-paying citizens (more money for state) is because they are still paying the same taxes they paid in the 1970's on their home.

It might seem a bit old-school for people to pay low tax rates if they stay put, but only if you're looking at a very narrow-minded spreadsheet of numbers.

As for affordable housing, that has nothing to do with property taxes. Cities (my home town, for example) puts in low-income and affordable housing all the time despite being a "rich people" town (though all East Bay towns could be considered that. The reason there is no affordable housing is because the rich pricks vote against it; no mayor is going to get re-elected if he or she builds low-income housing in an affluent white community, those rich white folk hate introducing "new elements" into their town that allegedly drop property values.

California is a victim of its own success.

Yeah, WTF?

Everyone in the Bay Area does not want to leave, sheesh.

They just get tired of paying a lot for something that shouldn't cost that much. I mean supply and demand, obviously, I get it...but there's a limit. There's a limit!

Maybe before you propose higher taxes for a demographic of people that already pay too much for everything, you should research how the Chinese are gobbling up real estate in the Bay Area and how that is increasing prices. You have couples that save and save and save for years, bid on a house, then some American proxy-couple paid by some Chinese oligarch swoops in and buys your dream home straight out with cash.

I'd sooner put a ban on foreign nationals buying residential property than I would propose higher taxes.

Higher taxes for wealthier properties, lower taxes for less wealthy ones.

Pretty much. I mean, the primary goal is to raise housing stock in areas with extremely high demand, helping services is a secondary benefit and perhaps not a guaranteed consequence. Still, underfunded schools and services are at least partially caused by a lack of wealth in the area. The hope is that this causes a wealthy flight to less affluent areas in order to reverse that. I don't envision people moving from gated mansions to slums, but I would still hope this would even out disparities to the point where maybe we're not talking about slums and mansions anymore.

I mean, the article was pretty much saying what you're saying about the Bay Area. It wasn't trashing the area itself, just a lot of the problems like a lack of affordable housing.

I would think, based on what I know about you from things you've said in the forums, that your parents would be alright, maybe even pay lower taxes. The idea is that wealthier properties are taxed more than less wealthy ones, hopefully breaking up a concentration of wealth in certain areas. The ideal makeup of any area, from my point of view, is a mix between wealthy and less wealthy, and I think this could possibly achieve that mix. One problem I do see is that, say your parents' taxes are unchanged, this idea would drive their property values down eventually. That's kind of the general idea, as property value has been one of the primary drivers of American wealth or lack thereof. It's just that I wouldn't want it to be overly punitive, especially not to people who are financially vulnerable. The idea is to target wealthy individuals, not middle or lower class ones.

I would hope that one of the effects of driving "rich pricks" out of certain areas is that they aren't able to organize against efforts like affordable housing projects as effectively. This would diversify those areas, or at least drive some of the people opposing those proposals out, making it easier to build affordable housing. This is what I meant by positive feedback loop. I would also hope it would address predatory foreign investment. That's essentially what I had in mind when I was talking about companies buying property in bulk and letting it sit unused and predatory speculating. The idea is that the taxes drive up the cost of buying those homes for those companies to the point where it is no longer financially viable. The problem is that it also drives up the cost for you. I see two possible replies to this problem. One is that eventually, after residents start moving from the area, housing prices will drop making it affordable for you once more. Two is that, ideally, this could also make homes in other areas more desirable to you. Perhaps there's an area with low taxes but disheveled housing, the hope is that the low taxes encourage investment so that maybe a house you most definitely would not have considered a dream house before gets renovated or built in an area that is now more desirable to you. I could also get behind tweaking the tax code to favor actual homebuyers as opposed to corporations.

I've been chewing on this all day, and I'm not convinced this is the best policy forward or that it will have the desired effects. Isn't this attacking the symptom of a larger problem that results in a misallocation of resources?

Depending on how nice the area is, people will be willing to pay a little extra if they can afford to like you mentioned in your cons. Especially for parents that want to keep their kids in the best schools. You will just screw over the people that aren't rich, with no guarantee that housing prices will even out so that people with lower incomes are able to eventually come in to replace them. For all we know, more wealthy people will just replace them.

You have to consider the possibility of some of those people who aren't rich already being underwater on their house, and with the added taxes, they end up falling behind and end up getting their house foreclosed because what the house is worth won't pay off their mortgage. Then you met your goal of getting them out of there, but by possibly making them homeless and ruining their credit. If they keep their job and get a place to live further away, you may have just increased their daily work commute from a few minutes to well over an hour.

I live 15 miles south of Baltimore and commute 29 miles each way to Bethesda because the alternative is paying almost a thousand dollars extra a month for a home of the same quality. As much as staring at a windshield for 45-60 minutes each way (up to two hours or more if there is an accident) sucks, that is nothing compared to what the people that work in Silicon Valley and commute in deal with. Some of them (especially teachers, firefighters, etc.) commute over a hundred miles each way, and leave two to four hours before they actually have to be at work. There are people that just say screw it and sleep in their car during the work week and only drive home on weekends.

Or, it could cause many of those people to leave the state altogether (not just their immediate area) if they can find employment elsewhere that meets their quality of life, and California loses the money they were getting from them in taxes in the end. They don't like seeing their more wealthy citizens packing up and moving to places like Texas, they want to keep those people sending their tax dollars to Sacramento. That is why they offer tax breaks to keep people there, especially with the breaks they give Hollywood so they don't find another place to make the film industry capital.

While you may not personally care about the elderly that are driven out of their homes because their pensions and Social Security may not have been sufficient to pay their increased taxes, there is no guarantee they will get financial help relocating, assuming they are even healthy enough to move. That would not be very popular, especially among younger people watching their grandparents being kicked out of a home they may have had for the past 30-50 years. They'll remember the names of the politicians that voted for higher taxes when they are in the voting booths.

Who would replace these vacant properties? Wealthy people. It wouldn't solve anything. The reason why a wealthy area has wealth its because of the wealthy people that are there paying said taxes that you want to raise on them. In addition, do you think these people are going to move to a less wealthy and affluent area? No they will just move to an area that is similar to the one they were just in that didn't raise its taxes for a silly idea.

I agree that it's attacking a symptom, but attacking the larger problem has been a stubbornly unfruitful endeavor. New construction has, at best, been slow and reactive and, at worst, hasn't had any effect at all on rent prices. While I'm not writing off public housing entirely, it's been a spectacular failure as executed in the U.S. Rent control is an extremely contested measure that's hard to garner political support for. And even assuming that currently accepted policies can have some measure of success in driving down rent prices in a small area, the issue of communities suffering from either a lack of investment or the effects of gentrification remains. There's a significant population that never seems to benefit from advances but is instead just shuffled from one neglected area to the next as they can't afford rents when the property value where they live rises. I don't know that this would work exactly as planned, but it's a novel approach to a persistent problem that can probably gain a decent amount of support if sold correctly. After all, it would reduce most people's tax burden. I'm open to other solutions, though.

Ideally the taxes would be geared towards putting a greater burden on wealthy properties. So if your house is worth, say, $400,000 dollars your taxes might increase by (just spitballing) 3%, but if your house is worth a million they might increase by 10%. I agree that this might not motivate many people to leave in Beverly Hills, but it might have a greater effect somewhere like Silicon Valley where people on the higher end have less wiggle room. Immediately this might have a small effect, but if you use the tax code to encourage construction of affordable housing then I think it would have a positive effect on diversity over time.

Screwing people over who want to keep their kids in the same school is actually kind of the point, though my concern is that I wouldn't want to hit just the low end of the spectrum. There would definitely be some people at the top who could stay where they are no matter what and some people at the bottom who could stay because their taxes are lower. The question is how big is the middle, what are its dimensions, and is it possible to tweak policy to ensure that most displaced individuals can easily afford it? I don't know, but disparities between schools are a huge problem that I would like to address. Personally, I'd rather just fund our education system federally, but since that won't happen I see some sort of forced integration as the next best thing.

The second paragraph is a pretty big fly in the ointment. One thing I will say is that I don't think that it should be overlooked that things like this go on every day as a result of market activity and most people's reaction is to say T.S., but if it happens because of government decisions it's a travesty? No, they're both the results of allocations of resources, the only difference is who benefits from said allocation. If people are legitimately underwater then it could be that moving is actually the best option for them and their community. We already have a bit of an underwater mortgage crisis in this country, again as a result of market dynamics. The only thing I could offer right now is government-sponsored refinancing and forgiveness programs, but it would be a hugely complicated issue to address.

The hope is that eventually this would make it easier for people to live closer to where they work. It's already hugely onerous to commute in places like Silicon Valley, and part of the reason home and rent prices are so high is because everyone is looking for housing in the same area in order to have the best commute. It's true that it would only do that by making it more difficult for some people to commute initially before hopefully stabilizing it eventually, but what's the alternative? To just say to people currently that they have to live with the long commutes, travel costs, and higher home prices because we don't want to actually do anything about it? I just don't see the status quo as a tenable option.

As for driving people out of the state, I would actually hope that would be the case. It could make it more attractive for people to move to areas that are looking for more development, workers, and citizens. Part of the problem with Silicon Valley is that they built up a ton of business infrastructure that monopolized land space, leaving little for their workers' housing. I know it would hurt California financially, but it would be better overall if Silicon Valley were more spread out. Hell, California could try to incentivize businesses to relocate to areas with plentiful housing and lack of businesses so that they could repurpose business acreage into housing. The state doesn't lose any business, workers in the area the business moved from get more housing close to work, and residents in the area the business moved to get local investment. I know I'm delving into the realm of fantasy here, but I'm imaging this as a country-wide initiative, meaning Texas wouldn't be any better to move to as far as buying a similarly-priced property. And also, I'm completely alright with a game of chicken between California and Hollywood. It's actually looking like the film industry might move to Montana within our lifetimes anyway, which kinda sucks for Montana.

Again, it's not elderly in general, it's wealthy elderly. For every elderly person living in a nice home they don't want to move out of, there's at least one poor elderly person who's constantly moving from home to home because of insecurity. If I have to inconvenience the former in order to stabilize the latter I'm completely fine with that. What I'm not fine with is ignoring the poor elderly because we can push them into distressed neighborhoods and forget they exist. I'm open to suggestions that benefit both groups, but I'm not fine with the status quo. As for guaranteeing financial help for moving, that's part and parcel of this proposal. If I'm creating a hypothetical where it can get passed in the first place, then I'm also creating a hypothetical where the measures necessary to ensure it goes smoothly for the greatest amount of people are passed as well. And I'm open to creating exemptions for certain elderly individuals. As to voting, how many votes would this garner from people who couldn't afford homes before and now can, or who had their rent lowered? Less than 60 percent of the population votes, and the poor segments of our society vote at a much lower rate than the richer ones, between 65 and 75 percent don't vote in the lower income brackets. If an elderly person went from constantly being evicted from their disheveled apartments to being able to afford a decent apartment without fearing eviction, how do you think they'd vote?

Move to michigan. WE have plenty of land, crime, and lots of bullets, too. No shortage!

Just some food for thought. Our first starter house was within a middle size Midwestern city limits and was built post WWI, we bought it in the early 2000's. We lived next to an elderly couple that built their house after the gentleman came home after WWII and they owned it outright by the time we moved in. They were on a limited income getting up in age. Every year, our property taxes kept going up and up. The elderly couple had more and more problems trying to hang onto a house that had owned outright for decades. The school district kept raises taxes and they had just enough votes to keep raises taxes. It finally got to the point that for us finally having kids about to enter school, we could move it to a suburban district and pay less taxes for better schools. The city schools had one of the highest tax rates in the area and the lowest scores and were in the lowest possible category for school ratings. The ironic thing was, people thought the answer was to keep throwing more money at the problem. It wasn't. The problem wasn't the money, it was a large number of crappy parents raising kids that had zero interest in their education.

I just tell that to say, maybe money isn't always the problem and taking money from people always the "solution".

1) Revoke prop 13, it basically murdered the entire california housing market.

2) Stop letting NIMBYs prevent new housing from being built.

That's maybe half the story. Studies find that putting more money into schools doesn't have a significant effect on performance, but AFTER a certain threshold has been reached. Schools that fall below that threshold have problems in achievement that correlate pretty significantly with funding. I know in my area there are a lot of poor-performing schools that could really benefit from increased funding.

I'll also say about the elderly couple being forced out, that's not a bug it's a feature. And I'm not saying that from the perspective of my solution, I'm saying it from the perspective of the way the system functions currently. If we fund schools with property taxes then obviously every homeowner is contributing to education, regardless of whether or not they have children. Living in an area with high taxes due to schools, then, signals a desire or at least a willingness to shoulder the cost of education for children in your district. If you don't want to shoulder that cost, then move. That's market logic at work. Personally, I'm all for doing away with local funding for schools and just finding a way to work it into the federal tax system. One of the benefits of doing so is that it wouldn't put a burden on people who can't afford to fund education but don't want to move. I really don't see a lot of political will for that, though.

Well that would make sense, so obviously it won't happen. I will also say that although this can have some effect on home prices, it doesn't help with gentrification. In my area especially all of the new development is high-end, which ends up forcing current residents out and keeping the area too expensive for lower-income residents to move in. Part of what I like about my proposal is that tax breaks can be targeted towards the development of low-cost housing in order to ensure a healthy mix of income levels. Of course, this can already be done to some extent, but again, that would make sense.

@theone86: "Personally, I'm all for doing away with local funding for schools and just finding a way to work it into the federal tax system."

Yup.

I side with whatever you say on this honestly.

@n64dd: Thanks for the vote of confidence. I don't have an awful lot to add to this thread yet, unfortunately - as TheOne mentioned this is a pretty novel idea in a complex area, so there aren't a lot of results we can be reasonably confident in without further research.

I'm mostly lurking in this thread to learn what I can on the subject from the contributions of others, and chiming in on tangential topics like the school funding comment above which I'm more well versed in.

@tjandmia: of course property tax should be based on supply and demand. That is free market principles in action. The government artificially caps property taxes, which disproportionately helps out the rich

Gentrification wouldn't even be a thing if places like the bay area built housing at the rate that people move to the area. If you look at San Francisco and Oakland it's nearly impossible to build new buildings, I just watched a board of supervisors meeting in SF that had them postpone development of a 70+ unit apartment building because they wanted to do a study as to whether the decrepit laundromat was a historic building.

Most of San Francisco is height restricted to 65 feet despite the fact that the market would demand taller buildings. Since it is so hard to build in SF, people are now renting out front rooms, splitting bedrooms, and other crazy adaptations, also spilling over into the east bay. Clearly there is demand for small affordable housing units but the zoning laws essentially prevent matchbook apartments from being built.

Now there is also a CA bill that is getting a lot of push back from local politicians that would override local zoning laws within a certain distance from major transit hubs, this should really alleviate the housing squeeze as well as encourage people to live closer to public transit and get a lot of the cars off the road, which is another huge problem in California.

https://www.vox.com/cities-and-urbanism/2018/2/23/17011154/sb827-california-housing-crisis

Gentrification is a problem in areas without strong zoning laws. I live in a town that is dedicated to fighting zoning laws, and all they seem to want to do is build luxury apartments despite there being a very strong demand for affordable housing. It's the same in Chicago proper, there are always TONS of new developments, but they're almost always luxury units. The area around the Bulls' stadium used to be considered almost a slum and now it's pretty ritzy, but none of the old residents can afford to live there anymore because all the development was aimed at higher-end housing. Modern businesspeople just do not think "oh, I'll spend a bunch of money building affordable units. I'll only turn a modest profit, but it will be a consistent investment over a long period of time." They want to make big profits as fast as possible, which is why some government intervention is needed to fight gentrification.

Not that zoning laws aren't a problem. Ending zoning laws+using tax breaks to support affordable housing construction is a sensible plan I can get behind. So, like I said before, obviously it will never happen.